Macroeconomics 05

Question 1

standard of living defn

Answer 1

measure of the M and NM well-being of the average person in the country.

Question 2

factors affecting AD

Answer 2

C G I X-M

Question 3

national income is in equilibrium when:

Answer 3

injections=withdrawals

income=expenditure

Question 4

GDP defn

Answer 4

market value of all final goods and services newly produced within the geographical boundary of an economy in a given period of time.

Question 5

limitations of using NI to measure SOL over time:

Answer 5

MSOL:
changes in GPL
*population
*composition of NI (capital or consumption)
*distribution of NI (income inequality)

NMSOL:
changes in NEs
disamenities

Question 6

limitations of using NI to measure SOL over space:

Answer 6

MSOL: 
difference currencies, which affects PP of each currency
*population
*composition of NI
*distribution of NI
reliability of data

NMSOL:
differences in NEs
disamenities

Question 7

changes in population in SOL

Answer 7

when the pollution grows faster than NI growth rate, the average individual share of NI is decreased. therefore there is a lower real GDP per capita.

Question 8

changes in composition of NI on SOL

Answer 8

capital and consumption goods

capital goods:
does not contribute directly to the consumption or material well-being of the people, to improve the capacity of the economy.

consumption goods:
contributes directly to the material well being of the people

Question 9

changes in distribution of NI

Answer 9

real GDP capita

Question 10

what affects AD and AS curves?

Answer 10

AD: C G I X-M

AS: SSP or infrastructure/technological updates

Question 11

multiplier process

Answer 11

An injection of G generates income for individuals employed by firms in the capital goods industry. 1 hence they have an increased disposable income, and will spend their additional income on consumer goods, 2 depending on their MPC. This spending further creates income for employees in the consumer industry 3 who will further increase consumption with their additional income. 4 Hence the cycle of spending and responding will continue until the increase in income becomes negligible 5 and the change in W is equal to the change in I. Therefore, the change in NI will be k times the initial increase in expenditure.