Flashcards for:
Key Macroeconomics Exam Questions

APC is the ratio of total consumption to income (APC = C/Y), while MPC is the change in consumption due to a change in income (MPC = ΔC/ΔY).

The money multiplier indicates how a change in high powered money will affect the money supply, calculated as 1 / reserve ratio. For example, with a reserve ratio of 10%, the multiplier is 10.

Direct taxes are imposed directly on individuals or organizations (e.g., income tax), while indirect taxes are imposed on goods and services (e.g., sales tax).

The three components are net compensation of employees, net income from property and entrepreneurship, and net retained earnings of resident companies abroad.

Factor income is earned from the factors of production (wages, rent, interest, profits), while transfer income is received without providing any good or service in return (pensions, scholarships).

Revenue deficit occurs when revenue receipts are less than revenue expenditures. Fiscal deficit includes the revenue deficit and also accounts for borrowings to meet this gap.

The central bank controls the money supply through credit control and acts as the lender of last resort to banks during financial instability.

Avoid double counting by excluding intermediate goods, and ensure only new production is counted by excluding second-hand sales.

Capital goods are used to produce other goods (e.g., machinery), while consumption goods are used by consumers to satisfy needs (e.g., food).

The consumption function shows the relationship between consumption and disposable income, typically represented as C = a + bY where 'a' is autonomous consumption and 'b' is the marginal propensity to consume.

Stock refers to a quantity measured at one specific time, while flow refers to a quantity measured over a period of time.

The circular flow diagram illustrates the flow of goods and services and money among households and firms in an economy.

High powered money includes currency held by the public and reserves of commercial banks, serving as the base for the money supply.

The GDP deflator measures the change in prices of all new, domestically produced, final goods and services, and is used to adjust nominal GDP to real GDP.

Devaluation is the intentional reduction of a currency's value by a government, while depreciation is a gradual decrease due to market forces.

BOP records all transactions with the rest of the world, including goods, services, and capital, while BOT only records the difference between exports and imports of goods.

Real GDP is adjusted for inflation, reflecting the value of goods and services at constant prices, while nominal GDP is measured at current prices.

Final goods are products purchased for final use, like a car. Intermediate goods are used as inputs in the production of other goods, like steel used in car manufacturing.

Current transfers do not affect the capital account and include gifts and remittances. Capital transfers involve the transfer of ownership of an asset, like debt forgiveness.

Domestic income is generated within a country's borders regardless of the recipient's nationality; national income includes income earned by nationals both domestically and abroad.