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Flashcards in Macroeconomics Deck (29):
1

Average propensity to consume (APC)

The proportion of income that households devote to consumer expenditure

2

Average propensity to save (APS)

The proportion of income that households devote to saving

3

Marginal propensity to consumer (MPC)

The proportion of additional income that households devote to consumer expenditure

4

How do you work out APC?

Household consumption
Disposable income

5

How do you work out MPC?

Change in household consumption
Change in disposable income

6

Marginal propensity to withdraw (MPW)

The proportion of additional income that is withdrawn from the circular flow - the sum of the marginal propensities to save, export and tax

7

The multiplier (K)

The ratio of a change in equilibrium real income to the autonomous change that brought it about

8

How do you calculate the multipler

1
MPW= MPS+ MPI+MPT

9

How to calculate real GDP?

Nominal GDP Figure x base index
Current year price index

10

How to calculate economic growth?

Change in real GDP
Original year real GDP x 100

11

GDP per capita

GDP taking population size of a country into account

12

How to calculate GDP per capita?

GDP of country
Population of a country

13

Aggregate supply

The total amount that producers in an economy are willing and able to produce at a given price level in a given time period

14

Aggregate demand

The total demand for goods and services produced in an economy at a given price level and in a time period

15

What are the 7 factors that affect the consumer expenditure?

• real disposable income
• wealth
• consumer confidence
• the rate of interest
• age structure of the population
• distribution of income
• inflation

16

What is the name of Keynes model that portrays the relationship between consumer expenditure and household income?

The consumption function

17

What are the 8 factors affecting investment?

• rate of interest
• current profit level
• expectations
• capacity utilisation
• corporation tax
• changes in disposable income
• advances in technology
• price of capital equipment

18

What are the 4 factors affecting government spending?

• level of economic activity
• political reasons
• political reasons
• other factors - war, terrorism

19

GDP

A measure of the economic activity carried out in in an economy during a period of time

20

Economic growth

Process by which real GDP increases over time

21

How do we increase GDP in the short run?

We spend more

22

How do we increase GDP in the long run?

Maximise the output the economy can produce ( PPF)

23

Sustainable growth

Economic growth that continue over time and does not endanger further generations ability to expand productive capacity

24

How do we measure economic growth?

GDP

25

Nominal GDP

Measures the value of GDP at that years price level

26

Liquidity trap

A situation in which injections of cash into the private banking system by a central bank can fail to decrease IR making monetary policy ineffective

27

Inflation rate targeting

Central banks are responsible for using monetary policy to keep inflation close to the agreed level

28

Symmetric inflation targeting

A requirement placed on a central bank to respond when inflation is too low as well as too high where 1% above target is just as bad a 1% above target

29

Asymmetric inflation targeting

One sided where above target is bad but below is not