Macroeconomics and Circular Flow of Income Flashcards

Vocabulary practice flashcards covering fundamental concepts of macroeconomics, stock and flow variables, circular flow of income, and economic sectors based on the provided lecture notes.

Macroeconomics

A branch of economic theory derived from the Greek word 'makros' (meaning 'large') that studies the behaviour of aggregates of the economy as a whole, such as national income, aggregate output, aggregate consumption, inflation, and unemployment.

Lord J. M. Keynes

The British economist who published 'The General Theory of Employment, Interest and Money' in 1936, marking the emergence of macroeconomics as a separate branch of economics.

Price Theory

An alternative name for microeconomics, as it is primarily concerned with determining the prices of individual commodities and factors of production.

Income and Employment Theory

An alternative name for macroeconomics, as it focuses primarily on determining the overall level of income and employment in the economy.

Circular Flow of Income

The cycle of income generation in the production process, its distribution among factors of production, and its circulation from households to firms in the form of consumption expenditure on goods and services.

Generation Phase

The first phase of the circular flow of income (also called the Production Phase), where firms produce goods and services with the assistance of factor services supplied by households.

Distribution Phase

The second phase of the circular flow of income (also called the Income Phase), which involves the flow of factor payments (rent, wages, interest, and profit) from firms to households.

Disposition Phase

The third phase of the circular flow of income (also called the Expenditure Phase), in which households spend their factor income on goods and services produced by firms.

Stock Variable

A static economic variable measured at a particular point in time that lacks a time dimension, such as national wealth, money supply, or population on a specific date.

Flow Variable

A dynamic economic variable measured over a specific period of time that possesses a time dimension, such as National Income, monthly production, or annual birth rate.

Real Flow

Also known as 'Physical flow', this refers to the flow of factor services from households to firms and the corresponding flow of goods and services from firms to households without any exchange of money.

Money Flow

Also known as 'Nominal flow', this refers to the flow of factor payments from firms to households for factor services and the corresponding flow of consumption expenditure from households to firms.

Household Sector

The sector of the economy comprising consumers of goods and services and the owners of factors of production (land, labour, capital, and enterprise) who receive factor payments in return.

Producing Sector (Firms)

The economic sector that hires factors of production from households to produce goods and services for the purpose of making a profit.

Government Sector

The sector that operates both as a welfare agency maintaining law, order, and public welfare, and as a producer through public sector enterprises.

Foreign Sector

Also known as the External Sector or Rest of the World Sector, it handles international transactions including export and import of goods and cross-border capital flows.

Simple Economy

An economic model that assumes the existence of only two sectors: the household sector and the firm sector.