Unit 2 - How The Macroeconomy Works

Question 1

What do households give to firms in exchange for output?

Answer 1

Consumption

Question 2

What happens to savings on the circular flow model?

Answer 2

Savings —> banks —> investment

Question 3

What happens to tax on the CFOI?

Answer 3

Tax —> Government—-> Government spending

Question 4

What happens to imports on the CFOI?

Answer 4

Imports —-> overseas —-> exports

Question 5

3 examples of injections CFOI

Answer 5

Exports
Government spending
Investment

Question 6

3 examples of leakages CFOI

Answer 6

Imports
Savings
Tax

Question 7

AD Equation

Answer 7

AD = C + I + G + X — M

Question 8

Symbol for imports

Answer 8

M

Question 9

How much of AD is consumption?

Answer 9

60%

Question 10

Why does the government prefer investment to consumption?

Answer 10

Investment increases output = long run growth

Question 11

Equation for income of households

Answer 11

Consumption + savings = income

Question 12

What is government spending funded by?

Answer 12

Tax

Question 13

Where does money go with exports?

Answer 13

Into the economy

Question 14

Where does money go with imports

Answer 14

Out of the economy

Question 15

Describe the relationship of the AD curve

Answer 15

As prices increase, AD decreases.

CIGX are inversely proportional to price.

Question 16

How does the AD curve alter when there’s a price change?

Answer 16

Move along the curve. The curve does not shift.

Question 17

Movement of curve when CIGX increase

Answer 17

Curve shifts to the rights

Question 18

Movement of curve when CIGX decrease

Answer 18

Shifts to left

Question 19

What do households give to firms in exchange for wages?

Answer 19

Labour