Theme 2 Flashcards
What are the 7 macroeconomic objectives
Employment Growth Sustainability Debt Balance of payments Inflation Inequality
How to calculate AD
C + I + G + (x-m)
What is consumption
Total spending by households
What are durable goods
Goods that are consumed over a long period of time
Eg car
What are non-durable goods
Goods that are consumed instantly
Eg ice cream
What is meant by the average propensity to consume
Proportion of total income spent by households
How to work out average propensity to consume
C / Y
What is meant by the marginal propensity to consume
The proportion of a change in income which is spent
How to calculate marginal propensity to consume
Change in C / Change in Y
What is meant by the consumption function
Refers to the relationship between consumption and the factors that determine it
Eg increase in Y, increase in C
What is saving
The part of income that is not spent
What is meant by the average propensity to save
The proportion of total income saved
How to work out the average propensity to save
S / Y
What is meant by the marginal propensity to save
The proportion of a change in income that is saved
How to work out marginal propensity to save
Change in S / change in Y
What is meant by the saving function
The relationship between saving and the factors that effect it eg interest rates
What is meant by the wealth effect
When there is a change in consumption following a change in wealth
What is meant by investment
Firms spending on capital stock eg factories
What is gross investment
Total value of investment
What is net investment
Investment - depreciation of capital stock
What is meant by the accelerator theory
That investment is linked to change in output/income
Eg if economic growth is rapid, firms have to invest, causing further growth
What is meant by the capital output ratio?
H
What is the accelerator coefficient?
H
What is government spending
Spending on an economy eg infrastructure
What is the net trade balance
The difference between exports and imports
Exports - imports
What does aggregate supply show
The productive capacity of the economy
What is the short run aggregate supply curve
The aggregate supply curve that assumes wages are fixed
What can cause shifts in the short run aggregate supply curve
Wage rates Raw material prices Taxation Exchange rates Productivity
What is a supply-side shock
A large change in one of the factors causing a shift in aggregate supply curve
What is a long run aggregate supply curve
The aggregate supply curve assuming wage rates are variable
examples of factors that could cause a shift in the long run aggregate supply
Technological advances
Improvements in education and skills
Migration
Etc.
What is meant by national income
Value of output/expenditure/income of an economy, over a period of time
What is meant by the value of national income
The monetary value
What is meant by volume of national income
National income is adjusted for inflation and expressed as an index number
What is the circular flow of income
Model of economy showing flow/movement of money
Draw the circular flow of income model
Withdrawals on left Income left of circle Firms at bottom, households at top Spending right of circle Injections on right
What does income include (in the circular flow of income model)
Rent, interest, wages, profit
What does spending include in the circular flow of income
Goods and services
What are injections
Spending not generated by households
Eg investment, gov spending, exports
What are withdrawals
Money leaving the circular flow of income
Eg saving, tax and imports
What is a closed economy
Has no foreign trade
What is an open economy
Includes trade with other countries
What is meant by the multiplier effect
Where an increase in investment or other injection leads to an even greater increase in income
What is meant by the multiplier
The figure used to multiply a change in an injection into the circular flow of income, to find the final change in output
How to calculate the multiplier
1 / 1-MPC
1 / (MPS + MPT + MPM)
1 / MPW
How to calculate MPC
Change in C/Change in Y
How to calculate MPS
Change in S/Change in Y
How to calculate MPT
Change in tax / change in Y
How to calculate MPM
Change in imports /change in Y
How to calculate MPW
Change in W/Change in Y
What is meant by GDP
Gross domestic product
Which is a measure of national income (output)
What is meant by GNI
Gross national income
Which is a measure of national income as well as overseas interest and dividend payments
What is meant by GNP
Gross national product
Measure of the value of goods and services
What is meant by standard of living
How well off an individual, household or economy is