Intro to macroecons HAVEN'T ADDED MULTIPLIER SECTION Flashcards Preview

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Flashcards in Intro to macroecons HAVEN'T ADDED MULTIPLIER SECTION Deck (13)
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What are the 4 sectors (stakeholders) in an economy?

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


Definition of injections

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.


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

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

- 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


Definition of withdrawals

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.


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

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


What is AD?

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
AD = C + I + G + (X-M)


Determinants of consumer expenditure

- 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


Determinants of investment

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*


Determinants of government expenditure

- 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]


Determinants of net exports

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


What is AS?

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

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


Determinants of AS

- uCOP: affects AS in SR
- Factor Q&Q : affects AS in LR


Factors that affect both AD & AS

- 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)