Macroeconomics Booklet Two Flashcards
Accelerator Effect
When an increase in a component of aggregate demand leads to an increase in investment, triggering a further increase in AD
Aggregate Demand
The sum of all planned expenditure in an economy (consumption, investment, government spending and net exports)
Classical Economics
The dominant school of thought in economics from the 18th to late 19th centuries, underpinned by a belief in a working of markets and adjustments in price to allocate resources
Consumer confidence
Households’ willingness to spend, reflecting their overall optimism about the state of the economy
Consumption
Spending by households, also called consumer spending
Disposable income
Income after taxes and transfer payments
Interest rate
The percentage returned added as a reward on savings and charged on borrowing
Investment
Spending by firms on capital
Long run
The time period in which all factors of production are variable in quantity
Macroeconomics equilibrium
The point at which aggregate demand equals aggregate supply with no tendency for the economy to change
Marginal propensity to consume
The proportion of an increase in income that is spent
Marginal propensity to save
The proportion of an increase in income that is saved
Multiplier effect
When an increase in a component of aggregate demand leads to a more than proportionate increase in real national output
Net exports
The value of a country’s exports minus the value of its imports
Public sector
The part of the economy that is directly controlled by the government