Macro yr 1- macroeconomic models

Question 1

Multiplier ratio?

Answer 1

Change In real gdp divided by initial injection

OR

1 divided by (1- MPC)

Question 2

MPC?

Answer 2

How likely a consumer is to spend additional income

Formula= change in consumption over change in income

Question 3

Multiplier effect?

Answer 3

Caused by injections

Effect of initial injection into circular flow, causes a bigger final increase in real national income

Question 4

Downward multiplier effect?

Answer 4

Caused by withdrawals

Effect of initial withdrawal into circular flow, causes a bigger final decrease in real national income

Question 5

Accelerator effect?

Answer 5

An increase in Real GDP causes a bigger increase in capital good investment spending

Question 6

Accelerator effect equation?

Answer 6

Investment = constant X change in national income

Question 7

Interest?

Answer 7

Extra money

Question 8

Interest rates- savings?

Answer 8

Return on savings = interest received from bank after saving money

Longer savings = more interest collected

Return on savings = initial amount X (interest rate / 100)

Question 9

Interest rates- mortgages?

Answer 9

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

Question 10

Consumer confidence?

Answer 10

How secure a consumer feels about their job prospects for the foreseeable future.

Independent of a change in income

Question 11

Investor confidence?

Answer 11

An investors trust in the likelihood of their investment to generate a profit

Low/high animal spirits = low/high investor confidence

Question 12

Wealth effect?

Answer 12

When changes in asset prices and wealth
effect confidence and

Depending the number of home owners in the economy and the number of renters

Question 13

MPC?

Answer 13

The likelihood of a consumer to consume

MPC = Change in Consumption over change in income

Question 14

MPS?

Answer 14

Likelihood of a consumer to save

MPS = 1 - MPC

Question 15

Savings ratio?

Answer 15

Shows percentage of disposable income saved

High income = higher savings ratio

Question 16

Free market economy?

Answer 16

economic system based on supply and demand with little-to-no govt control

Question 17

circular flow injections?

Answer 17

Govt spending
Investment
Exports

Question 18

Circular flow withdrawals?

Answer 18

Savings
Imports
Tax

Question 19

Circular flow conclusion?

Answer 19

National income = national output = national expenditure

(Real GDP)

Question 20

Profit formula?

Answer 20

Total revenue - total cost

Question 21

Why does SRAS slope upward?

Answer 21

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

Question 22

Neoclassical LRAS features?

Answer 22

Vertical line

Economists assume that the economy is always at full employment in the long run, because it can maximize use of all resources.

Question 23

Keynesian LRAS features?

Answer 23

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

Question 24

Exchange rate diagram?

Answer 24

Y-axis = Price of pound in another currency (Exchange rate)

X-axis = Quantity of pounds (supplied or demanded)

Question 25

Appreciation?

Answer 25

When the exchange rate of a currency increases; raising its value

Question 26

Currency supply?

Answer 26

When consumers supply a currency to exchange it for another

Shifts Caused By:
Tourism ABROAD
Imports

Question 27

Currency demand?

Answer 27

When a foreign currency is exchanged for the domestic currency

Shifts Caused By:
DOMESTIC Tourism
Exports