Macroeconomics: National Income Accounting, Circular Flow, and Aggregate Demand

Vocabulary flashcards covering key concepts from macroeconomics lecture notes, including national income accounting methods, price adjustments, the circular flow model, equilibrium equations, and the components and determinants of Aggregate Demand.

Expenditure Method

Calculating GDP by adding consumer spending, investment, government spending, and net exports.

Factor Cost

The total cost of all factors of production used to produce goods and services.

Basic Price

The amount received by a producer per unit, excluding taxes and including subsidies: $\text{Basic Price} = \text{Factor Cost} + \text{Production Taxes} - \text{Production Subsidies}$.

Market Price

The actual retail price paid by consumers, which includes taxes and excludes subsidies.

Gross Domestic Product (GDP)

The total market value of all final goods and services produced within a country.

Gross Value Added (GVA)

The value of total output minus intermediate consumption (input costs).

GDP at Factor Cost

Total national output valued at factor cost, calculated as the sum of all GVA at factor cost.

Net Value Added

Output value minus both intermediate consumption and capital depreciation.

Circular Flow of Income Model

A model showing how income, spending, and output move continuously between households and firms.

Injections

Money added into the circular flow of income: investment ($I$), government spending ($G$), and exports ($X$).

Leakages (Withdrawals)

Money removed from the circular flow of income: savings ($S$), taxes ($T$), and imports ($M$).

Macroeconomic Equilibrium (Four-Sector Economy)

The state where total injections equal total leakages: $I + G + X = S + T + M$.

Aggregate Demand (AD)

Total planned spending on real output across the economy: $\text{AD} = C + I + G + (X - M)$.

Consumption (C)

Total household spending on goods and services, making up roughly $65\%$ of Aggregate Demand.

Disposable Income

Income remaining after income taxes and statutory deductions have been paid.

Wealth

The total market value of all assets owned by an individual or household.

Wealth Effect

The change in consumer spending caused by a change in asset values.

Investment (I)

Business spending on capital goods like machinery, equipment, and buildings.

Government Expenditure (G)

Spending by central and local government on public goods, services, and infrastructure.

Fiscal Policy

The adjustment of government spending and taxation to influence economic activity.

Budget Deficit

The condition where government spending exceeds government income.

Budget Surplus

The condition where government income exceeds government spending.

Net Exports (X - M)

Total revenue from exports minus total expenditure on imports.

Exchange Rate

The price of one national currency expressed in terms of another currency.

Aggregate Demand (AD) Curve

A downward-sloping curve showing that real output demanded falls as the price level rises.

International Effect

Higher domestic prices make exports less competitive and imports cheaper, reducing net exports.

Interest Rate Effect

Higher prices increase the demand for money, raising interest rates and cutting consumption and investment.