Chapter 7 - How the macroeconomy works

Question 1

NATIONAL CAPITAL STOCK

Answer 1

the stock of capital goods at a point in time

Question 2

WEALTH

Answer 2

the STOCK of assets which have value at a point in time

Question 3

NATIONAL WEALTH

Answer 3

the stock of all goods that exist at a point in time in an economy

Question 4

NATIONAL INCOME/OUTPUT/PRODUCT

Answer 4

the FLOW of new output produced by an economy in a particular period

Question 5

CONSUMPTION

Answer 5

total planned spending by households on consumer goods and services produced within an economy

Question 6

CLOSED ECONOMY

Answer 6

an economy with no international trade

Question 7

SAVING

Answer 7

income which is not spent

Question 8

WITHDRAWAL

Answer 8

spending leaving the circular flow of income due to savings, taxes or imports

Question 9

INVESTMENT

Answer 9

total planned spending by firms on capital goods within the economy

Question 10

INJECTION

Answer 10

spending entering the circular flow of income as a result of investment, government spending and exports

Question 11

OPEN ECONOMY

Answer 11

an economy open to international trade

Question 12

REFLATIONARY POLICIES

Answer 12

policies that increase aggregate demand with the intention of increasing real output and employment

Question 13

INFLATION

Answer 13

a continuing rise in the price level

Question 14

EQUILIBRIUM NATIONAL INCOME/ MACROECONOMIC EQUILIBRIUM

Answer 14

the level of real output at which AD=AS or when leakages equal withdrawals

Question 15

AGGREGATE DEMAND

Answer 15

total planned spending on real output produced within the economy

Question 16

AGGREGATE SUPPLY

Answer 16

the level at national output that producers are willing and able to supply at different average price levels

Question 17

ECONOMIC SHOCK

Answer 17

an unexpected event hitting an economy. can be demand/supply side and favourable/unfavourable

Question 18

CONSUMPTION

Answer 18

total planned spending on goods and services by households within an economy

Question 19

RATE OF INTEREST

Answer 19

the reward for saving and the cost of borrowing

Question 20

LIFE-CYCLE THEORY OF CONSUMPTION

Answer 20

consumption and saving in terms of how people expect their incomes to change in their life cycles

Question 21

AVAILABILITY OF CREDIT

Answer 21

funds available for households and firms to borrow

Question 22

CREDIT CRUNCH

Answer 22

lack of funds available in the credit market, leading to a rise in the cost of borrowing

Question 23

DISTRIBUTION OF INCOME

Answer 23

the spread of different incomes among individuals and groups within an economy

Question 24

ACCELERATOR

Answer 24

a change in the level of investment due to a change in the rate of growth of national income or AD

Question 25

MUTLITPLIER

Answer 25

change in AD has a larger change in national income

Question 26

MARGINAL PROPENSITY TO CONSUME

Answer 26

a fraction of an increase in disposable income you spend on domestically produced goods

Question 27

SHORT-RUN AGGREGATE SUPPLY (SRAS)

Answer 27

AS when capital is fixed, can only change through the use of unemployed resources

Question 28

LONG-RUN AGGREGATE SUPPLY

Answer 28

AS curve when an economy is producing at its productive potential, an increase shifts the curve right

Question 29

DEFLATION

Answer 29

a continuing fall in the price level

Question 30

TECHNICAL PROGRESS

Answer 30

new and better way of doing things