Principles of Macroeconomics

Question 1

What does the circular flow demonstrates?

Answer 1

• money is in a constant flow between households and firms
• How the economy works and how the money moves through society
• Firms pay the workers, the workers buy the products, and the profit from the product goes to the enterprises to pay the workers

Question 2

What are injections?

Answer 2

External economic activities that introcude money into the economy
- money comes in from an outside actor

Question 3

What are the different types of injections?

Answer 3

• Government spending (multiplier)
• Investment
• Exports

Question 4

What are leakages?

Answer 4

Money going out of the circular flow

Question 5

What are the different types of leakages?

Answer 5

1. Taxes
2. Saving
3. Imports

Question 6

What is macroeconomic national income accounting?

Answer 6

Framework used to measure a country’s overall economic activity

Question 7

GDP

Answer 7

Gross Domestic Product
–> total of all economic activity in a country, regardless who runs the company

Question 8

GNI

Answer 8

Gross National Income
–> total income earned by a country’s residents or businesses, no matter where they are located

Question 9

National Income

Answer 9

the total amount of money earned within an economy

Question 10

National Output

Answer 10

total value of the goods and services produced

Question 11

National expenditure

Answer 11

total value of all the spending on goods and services in an economy

Question 12

What are the importances of national income accounting?

Answer 12

• helps access the overall economic performance
• provides data for policy making
• measures changes in economic welfare over time

Question 13

What are the weaknesses of national incomes analysis?

Answer 13

• inaccuracies
• unrecorded economic activity
• external costs (environment)
• compostion of output
• other quality of life concerns

Question 14

What is the multiplier effect?

Answer 14

• shows how initial spending leads to greater economic growth
• refers to the amount of increase in GDP that results from an injection

Question 15

On what does the multiplier effect depend?

Answer 15

• savings
• imports

Question 16

What is the marginal propensity to consume?

Answer 16

• determines how much of income is spend
• for every Euro injected, how much is consumed/spend
• a higher MPC means a higher multiplier effect

Question 17

Which factor determine a country’s MPC?

Answer 17

1- Preference for Imports
2- Attitude towards saving
3- Level of economic prosperity