macroeconomics Flashcards
(34 cards)
what is the balance of payments?
record of a country’s financial transactions with the rest of the world
what is inflation and how is it measured?
it’s the general rise in prices and it’s measured by the basket of goods
what is output gaps?
the difference between the actual output of an economy and it’s potential output
what is a positive output gap?
when actual output is more than full-capacity output
what’s a negative output gap?
when actual output is less than what an economy can produce at full-capacity
what is an effect of higher interest rates?
higher interest on mortgage payments which leads to less consumption due to less disposable income which results in lower economic growth
what is the impact of increased interest rates on an LRAS diagram?
AD1 shifts down to AD2 on Keynesian LRAS curve. Price level drops from p1 to p2
what is an effect of lowering interest rates?
lower mortgage payments which means more disposable income which gets spent which leads to economic growth
what is the effect of lowering interest rates on an LRAS diagram?
AD1 shifts up to AD2 on LRAS curve. price level goes up from p1 to p2
what is on the axis’ of an AD and AS diagram?
price level and real GDP
what are some reasons for changes in LRAS?
more workers, advances in technology and more skilled labour
what does the classical LRAS assume?
that markets won’t have more demand than supply
what is the savings ratio?
the ratio of personal saving to disposable income
what is the formula for total savings?
total savings = disposable income - household consumption
what is a fall in the savings ratio caused by?
fall in real rages, using savings to consume and high tax payments
what is the equation for calculating MPC?
MPC=change in consumption / change in income
how do you calculate MPW?
MPW = mpt + mpm + mps
what does real mean?
adjusted for inflation
what are some impacts of investment on the economy?
increased consumption and increased employment
impact of investment on supply in an economy?
investment will increase supply as it’s increasing productivity from new machinery
what is the formula for aggregate demand?
AD = consumption + investment + govt spending + net trade (exports - imports)
reasons for fall in AD
fall in exports, cut in govt spending, higher interest rates
reasons for increase in AD
more govt spending, more consumption and more exports
consequence of outward shift in AD diagram
raise national output at all price levels
