Macroeconomics Flashcards

Only 10 flashcards are shown at a time! Once you’ve mastered these 10 Economic terms, click the shuffle button below for 10 new terms. There are approximately 150 flashcards covering Macroeconomics.

Aggregate demand and Aggregate supply Model
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A model of a nation’s economy which shows the average price level and the level of national output resulting from the interaction of the total demand for the nation’s output and the total supply of the nation’s output. There are different interpretations of the model based Keynesian Economic Theory and Classical Economic Theory.

Aggregate demand and Aggregate supply Model
Potential output
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How much a nation can produce if all of its resources (land, labor and capital) are operating at their full capacity and at full efficiency. Contrasts with full employment output, which a nation achieves when most of its resources are employed towards production, but there exist some degree of unemployment (the natural rate of unemployment).

Potential output
Deflation
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A decrease in the average price level of a nation’s output over time. Caused by either a fall in aggregate demand or an increase in aggregate supply.

Deflation
Proportional tax
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A tax that places a proportionally identical burden on every individual regardless of their income. For example an income tax that requires everyone to pay 10% regardless of their income. A rich household will pay more than a lower income household, but the percentage of income paid in tax is identical.

Proportional tax
Short run aggregate supply
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An upward sloping curve, relatively flat below the full employment level of output, and relatively steep beyond the full employment level, showing the amount of output a nation’s producers will supply at a range of price levels in a particular period of time. The curve’s shape reflects the fact that output cannot grow beyond the full employment level due to the limited factors of production available in the economy, but when aggregate demand falls output will decline due to the inflexibility of wages in the short run.

Short run aggregate supply
GDP growth rate
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Measures the percentage change in a nation’s GDP between one year and an earlier year. Equals Year 2’s GDP minus Year 1’s GDP, divided by year 1’s GDP times 100. For example: If in 2011 GDP = 120 billion, and in 2010 it equaled 100 billion. The GDP growth rate = (120-100)/100 = 0.2 x 100 = 20%

GDP growth rate
Multiplier effect
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The theory that a particular increase in private or government spending (C, I, G, or Xn) in an economy will lead to a larger overall increase in GDP than the initial change in spending, due to the fact that the increase in incomes that result will lead to further increases in private spending throughout the economy. The size of the multiplier effect depends on the spending multiplier.

Multiplier effect
Productivity
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The output per unit of input of a resource. An important determinant of the level of aggregate supply in a nation. Will increase as a result of better or more capital, education and health, all which add to the human capital of a nation.

Productivity
Spending multiplier
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1/(1-MPC), or 1/MPS, where MPC is the marginal propensity to consume and MPS is the marginal propensity to save. It tells you how much total spending an initial injection of spending in the economy will generate. For example, if the MPC = .8 and the government spends $100 million, then the total increase in spending in the economy = $100 x 5 = $500 million.

Spending multiplier
Interest rate
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The opportunity cost of money. Either the cost of borrowing money or the cost of spending money. What would be given up by not saving money.

Interest rate

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