Intro to macroecons HAVEN'T ADDED MULTIPLIER SECTION

Question 1

What are the 4 sectors (stakeholders) in an economy?

Answer 1

Households (domestic)
Firms (domestic)
Government (domestic)
Foreign (foreign hhs, firms & gov)

Question 2

Definition of injections

Answer 2

Refers to any payment of income to domestic firms that do not arise from domestic households, but are additional spending generated by other sectors of the ecy.

Question 3

What do injections into an economy come in the forms of?

Answer 3

Exports (X revenue)
- dom firms earn revenue from hhs, firms and govs in other ctys through exports.

Investment
- acquisition of new capital gds. creates revenue for dom firms that manufacture capital equipment

Government expenditure
- govs purchase g&s from firms; and also need to spend on the wages of civil servants

Question 4

Definition of withdrawals

Answer 4

also known as Leakages,
Refers to any part of a household’s income that is not spent on domestically-produced g&s, but leaves the circular flow of income.

Question 5

What do withdrawals from an economy come in the forms of?

Answer 5

Imports (M expenditure)
- hhs buy g&s from abroad

Net savings
- some of hhs’ Ys are saved

Net taxes
- compulsory payments to the gov not for gds provided or services rendered

Question 6

What is AD?

Answer 6

Refers to the quantity of domestically-produced g&s that hhs, firms, gov and foreigners are w&a to buy at each possible GPL

Written as
AD = Cd + Id + Gd + Xd
or
AD = C + I + G + (X-M)

Question 7

Determinants of consumer expenditure

Answer 7

• Income (Y-induced C)
• Wealth
• Taxes and transfers
• —> disposable Y is the earnedY minus direct taxes and transfers
• Expectations of future prices and Y
• Cost and availability of credit
• Distribution of income

Question 8

Determinants of investment

Answer 8

investment = fixed capital formation + changes in inventories

• Business confidence and expectations
• Gov policies
• Costs and efficiency of capital equipment
• Cost and availability of credit

Recall MEI & its graph

Question 9

Determinants of government expenditure

Answer 9

• For macroeconomic stabilisation
• For sustained and sustainable growth
• Gov SPENDING for social objectives (e.g. merit and public gds)
• —> gov SPENDING can be classified as:
  (i) gov exp on final g&s [which consists of gov consumption exp e.g. payment of civil servants; and gov investment e.g. construction of new highway, etc.
  (ii) transfer payments [which shows up as Cd in the circular flow]

Question 10

Determinants of net exports

Answer 10

• Foreign Y & Dom Y
• Relative prices [depending on i/r & exr)
• T&Ps
• Gov policies

Question 11

What is AS?

Answer 11

Refers to the quantity of domestically-produced g&s that firms are w&a to supply at each possible GPL

Curve:
Keynesian range (horizontal)
Intermediate range (upward-sloping)
Classical range (vertical)

Question 12

Determinants of AS

Answer 12

• uCOP: affects AS in SR

- Factor Q&Q : affects AS in LR

Question 13

Factors that affect both AD & AS

Answer 13

Investment

• capital accumulation
• addition to the ecy’s stock of physical capital (one of the FOPs)

Gov spending [development expenditure]
- education/training (human capital/skills/pdtivity)