01 Macroeconomics Bird's Eye View of the Economy Flashcards
Main actors in economy
Households (consumers), firms (producers), the NZ Government, the RBNZ
What do households do?
1) Buy and consumer outputs produced by firms
2) Provide the “factors of production” that firms use to produce output (households can be workers who provide labour, landlords who provide land, shareholders who provide capital)
What do firms do?
1) Produce and sell outputs (physical goods and services) to households
2) Pay households for the “factors of production” they provide (firms pay wages to workers, rent to landlords, dividends to shareholders)
Market
Where households and firms meet and transact
Examples of Markets for Factors of Production
The job market, the commercial property market, the credit market, the stock exchange etc.
Scarcity and examples of scarcity
Limitation on resources (time, income, resources), we can never have all that we want
Trade-offs
Something that one must give up in order to obtain something else
What does the government do?
1) Create the legal environment in which transactions between households and firms take place
2) Decide what services to provide, and fund them
Sources of Government Funds
1) Taxes paid by households and firms (higher taxes reduce private consumption and savings)
2) Borrowing: by issuing government bonds (creates liabilities for future, and requires higher future taxes)
Fiscal policy
Decisions that determine the government’s budget, including the amount and composition of government expenditures and government revenues (decisions on the amount of taxes collected)
Monetary policy
Conducted by central bank, which focuses on the determination of the nation’s money supply and thereby controlling the nation’s interest and exchange rates.
Normative Economics
How people should behave (what is desirable, involves the values of the person doing the analysis)
Positive Economics
How people will behave (the economic consequences of a particular event)
Economic Growth
The steady increase in the quantity and quality of goods and services the economy can produce
Standard of Living
Indicates how much the average person produces and the degree to which people have access to goods and services that make their lives easier, healthier, safer, and more enjoyable (regularly measured as Real GDP per capita, measured by output per person)
Expansion
A period of rapid economic growth during which jobs are easier to find, more people get raises and promotions, and most businesses thrive
Inflation
The inflation rate is the rate at which prices in general are increasing over time.
Unemployment rate
The unemployment rate is computed as the number of unemployed divided with the labor force (percentage of the labour force that is out of work, the fraction of people who would like to be employed but can’t find work)
Recession (contraction)
A period in which the economy is growing at a rate significantly below normal.
Trade Deficit
Occurs when exports are less than imports
Trade Surplus
Occurs when exports exceed imports
Trade imbalance
Occurs when the quantity of a country’s exports differs significantly from the quantity of imports
Average labour productivity
Measured by output per employed worker (e.g. ($1,000 billion/30 million = $33,333)