How the macroeconomy works

Question 1

Withdrawals with examples

Answer 1

These are factors which take away money from the circular flow of income

Saving
Taxes
Imports

Question 2

Injections with examples

Answer 2

These are factors which add money into the circular flow of income

Government Spending
Investment
Exports

Question 3

Circular Flow of Income

Answer 3

The money moving through an economy

Question 4

Aggregate Demand

Answer 4

This is the total demand for goods/services within an economy at a given price level at a given period of time

Question 5

Components of Aggregate Demand

Answer 5

Consumer Expenditure
Investment
Government Spending
Net Exports (Exports - Imports)

Question 6

Disposable Income

Answer 6

Amount of money individuals have after tax

Question 7

Marginal Propensity to Save

Answer 7

Proportion of each extra pound of income that is used for saving

Question 8

Animal Spirits

Answer 8

Keynes term to describe instincts and emotions of human behaviour so can affect the confidence level within an economy

Question 9

Accelerator Effect

Answer 9

An increase in GDP leads to a proportionately larger rise in the level of investment

Question 10

Current Spending

Answer 10

Type of Government Spending which maintains the level of public services in the short run

Question 11

Capital spending

Answer 11

Type of Government Spending which involves investments and assets that provide long term benefits

Question 12

Multiplier Effect

Answer 12

Occurs when there is a larger proportional increase/decrease in output from a withdrawal or injection

Question 13

Multiplier Ratio

Answer 13

Ratio of the increase in national income to the rise in AD

Question 14

Autonomous Consumption

Answer 14

Minimum level of consumption required by society to sustain a basic standard of living