economics macro chapter 10

Consumption

spending by households on goods and services

investment

spending by buisnisses on additions to the capital stock such as new equipment or the building up of inventory levels

governemnt expenditure

spending by the government at both national and local levels within economy

net exports

value of exports less than value of imports in economy over a period of time

ways to calculate national income

expenditure method

adding up all incomes earnt of period of time

totalling value of all output procuded for period of time in each sector of economy

nominal national income

national income unadjusted for changes in prices

uses of real national income

measure of how successful economy is

shoes how well of population is

allows government to estimate how much can be collected in tax

circular flow of income

a model of economy where income and spending flow between househols and firms

injections

extra money places into the circular flow of income

withdrawals

money taken out of the circular flow of income

3 injections in circular flow of income

investment

governemnt expenditure

exports

3 withdrawlas in circualr flow of income

savings

taxation

imports

macroeconmic equilibrium

level of national income where there is no tendency for the level to change

aggregate demand

total planned spening in an economy over a period of time at any given price level

wealth effect

increases in the value of household assests cause ppl to feel wealthier and encourages them to spend more of thier current income

wealth

value of assets held by households. most wealth held in the value of property owned by the household

factors that affect aggregate demand

interest rates

consumer confidence

taxation

wealth

unemployment

interest rate

cost of borrowing money expressed as a percentage of amount borrowed

capital stock

value of existing level of investment products in an economy at a point in time

determinants of investment

interst rates

buisiness confidence

tax

technology

Accelerator theory

increaes in national income lead to firms spending more on investment, in order to expand their capacity to exploit the rising income

budget balance

difference betwwen governemnt spending and the taxation revenue collected

budget deficit

government spending is more than taxation

budget surplus

taxation is more than government spending

balanced budget

government expenditure is equal to taxation

excahnge rate

price of one currency expressed in terms of another

ehat exports and imports are affectd by

exchange rate

foreign growth

uk growth

relative inflation and relative productivity

multiplier process

how a change in aggregate demand leads to a proportionately larger change in overall national income

marginal propensity to consume

proportion of any additional income that is spent and passed on around circular flow of income

Aggregate supply

total quantity of output that all firms in the economy are willing to produce at a given price level

short run aggregte supply

how much firms will produce at a given price in the short term

long term aggregate supply

how much firms will produce in the long run. Where economy is producing its max potential level of output and will be independent of price level

changes in production that shift SRAS left or right

money wage rates

changes in cost of raw materials

business taxation

productivity

exchange rate changes

determinants of long run aggregate supply

technology

productivity

factor mobility

enterprise

economic incentives and attitiudes

institutinal strucure

the financial and legal systems make it easier for businees to set up operate and expand

economic shocks

sudden,unexpected events that affect the macroeconomy, especially the growth rate

demand side shocks

unexpected and significant changes in the level of aggregate demand

supply side shocks

unexpected and significant changes in the price of factors of production or the availability of factors of production