Macroeconomic models

Question 1

What is wealth?

Answer 1

The sum or stock, of all your assets added up

Question 2

What is income?

Answer 2

measure of the flow of money a person or economy receives each year

Question 3

What are the factors of production?

Answer 3

The things that are needed to produce something. They spell out CELL; Capital, Enterprise, Land and Labour

Question 4

What can be deduced from the circular flow of income model?

Answer 4

Income=expenditure=output

Question 5

What is national income?

Answer 5

The income earns by everyone altogether in a country

Question 6

What is national income?

Answer 6

The income earns by everyone altogether in a country

Question 7

Why does national income=national expenditure=national output?

Answer 7

The total spending from households across the economy must come from the total income they earn. Households spend on the total output on goods and services produced by firms in the economy

Question 8

What is real GDP?

Answer 8

Real gross domestic product .A statistic that measures the value of an economy national output, adjusted for inflation.

Question 9

What are the three types of leakages/withdrawals?

Answer 9

Savings, imports, taxes

Question 10

What are taxes?

Answer 10

Money paid to the government by consumers, firms and workers

Question 11

What are savings?

Answer 11

Disposable income that is not spent by households.

Question 12

What are imports?

Answer 12

Spending on foreign goods and services.

Question 13

What is a leakage/withdrawal?

Answer 13

When money leaks out of the circular flow

Question 14

What is factor income?

Answer 14

Money paid by firms to households in return for factors of production

Question 15

What are the three types of injections to the circular flow of income?

Answer 15

Government spending, Investment and exports

Question 16

What is investment?

Answer 16

Banks use our savings to invest back into our firms, injecting money into the circular flow

Question 17

What is government spending?

Answer 17

When the government injects money into the economy by spending on schools, teachers, hospitals, doctors etc.

Question 18

How does the circular flow of income work?

Answer 18

Firms buy factors of production, like labour and land, from households. In return, they pay households factor incomes, like wages and rent. Households then spend their factor incomes on firms in exchange for the goods and services.

Question 19

Disposable income

Answer 19

income minus taxes

Question 20

Multiplier effect

Answer 20

When an initial increase in an injection leads to a much bigger, overall effect on the economy

Question 21

Multiplier ratio

Answer 21

Total change in real GDP/Initial injection or 1/1-MPC

Question 22

Accelerator effect

Answer 22

When real GDP increases, which signals to firms that consumers are demanding more goods, so firms increase their investment, to produce more goods

Question 23

Benefits

Answer 23

The money given by the government to people who need financial help.

Question 24

interest rate when saving

Answer 24

The return on your savings

Question 25

Interest rate when borrowing

Answer 25

The percentage of your borrowing which you pay to the bank

Question 26

short run

Answer 26

when at least one factor of production is fixed

Question 27

aggregate supply

Answer 27

Total amount produced in an economy

Question 28

Contraction in AS

Answer 28

A decrease in the price level leads to a decrease in real GDP

Question 29

long run

Answer 29

all factors of production are variable

Question 30

spare capacity

Answer 30

When the economy is producing below its maximum potential output (horizontal part of Keynesian LRAS)

Question 31

Bottle neck

Answer 31

When the economy is nearly producing at its maximum potential output (bendy part of Keynesian LRAS

Question 32

Full employment

Answer 32

When the economy is producing at its maximum potential output (vertical part of Keynesian LRAS)

Question 33

why would SRAS shift

Answer 33

The SRAS will shift if there is a change in the cost of production in an economy

Question 34

Interest rate (saving)

Answer 34

The percentage of your savings paid to you by the bank

Question 35

Interest rate (borrowing)

Answer 35

The percentage of the amount you borrow that you need to pay to the bank

Question 36

Downward multiplier effect

Answer 36

Where an initial increase in withdrawals leads to a larger decrease in aggregate demand

Question 37

Positive wealth effect

Answer 37

When an increase in wealth makes consumers feel more confident and therefore increase their consumption, increasing aggregate demand.

Question 38

Factors of production

Answer 38

Capital, enterprise, land, labour

Question 39

High animal spirits

Answer 39

Investor confidence is high

Question 40

Wealth effect

Answer 40

When changes in consumers wealth affect their confidence and spending

Question 41

Savings ratio

Answer 41

What percentage of disposable income consumers will save

Question 42

Savings ratio formula

Answer 42

Total savings/post tax income

Question 43

Marginal propensity to consume

Answer 43

A measure of the increase in consumer spending due to an increase in income