Macroeconomics Study Guide

Vocabulary flashcards based on key concepts in Macroeconomics.

Macroeconomics

The branch of economics that studies the economy as a whole, including total demand and supply, overall price levels, total employment, total investment, and national income.

Circular Flow of Income Model

A model that describes the flow of money and goods in an economy, showing the interdependence between households and firms.

Aggregate Demand

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

Gross Domestic Product (GDP)

The market value of all final goods and services produced within a country over a specific time period.

National Income Accounting

A system used to measure the national income or the total income earned by a country over a specific time frame.

Leakages

Withdrawals from the circular flow of income, including savings, taxes, and imports.

Injections

The introduction of income into the circular flow, which includes investment, government spending, and exports.

Real GDP

Gross domestic product adjusted for inflation, which reflects the true value of goods and services produced.

Nominal GDP

Gross domestic product measured at current prices, without adjusting for inflation.

Purchasing Power Parity (PPP)

A theory which compares different countries' currencies through a market 'basket of goods' approach, reflecting the relative price levels of goods and services.

Per Capita Income

The average income earned per person in a given area in a specified year.

Investment

Spending by firms on capital goods and new construction intended for future production.

Consumer Expenditure

Total spending by households on goods and services.

Government Spending

Total consumption and investment expenditure by the government.

Net Exports

The value of a nation's exports minus the value of its imports, which affects the economy's overall demand.

Economic Growth

An increase in the amount of goods and services produced per head of the population over a period of time.

Inflation

The rate at which the general level of prices for goods and services rises, eroding purchasing power.

Unemployment

The situation where individuals who are capable of working are unable to find a job.

Economic Objectives

Goals that government policies aim to achieve, including low inflation, low unemployment, and economic growth.

Open economy

An economy that imports and exports through International trade

National output

Output of an economy

3 ways to measure the value of national output

Expenditure, income and output approach

Expenditure approach

Adds up all spending to buy final goods and services produced within the country over a time period

Income approach

Adds up all income earned by factors of production that produced all goods and services within a country over a time period

Output approach

Calculates the value of all final goods and services produced in a country

GDP per capita

Total GDP of that country divided by its population