Chapter 1- AD and AS and Their Interactions

Question 1

Define

Aggregate Demand

Answer 1

The total demand for a country’s goods and services at a given price level and in a given period of time.

Question 2

Formula:

Aggregate demand

Answer 2

C + I + G + ( X - M )

Question 3

Define

Price level

Answer 3

The average of each of the prices of all the products produced in an economy.

Question 4

Define

Consumer expenditure

Answer 4

Spending by households on consumer products.

Question 5

Define

Investment

Answer 5

Spending on capital goods

Question 6

Define

Government spending

Answer 6

Spending by the central and local government of goods and services

Question 7

Define

Exports

Answer 7

Products sold abroad

Question 8

Define

Imports

Answer 8

Products bought abroad

Question 9

Define

Net exports

Answer 9

The value of exports minus the value of imports.

Question 10

Define

Trade surplus

Answer 10

The value of exports greater than the value of imports

Question 11

Define

Trade deficit

Answer 11

The value of imports greater than the value of exports

Question 12

Define

Consumer confidence

Answer 12

How optimistic consumers are about future economic prospects

Question 13

Define

Rate of interest

Answer 13

The charge for borrowing money and the amount paid back for lending money.

Question 14

Define

Average propensity to consume APC

Answer 14

The proportion of disposable income spent. It is consumer expenditure divided by disposable income.

Question 15

Define

Net savers

Answer 15

People who save more than they borrow

Question 16

Define

Wealth

Answer 16

A stock if assets, eg. Property, shares and money held in a savings account.

Question 17

Define

Distribution of income

Answer 17

How income is shared out between households in an economy

Question 18

Define

Inflation

Answer 18

A sustained rise in the price level

Question 19

Define

Savings

Answer 19

Real disposable income minus spending.

Question 20

Define

Target savers

Answer 20

People who save with a target figure in mind.

Question 21

Define

Dissave

Answer 21

Spending more than disposable income

Question 22

Define

Savings ratio

Answer 22

Savings as a proportion of disposable income.

Question 23

Define

Capacity utilisation

Answer 23

The extent to which firms are using their capital goods

Question 24

Define

Corporation tax

Answer 24

A tax on firms’ profits

Question 25

Define Retained profits

Answer 25

Profits by firms to finance investment.

Question 26

Define Unit cost

Answer 26

Average cost per unit of output.

Question 27

Define Real GDP

Answer 27

The country's output measured in constant prices and so adjusted for inflation.

Question 28

Define GDP

Answer 28

The total output of goods and services produced in a country.

Question 29

Define Exchange rate

Answer 29

The price of one currency in terms of another currency.

Question 30

# Define Tariff

Answer 30

A tax on imports

Question 31

Define Aggregate supply

Answer 31

The total amount that producers in an economy are willing and able it supply at a given price level in a given time period

Question 32

Define Productivity

Answer 32

Output, if production, if a food or service per worker per unit if a factor if production in a given time period

Question 33

Define Privatisation

Answer 33

Transfer if assets from the public to the private sector.

Question 34

Define Macro economic equilibrium

Answer 34

A situation where AD equals AS and real GDP is not changing.

Question 35

Define Circular flow of income

Answer 35

The movement of spending and income throughout an economy

Question 36

# Define Factor services

Answer 36

The services provided by the factors of production

Question 37

# Define Leakages

Answer 37

Withdrawal of possible spending from the circular flow of income

Question 38

Define Injections

Answer 38

Additions of extra spending into the circular flow of income

Question 39

# Define Multiplier effect

Answer 39

The process by which any change in a component of AD. Results in a greater inal change in real GDP

Question 40

Define Overheating

Answer 40

The growth in AD outstripping the growth in AS, resulting in inflation.

Question 41

Define Output gap

Answer 41

The difference between an economy's actual and potential real GDP.

Question 42

Define Trend growth

Answer 42

The expected increase in potential output over time.