What is the circular flow of income?
A model of the economy which shows the flow of goods and services, the factors of production and money around the economy
This model illustrates the interactions between different sectors of the economy.
Define injections in the context of the circular flow of income.
Spending power entering the circular flow of income resulting from investment, government spending and exports
Injections increase the overall economic activity.
Define leakages in the context of the circular flow of income.
Spending power leaving the circular flow of income resulting from savings, taxation and imports
Leakages reduce the overall economic activity.
What is macroeconomic equilibrium?
Where the rate of withdrawals equals the rate of injections
This equilibrium indicates a stable economy.
What are monetary flows?
The flow of money, for example from taxes or for consumption
These flows are crucial for understanding economic transactions.
What are physical flows?
The flow of a good or service
Physical flows represent the tangible aspects of economic activity.
Define aggregate demand (AD).
The total level of demand in an economy at any given price level at a moment in time
AD is a key indicator of economic health.
What is consumption in economic terms?
Consumer spending on goods and services
Consumption is a major component of aggregate demand.
Define investment in the context of macroeconomics.
Spending by businesses on capital goods, which leads to the creation of real goods
Investment is essential for economic growth.
What is meant by government expenditure?
Spending by the government for the provision of goods and services
This expenditure can stimulate economic activity.
Define exports.
Goods and services sold to foreign countries that provide an inflow of money
Exports are vital for a country’s economy.
What are imports?
Goods and services bought from foreign countries that lead to an outflow of money
Imports can affect the balance of trade.
Define net exports.
Exports minus imports
Net exports indicate a country’s trade balance.
What is aggregate supply (AS)?
The total amount of output in the economy at any given price level at a moment in time
AS reflects the productive capacity of the economy.
Define short run aggregate supply (SRAS).
Aggregate supply when at least one factor of production is fixed
SRAS is influenced by short-term factors.
What does short run mean in economics?
When at least one factor of production is fixed
This period is characterized by limited flexibility in production.
Define long run aggregate supply (LRAS).
The total output an economy can produce when operating at full output
LRAS assumes all factors of production are variable.
What does long run mean in economics?
When all factors of production are variable
This period allows for full adjustment in the economy.
What is the multiplier effect?
An increase in an injection will lead to an even greater increase of national income
The multiplier effect amplifies the impact of fiscal policy.
Define accelerator theory.
A change in consumption will cause a larger percentage increase in investment; high consumption leads to high investment
This theory links consumption patterns to investment behavior.
What is an output gap?
The difference between the long term trend rate of growth and actual growth
Output gaps indicate economic performance relative to potential.
Define negative output gap.
When GDP is lower than predicted; the economy is producing below full output
This situation suggests underutilization of resources.
What is a positive output gap?
When GDP is higher than predicted; the economy is producing above full output
This condition can lead to inflationary pressures.
Define marginal propensity to consume (MPC).
The proportion of an increase in income spent on consumption
MPC is crucial for understanding consumer behavior.
-
1.1 Circular Flow Of Income12
-
1.2 + 1.5 AD + Multiplyer & Accelerator42
-
1.3 Aggregate Supply14
-
1.4 The Intereaction Of AD And AS7
-
2.1 Economic Growth13
-
2.2 Development17
-
2.3 Unemployment14
-
2.4 Inflation28
-
2.5 The Balance Of Payments14
-
2.7 Income Inequality32
-
2.8 Philips curve4
-
3.1 Fiscal Policy21
-
3.2 Monetary Policy19
-
3.3 supply side policy17
-
3.4 policy conflicts0
-
4.1 international trade8
-
4.2 Exchange Rates31
-
4.3 Globalisation16
-
4.4 trade policies and protectionism17
-
4.4 Economic Integration18
-
5.1 Money And Interest Rates10
-
5.2 the Financial sector7
-
5.3 Financial Regulation11
-
section 1 definitions28
-
section 2 definitions70
-
section 3 definitions32
-
section 4 definitions27
-
section 5 definitions7
