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Economics Macro > Yr1 How the Macroeconomy Works: The Circular Flow of Income, Aggregate Demand/Aggregate Supply Analysis, and Related Concepts > Flashcards

Yr1 How the Macroeconomy Works: The Circular Flow of Income, Aggregate Demand/Aggregate Supply Analysis, and Related Concepts Flashcards

1
Q

PART 1

A

THE CIRCULAR FLOW OF INCOME

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2
Q

What are the 4 parts of the economy?

A
  1. Households
  2. Government
  3. Firms
  4. International sector
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3
Q

What are the 4 factors of production and their rewards?

A
  1. Capital > interest
  2. Enterprise > profit
  3. Labour > wages
  4. Land > rent
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4
Q

What parts of an economy are involved in a closed economy? (3 ish)

A
  1. Households
  2. Firms
  3. Minimal / some government
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5
Q

What parts of an economy are involved in an open economy? (4)

A
  1. Households
  2. Firms
  3. Government
  4. International countries
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6
Q

What are the 3 measurement methods when measuring the quality of an economy? + what letters represent them

A
  1. Income approach (Y)
  2. Output approach (O)
  3. Expenditure approach (E)
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7
Q

What is the equation for the 3 measurement methods when measuring the quality of an economy?

A

Income approach A = expenditure A = output A

Y=E=O

> would represent a well functioning economy but not actually possible

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8
Q

In circular flow diagram

  1. What flows generally between firms and households? (2)
  2. What flows from firms to households? (1)
  3. What flows from households to firms? (1)
  4. What are the injections into an economy? (3)
  5. What are the withdrawals from an economy? (3)
A
  1. Factors of production and goods + services
  2. Wages
  3. Consumer spending
  4. Government spending, investment, exports
  5. Taxation, savings, imports
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9
Q

PART 2

A

AGGREGATE DEMAND AND AGGREGATE SUPPLY ANALYSIS

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10
Q

What is the definition of aggregate demand?

A

The total spending on goods and services produced in the whole economy

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11
Q

What are the 3 reasons for why the aggregate demand curve is downwards sloping?

A
  1. Exports
  2. Consumer stock of wealth
  3. Consumer expectations of price
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12
Q

What are the key determinants of consumer spending linked to the aggregate demand curve? (4)

A
  1. Level of disposable income
  2. The marginal propensity to consume
  3. Government policies
  4. Interest rate changes
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13
Q

What goes on the x and y axis of an AD curve?

A

X > real output
Y > price level

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14
Q

Label of aggregate demand

A

AD

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15
Q

Relationship between price level and real output on the AD curve? + why

A

Inverse

Because when prices are high, consumers buy less so less goods and services are produced

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16
Q

Definition of aggregate supply + overall what are the shifts due to

A

The total output of an economy (at a given price level and at a given time)

  • shifts due to changes in economies productive capacities (quantity or quality of FofP)
17
Q

PART 3

A

THE DETERMINANTS OF AGGREGATE DEMAND

18
Q

What is the formula of aggregate demand? + what do each of the letters of components mean

A

AD = C + I + G + (X - M)

C = consumer spending
I = investment
G = gov spending
X-M = difference between spending on imports + receipts from exports (Balance of Payments)

19
Q

For a well performing economy, what equation should be balanced which links to aggregate demand and the circular flow of income?

A

I + G + X = S + T + M

20
Q

What causes a shift in the AD curve? (4)

A
  1. Consumer spending
  2. Investment
  3. Government spending
  4. Exports + imports
21
Q

PART 4

A

AGGREGATE DEMAND AND THE LEVEL OF ECONOMIC ACTIVITY

22
Q

What is the definition of the multiplier effect?

A

The relationship between change in aggregate demand and the resulting usually larger change in national income

23
Q

What is the key thing about a diagram showing the multiplier effect?

A

2 changes in AD so there should be 3 AD lines, each gaining a higher equilibrium point which is shifting to the right

24
Q

What is the definition of the accelerator effect?

DOUBLE CHECK DEFINITION

A

A change in the level of investment in new capital goods is induced by a change in the rate of forth of national income or AD

25
Q

Economic activity and the multiplier process (meaning and calculation)

A

NEED TO RESEARCH

26
Q

PART 5

A

DETERMINANTS OF SHORT-RUN AGGREGATE SUPPLY

27
Q

On the SRAS graph..

  1. X and y axis labels
  2. How to label price level
  3. How to label real output
  4. Downwards or upwards sloping
  5. What shift if there is an increase in SRAS
  6. What shift if there is a decr in SRAS
A
  1. X > real GDP (output)
    Y > price level
  2. P1, p2, p3
  3. Y1, y2, y3
  4. Upwards
  5. Moves rightways and downwards
  6. Moves leftwards and upwards
28
Q

What causes shifts in the SRAS curve? (3)

A
  1. Employment costs
  2. Costs of other inputs
  3. Impact of gov
29
Q

Why is the SRAS curve the shape it is?

A

Assumes one factor of production remains fixed in the short term

30
Q

PART 6

A

DETERMINANTS OF LONG-RUN AGGREGATE SUPPLY

31
Q

On the LRAS graph

  1. X and y axis
  2. Downwards or upwards sloping
  3. Increase in LRAS
  4. Decrease in LRAS
A
  1. X > real output (GDP)
    Y > price level
  2. Straight line vertical
  3. Line right wards shift
  4. Line shifts leftwards
32
Q

What causes shifts in the LRAS curve? (4) + one extra for a decrease in LRAS

A
  1. Productivity of labour and capital
  2. Labour market participation
  3. Innovation and enterprise
  4. Capital investment (technology)

Extra - natural disasters

33
Q

Why is the SRAS curve the shape it is?

A

As it takes into account that no unemployment of resources and all resources are maximised and utilised

The economy will correct itself

34
Q

Describe what the KEYNESIAN MODEL of aggregate supply and looks like and reasons for changes? (3 key parts and stages)

A
  1. Begins flat short term (horizontal)
  2. Economy begins to heat > steeper gradient
  3. Long term vertical due to FULL EMPLOYMENT LEVEL
35
Q

What is meant by the full employment level in economics?

A

The maximum available resources are being utilised

Economics Macro (6 decks)

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