Macroeconomics Flashcards

1
Q

Circular flow of income in a closed economy w/o government

A

Households offer factor inputs -> households earn income -> households save/spend income on goods & services from firms that hire labour, capital and benefit from investment
Injection of investment and leakage of savings

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2
Q

Circular flow of income in a closed economy w/ government

A

Households offer factor inputs ->
households earn income ->
household gets taxed ->
households spend income on goods & services from firms that hire labour, capital and benefit from investment + subsidies
Injection of investment (I) + subsidies (G) and leakage of savings (S) + tax (T)

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3
Q

Circular flow of income in open economy

A

Households offer factor inputs ->
households earn income ->
household gets taxed ->
households spend income on goods & services from imports + firms that hire labour, capital and benefit from investment + subsidies + exports
Injection of investment (I) + subsidies (G) + exports (X) and leakage of savings (S) + tax (T) + imports (M)

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4
Q

Value added by firms

A
  1. Payment of wages and rental cost of capital
  2. Interest paid to households for savings that were lended to the firms for investment
  3. Supernormal profits for households that own the firms (after selling final goods)
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5
Q

Equilibrium

A

Aggregate Income = Aggregate Expenditure

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6
Q

Value added formula

A

Sales - Purchase from Other Firms
GNP = sum of individuals value added

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7
Q

GDP

A

Y (aggregate output) = Aggregate Demand
C (consumption) + I (invesment) + G (gov spending) + (X - M) aka NX

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8
Q

National Income Identity

A

Y (aggregate income) = C (consumption) + S (savings) + T (tax)

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9
Q

Injection and Savings equilibrium in closed economy w/o government

A

Y (aggregate output) = Aggregate Demand
C + S = C + I
S (private savings) = I (investment)

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10
Q

Injection and Savings equilibrium in closed economy w/ government

A

Y (aggregate output) = Aggregate Demand
C + S + T = C + I + G
S + (T - G) = I
National Savings = Invesment

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11
Q

Injection and Savings equilibrium in open economy

A

Y (aggregate output) = Aggregate Demand
C + S + T = C + I + G + NX
(S - I) + (T - G) = NX
Private savings + Public Savings = Net Exports

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12
Q

Nominal GDP and Real GDP

A

Nominal: measured at current prices
Real: measure at constant prices
Real GDP = Nominal GDP / (Deflator/100)

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13
Q

Multiplier

A

Magnitude of equilibrium output change due to change in aggregate demand from consumer behaviour, taxation and imports

1/[1-c(1-t)+z]

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14
Q

Fiscal Policy (Government)

A
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14
Q

Monetary Policy (Central Bank)

A
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15
Q

Consumption function

A

Interecept: amount people will consume when current income: 0, consumption to meet survival needs and savings would be negative

Slope: marginal propensity to consume (for every $, how much is used to consume)

16
Q

Aggregate demand schedule

A
17
Q

Leakages against injections

A
18
Q

Meaning of 45-degree line

A

Values on the x-axis are equal to the values on the y-axis indicating equilibrium and inflationary/deflationary gaps

19
Q

Marginal propensity to consume (c)

A
20
Q

Marginal propensity to import (z)

A
21
Q

Paradox of thrift

A
22
Q

Structural budget and inflation-adjusted budget

A
23
Q

When to use IS-MP model?

A

In a closed economy

24
Q

When to use AD-AS model?

A

In an open economy