Chap 6 Flashcards
Objectives of government
Balance of payment
Employment
Inflation
Growth
Environment
redist wealth
Circular flow: What are injections and withdrawals
Withdrawals: STM , savings, taxes, imports
Injections : IGX , investment, gov spending, exports
Three was to measure national income
Output - amount of G+S produced in one year
Expentiture -total amount of domestic spending
Income -total income of factors of production
What is GDP
the value of output produced within the domestic boundaries of the UK
also called GVA
GNP = output from population
The multiplier principle: in a sentence
A small injection into the conomy will increase AD and trigger further rounds of spending
What is the consumption function
a + bY
a= autonomous consumption (necessities
b = MPC
Y = Income
What is MPC
Marginal propensity to consume
proportion of additional income spent on G+S
poorer = higher MPC
Final increase in national income
injection * multiplier
The accelarator principle: in a sentence
When consumer demand increases, businesses increase investment
What are the two types of capital investment
Replacement
Net - increases productive capacity
goal is to maintain a stable capital: output ratio
What does a MEC graph show?
margin efficiency of capital
INCREASE Intrest rates, DECREASE level of investment
can be shifted out by - new tech and cost of labour increase (substitution effect)
what are the 5 stages of a trade cycle?
recession, depression, slump, recovery boom
How to fight a recession
Decrease IntR
Increase gov spending
Decrease taxes
How to fight a boom
Increase IntR
decrease gov spending
increase taxes
What are automatic stabilisers
-help reduce extreme swings in trade cycle
-welfare benefits prevent bad bad recession
-progressive tax system prevent bad bad boom
