Key terms pt3

Question 1

Leakages

Answer 1

Also known as withdrawals, it is monetary resources leaving the system

Question 2

Injections

Answer 2

Resources entering the system

Question 3

National income multiplier effect

Answer 3

A multiplier that shows how much GDP changes overall due to an injection in the economy. A numerical value that can be negative or positive without units.

Question 4

Aggregate demand

Answer 4

Total planned spending on the real output (goods and services) that the economy produces

Question 5

Consumption (C)

Answer 5

Planned spending by households by goods and services. When consumption is high, savings is usually low and it causes a higher AD. It is the largest component.

Question 6

Investment spending (I)

Answer 6

Spending by firms on capital goods e.g. factories and machines. A higher investment spending causes a higher AD

Question 7

Government spending (G)

Answer 7

Money spent on public goods and services. A higher government spending causes a higher AD.

Question 8

Net exports (X-M)

Answer 8

Difference between income received from selling abroad and money spent to buy products/services from overseas. If X increases and M stays the same then AD increases and vice versa.

Question 9

The accelerator effect

Answer 9

When an increase in national income (GDP) causes a rapid increase in investment spending on capital goods.

Question 10

Price level

Answer 10

Represents average level of prices across the economy(CPI). Higher prices=Inflation

Question 11

Aggregate supply

Answer 11

Total output of goods and services produced within the economy at a given price level. Ut represents the economy’s ability to produce goods and services in the short or long term. It also tells us the quantity of real GDP that will be supplied.

Question 12

Short vs long term

Answer 12

In economics, there is an idea that the economy behaves differently depending on the length of time it has ti react to certain changes/stimuli

Question 13

Types of aggregate supply

Answer 13

SRAS-Short run aggregate supply
LRAS-Long run aggregate supply

Question 14

Usual causes of SRAS shifts

Answer 14

Wage rates- labour costs
Commodity prices- raw materials such as oil, natural gas and copper
Exchange rates- fall in exchange rates makes it more expensive to import raw materials
Changes in taxes- Producer or environmental taxes
Other production costs- Rent for retailers or price of building materials

Question 15

Positive shock

Answer 15

Anything that shifts SRAS down and right (decreases cost of production)

Question 16

Negative shock

Answer 16

Anything that shifts SRAS up and left (increases cost of production)

Question 17

SRAS

Answer 17

Represents all the goods and services that firms are willing to produce at a certain price level