4.2.2 Flashcards
(30 cards)
What does national income measure?
The total value of income, output, or expenditure in an economy.
What is the difference between nominal and real income?
Nominal income is current income; real income is income adjusted for inflation.
Why is real national income used as an indicator?
It indicates economic performance by showing changes in purchasing power/output over time.
What is the concept of the circular flow of income?
A model showing how money flows between households and firms in an economy.
What is the fundamental equation in the circular flow model?
Income = Output = Expenditure.
What is meant by equilibrium in the circular flow model?
A state where injections equal withdrawals.
What is full employment income?
The level of national income achieved when all available resources, particularly labour, are fully employed.
What is the difference between injections and withdrawals in the circular flow?
Injections (Investment, Government Spending, Exports) add to the flow; withdrawals (Savings, Taxation, Imports) remove from the flow.
How do changes in injections affect national income?
An increase in injections leads to an increase in national income.
How do changes in withdrawals affect national income?
An increase in withdrawals leads to a decrease in national income.
How are changes in the price level represented on AD/AS diagrams?
By movements along the aggregate demand (AD) and aggregate supply (AS) curves.
What causes a shift in the aggregate demand (AD) curve?
Various factors other than the price level (e.g., changes in consumption, investment, government spending, net exports).
What causes a shift in the short-run aggregate supply (AS) curve?
Various factors other than the price level, mainly changes in production costs.
What affects long-run aggregate supply (LRAS)?
Factors like technology, productivity, and resource availability.
How is underlying economic growth represented in an AD/AS diagram?
By a rightward shift in the long-run AS curve.
How are macroeconomic equilibrium levels illustrated?
By using AD/AS diagrams.
How do demand-side shocks affect the macroeconomy?
They shift the AD curve, impacting output, prices, and employment.
How do supply-side shocks affect the macroeconomy?
They shift the AS curves, impacting output, prices, and employment.
What is meant by Aggregate Demand (AD)?
The total planned spending on goods and services in an economy at a given price level.
What are the main determinants of AD?
Consumption, Investment, Government Spending, Exports, and Imports (C+I+G+(X-M)).
What determines household saving?
Various factors, such as income levels, interest rates, and confidence.
What is the difference between saving and investment?
Saving is deferred consumption; investment is spending on capital goods.
What is the basic accelerator process?
Changes in output lead to proportionally larger changes in investment.
What is the role of AD in influencing the level of economic activity?
Changes in AD lead to changes in national income, output, and employment.
