Macro yr 1- macroeconomic models Flashcards
Multiplier ratio?
Change In real gdp divided by initial injection
OR
1 divided by (1- MPC)
MPC?
How likely a consumer is to spend additional income
Formula= change in consumption over change in income
Multiplier effect?
Caused by injections
Effect of initial injection into circular flow, causes a bigger final increase in real national income
Downward multiplier effect?
Caused by withdrawals
Effect of initial withdrawal into circular flow, causes a bigger final decrease in real national income
Accelerator effect?
An increase in Real GDP causes a bigger increase in capital good investment spending
Accelerator effect equation?
Investment = constant X change in national income
Interest?
Extra money
Interest rates- savings?
Return on savings = interest received from bank after saving money
Longer savings = more interest collected
Return on savings = initial amount X (interest rate / 100)
Interest rates- mortgages?
Mortgages = when money is borrowed to purchase an asset
Money to pay back = 1 + (interest rate / 100)
Interest rate = extra percentage of borrowing payed to the bank
Consumer confidence?
How secure a consumer feels about their job prospects for the foreseeable future.
Independent of a change in income
Investor confidence?
An investors trust in the likelihood of their investment to generate a profit
Low/high animal spirits = low/high investor confidence
Wealth effect?
When changes in asset prices and wealth
effect confidence and
Depending the number of home owners in the economy and the number of renters
MPC?
The likelihood of a consumer to consume
MPC = Change in Consumption over change in income
MPS?
Likelihood of a consumer to save
MPS = 1 - MPC
Savings ratio?
Shows percentage of disposable income saved
High income = higher savings ratio
Free market economy?
economic system based on supply and demand with little-to-no govt control
circular flow injections?
Govt spending
Investment
Exports
Circular flow withdrawals?
Savings
Imports
Tax
Circular flow conclusion?
National income = national output = national expenditure
(Real GDP)
Profit formula?
Total revenue - total cost
Why does SRAS slope upward?
To increase output with fixed FOPs
Must increase costs, to increase output and revenue
Because there is no time to improve factors of production
Meaning profit stays the same
Neoclassical LRAS features?
Vertical line
Economists assume that the economy is always at full employment in the long run, because it can maximize use of all resources.
Keynesian LRAS features?
Transition from horizontal line -> bottle neck -> vertical line
Horizontal:
Spare capacity- producing below max potential output
Easy to increase output
Bottleneck:
Resources running low- moving towards full capacity
Harder to increase output
Vertical:
No spare capacity- full employment of resources
Can’t increase output
Exchange rate diagram?
Y-axis = Price of pound in another currency (Exchange rate)
X-axis = Quantity of pounds (supplied or demanded)
Appreciation?
When the exchange rate of a currency increases; raising its value
Currency supply?
When consumers supply a currency to exchange it for another
Shifts Caused By:
Tourism ABROAD
Imports
Currency demand?
When a foreign currency is exchanged for the domestic currency
Shifts Caused By:
DOMESTIC Tourism
Exports
