As National GDP increases there is a proportionately larger rise in Capital spending by Businesses due to an increased amount of money in the economy's circular flow.
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The Decelerator Effect
As National GDP decreases there is a proportionately larger fall in capital spending by businesses.
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Aggregate Demand
AD = C + I + G + (X-M). The average overall level of demand for consumer goods within an economy.
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Aggregate Supply
The overall average level of supply of consumer goods within an economy.
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Short Run Aggregate Supply
Demonstrates the trend of aggregate supply when one or more factors of production are deemed as finite.
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Long Run Aggregate Supply
Demonstrates the trend of aggregate supply when all factors of production are deemed as having the potential to expand.
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Current Account Balance of Payments
Comprises all things within the visible and invisible account. (X-M)
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Current Account Deficit
When M > X
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Current Account Surplus
When X > M
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Capital Investment
Spending on capital goods that increase production and/or efficency. Investment is a component of AD and so an increase in investment can lead to an increase in AD.
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Disposable Income
The income that households have to devote to consumption and savings, accounting for direct taxes and transfer payments.
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Average Propensity to Consume
The proportion of income that households devote to consumer expenditure.
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Marginal Propensity to Consume
The proportion of additional income devoted to consumer expenditure.
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Marginal Propensity to Save
The proportion of additional income that is saved by households.
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Consumption Function
The relationship between consumer expenditure and disposable income; its position depends upon the other factors that affect how much households spend on consumer expenditure.
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Investment
Expenditure undertaken by firms to add to the capital stock.
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Multiplier
The ratio of a change in equilibrium real income to the autonomus change that brought it about; it is defined as 1 divided by the marginal propensity to withdraw.
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Marginal Propensity to Import
The proportion of additional income that is spent on imports of goods and services.
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Marginal Propensity to Tax
The proportion of additional income that is taxed.
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Marginal Propensity to Withdraw
The proportion of additional income that is withdrawn from the circular flow - the sum of the marginal propensities to save, import and tax.
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Aggregate Demand Curve
The relationship between the level of aggregate demand and the overall price level; it shows planned expenditure at any given possible overall price level.
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Monetarist School
Believe that the macroeconomy always adjusts rapidly to the full employment level of output.
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Natural Rate of Employment
The long-run equilibrium level of output to which monetarists believe the macroeconomy will always tend; corresponds to full employment.
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Keynesian School
Believe that the macroeconomy could settle at an equilibrium that was below full employment.
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Other cards in this set
Card 2
Front
As National GDP decreases there is a proportionately larger fall in capital spending by businesses.
Back
The Decelerator Effect
Card 3
Front
AD = C + I + G + (X-M). The average overall level of demand for consumer goods within an economy.
Back
Card 4
Front
The overall average level of supply of consumer goods within an economy.
Back
Card 5
Front
Demonstrates the trend of aggregate supply when one or more factors of production are deemed as finite.
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