National Income
Name 4 sectors in the circular flow of income model (given already that financial markets exist).
Household, Firm, Govt, and Rest of the world/other countries
An increase in the interest rate will shift AD to ____
left
Give the formula to calculate the real interest rate.
nominal interest rate - inflation
Name 2 injections and 2 leakages in the circular flow of income
injections - investment, govt spending, export
leakages - savings, tax, import
Distinguish between the short and long run in macroeconomics.
short - price of resources is inflexible
long - price of resources, including wages, is flexible
Market-based supply-side policies can be grouped under 3 heads. What are those?
encouraging competition, labour market reforms, and incentive-related policies (pg 413)
Differentiate between nominal and real GDP by defining them.
Nominal - GDP at current year prices
real - GDP at base year prices
Use a diagram to show the Keynesian AS curve. Explain its shape
pg 287 of the textbook
Differentiate between the government budget deficit vs government debt
pg 399
Explain the 3 ways that GDP can be measured.
Income, expenditure, and output also explain a little about each.
Show diagrams for an economy with an inflationary and deflationary gap. Label it correctly and give a short explanation.
pg 283 of the textbook
Explain and illustrate a policy where demand and supply side effects overlap.
education spending, cut in income taxes
Draw a business cycle showing actual output, potential output, and unemployment. Show the output gaps (both when actual GDP is more than potential GDP and when actual GDP is less than potential GDP).
Diagram in the book.
Explain via diagrams how the Keynesian model differs from the monetarist/new classical model in its prediction of rising price levels following an increase in AD.
pg. 293 of the textbook
Use a diagram to explain crowding out.
pg 403