Economics Theme 2 (Macro) - Checkpoint 1.2/1.3

Front 1

Consumption

Back 1

total planned household spending

Front 2

consumption function

Back 2

the relationship between consumption and

disposable income; its position depends on the other factors that affect how much households spend on consumption

Front 3

Disposable income

Back 3

the income that households have to devote to consumption and saving, taking into account payments of direct taxes and transfer payments(benefits and pensions)

Front 4

Average propensity to consume

Back 4

The proportion of overall household disposable income devoted to consumption

Front 5

marginal propensity to consume (MPC)

Back 5

the proportion of any INCREASE in disposable income that households would devote to consumption

Front 6

marginal propensity to save (MPS)

Back 6

the proportion of any INCREASE in disposable income that households would devote to saving

Front 7

Aggregate demand

Back 7

the total amount of spending on G&S produced in an economy during a period of time

Front 8

Aggregate Demand curve

Back 8

the relationship between the level of AD and the overall price level; it shows planned expenditure at any given possible overall price level

Front 9

real balance effect

Back 9

A change in aggregate expenditures (C+I+G+(x-m)) on real production that results because a change in the price level alters the purchasing power of money. The higher the price level the lower the purchasing power of money.

Front 10

interest rate effect

Back 10

A change in aggregate expenditures on real production, especially those made by the household and business sectors, that results because a change in the price level alters the interest rate which then affects the cost of borrowing. If price levels fall then The Bank of England may reduce interest rates to stimulate demand and therefore AD increases.

Front 11

net trade effect

Back 11

A change in aggregate expenditures on real production that results because a change in the price level affects demand for exports and imports. If domestic price levels fall then demand for exports rises and imports falls, ceteris paribus.

Front 12

Wealth effect

Back 12

the effect upon consumer or corporate spending caused by a change in the value of assets, such as property prices or share prices.

When asset prices are rising, households and firms feel more comfortable and secure about their wealth, causing them to spend more.

Front 13

Investment

Back 13

Expenditure undertaken by frims to add to the capital stock (= spending on new capital goods)

Front 14

Depreciation (of capital goods)

Back 14

The fall in the value of physical capital equipment over time as it is subject to wear and tear

Front 15

Net investment

Back 15

Gross investment minus depreciation

Front 16

Interest rate

Back 16

the cost of borrowing money expressed as a % of the total borrowed

Front 17

Corporation tax

Back 17

a direct tax levied on business profits

Front 18

Net exports

Back 18

value of spending on imports minus value of spending on exports

Front 19

Fiscal policy

Back 19

Decisions made by government on levels of spending, taxation and borrowing

Front 20

Exchange rate

Back 20

the price of one currency in terms of another

Front 21

currency appreciation

Back 21

an increase in the value of one currency in terms of another

Front 22

currency depreciation

Back 22

an decrease in the value of one currency in terms of another