Aggregate demand etc

Material Living Standards

Determined by access to goods and services, income levels, employment rates, and GDP per capita.

Non-Material Living Standards

Includes quality of life factors like happiness, health, environmental quality, crime rates, and leisure time.

Trade-offs in living standards

Improving material living standards may negatively impact non-material ones, such as environmental degradation or social stress.

Economic Activity

The process of producing goods and services to meet societal needs.

GDP per capita

A key indicator of living standards; considers total income divided by the population.

Effects of Higher Economic Activity

Raises income but can harm the environment; balanced growth can improve both material and non-material aspects.

Expansion Phase of the Business Cycle

Characterized by rising GDP, employment, and inflation.

Trough in the Business Cycle

The lowest economic activity, often coinciding with high unemployment; a prolonged trough is considered a recession.

Stagflation

A rare economic condition where high inflation and high unemployment coexist.

Circular Flow Model

A model depicting the flow of goods, services, and money in the economy among various sectors.

Key Sectors in the Circular Flow Model

Households, Businesses, Government, Financial Institutions, and Overseas Sector.

Leakages in the Circular Flow Model

Savings, taxes, and imports that reduce spending in the economy.

Injections in the Circular Flow Model

Investment, government spending, and exports that boost spending in the economy.

Aggregate Demand (AD)

Total spending on goods and services, calculated as AD = C + I + G + X - M.

Drivers of Aggregate Demand

Consumer & Business Confidence, Interest Rates, Government Policies, Exchange Rates, and Overseas Growth.

Aggregate Supply (AS)

Total supply of goods and services in the economy.

Drivers of Aggregate Supply

Resources availability, production costs, technology & productivity, regulations & policies, climate & supply chains.

Macroeconomic Goals

Sustainable economic growth (around 3% GDP growth per year), low unemployment (4-4.5% ideal), and low inflation (2-3% target).

Fiscal Policy

Government spending and taxation policies used to influence aggregate demand.

Monetary Policy

The use of interest rates to regulate inflation and economic growth.