Macroeconomic Equilibrium Test Questions – Flashcards
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Components of Aggregate Demand
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Aggregate demand is the total spending on goods and services in a period of time at a given price level -Consumption -Investment -Government spending -Net exports
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Components of Consumption
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Consumption is the total spending by consumers on domestic goods and services -Changes in income -Changes in interest rates -Changes in wealth -Changes in expectations/consumer confidence -Household Indebtedness
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Components of Investment
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Investment is the addition of capital stock to the economy -Interest Rates -Changes in the level of national income -Technological changes -Expectations/business confidence
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Components of Government Spending
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All kinds of spendings of the government -Commitment to support a given industry -Obliged to spend to correct market failure -Health policy might require increased government spending on schools or education
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Components of Net Exports
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Net exports are the difference between a country's total value of exports and total value of imports Exports/Imports -Changes in foreign/national income -Changes in value of countries currency -Changes in a country's trade policy -Relative rates of inflation
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Consumer Confidence Index
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Measure of consumers confidence level (if high will increase consumption)
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Business Confidence Index
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Measure of business confidence level (if high will increase investments)
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Fiscal Policy
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Fiscal Policy is defined as the set of a government's policies relating to its spending and taxation rates
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Monetary Policy
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Monetary policy is defined as the set of official policies governing the supply of money in the economy and the level of interest rates in an economy
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Short-run Aggregate Supply
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The SRAS curve shows the relationship between the average price level and the level of national output under the ceteris paribus assumption - we assume that the factor of production costs remain constant
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Macroeconomic Equilibrium
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Macroeconomic equilibrium is an economic state in an economy where the quantity of aggregate demand equals the quantity of aggregate supply
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Short-run Equilibrium
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The economy is in short run equilibrium when aggregate demand equals short run aggregate supply (SRAS).
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Long-run Equilibrium
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The long-run equilibrium is where AD is equal to long-run aggregate supply (LRAS).
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Inflationary Gap
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An inflationary gap is where the economy is in equilibrium at the level of output that is greater than the full employment level of output or beyond the long-run aggregate supply curve.
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Deflationary Gap
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A deflationary gap is where the economy is in equilibrium at a level that is less than the full employment level of output.
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Recessionary Gap
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A deflationary gap is where the economy is in equilibrium at a level that is less than the full employment level of output.
