macroeconomics

• income: the payment given to households for the factors of production.
• Disposable income: the money households have to spend and save once income tax has been deducted.
• What are the components of disposable income?

  • wages/salaries
  • investment income (rental income, shares, interest)
  • transfer payments (government benefits)
  • other (self-employment/royalties)
• examples of government benefits

  child benefits, pension and unemployment benefits
• disposable income and consumer spending has a positive (direct) relationship
• MPC stand for Marginal Propensity to Consume
• What's the equation for MPC


  change in consumption per year / change in income per year
• Consumption Function

  The relationship between income and consumption
• If business costs decrease, profits increase.

  ceteris parabus.
• four stages of the trade cycle: expansion, peak, contraction, trough
• In the recession stage, the government may decrease taxes and increase government spending to encourage economic growth and recovery.
• In the boom stage, the government should decrease its spending and increase its taxes.

  this counteracts the boom and makes the economy more sustainable in the long term.
• Imports(M)

  withdrawals from the circular flow due to buying goods and services from other countries
• Exports (X)

  Injections into the circular flow due to selling goods and services to other countries.
• Injections (J)

  I + G + X

  investment, government spending, exports
• Withdrawals (W)

  S + T + M

  savings, taxation, imports
• SRAS (short-run supply)

  this is the total quantity of goods and services in an economy that firms are willing and able to produce * at a given price *.
• productivity: the efficiency of the production process.
• real balance effect

  impact on spending due to decrease in the purchasing power of a certain amount of money (balance) because of inflation.

  e.g. the value of a £1 coin has decreased due to inflation.