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Macroeconomics > 2. Economic Policy Objectives > Flashcards

2. Economic Policy Objectives Flashcards

1
Q

Factors which cause economic growth

A

Increase in AD
Improving labour force, productivity up
Improved tech, more productive
More investment
Capital deepening- increase capital to labour ratio

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2
Q

Potential growth

A

LR expansion of LRAS, potential is what the country could achieve,

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3
Q

Factors affecting AD

A

High consumer confidence levels
Interest rates
Tax rates
Increased gov spending
Currency changes
Wealth, people feel richer and spend more
Credit availability

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4
Q

Micro finance schemes

A

Borrowing small amounts from lenders to finance enterprises
Increases income of people that borrow, reduce dependence on primary products
Multiplier

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5
Q

HDI

A

life expectancy
mean years of schooling - education
GNI per capita

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6
Q

CPI - consumer price index

A

survey is used
average household
what consumer spend income on, each year it’s updated, goods are weighted
slow to respond to goods, technology is way different, different product all together now

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7
Q

RPI - retail price index

A

Includes housing costs, more accurate to cost of living
Only in the UK
not good for comparison between countries

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8
Q

causes of inflation

A

demand pull
cost push
growth of money supply

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9
Q

quantitative easing

A
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10
Q

cause of deflation

A

fall in AD
increase in AS, lowers production costs for firms

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11
Q

relative poverty

A

in uk, below 60% of the median income

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12
Q

absolute poverty

A

below living subsistence
world bank says less than $1.25 a day

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13
Q

causes of poverty and inequality

A

inequality in wages and unemployment
welfare payments
taxes
disease, malnutrition and health problems
wars and conflicts
corruption and polictal oppression
natural disasters

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14
Q

inequality in wages

A

level of education, part time limits how much is earned, discrimination, women taking career breaks, disabilities, can’t get a job

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15
Q

regressive tax

A

lower income have a higher burden, cigarettes and alcohol affect low income people more

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16
Q

kuznets curve

A

as an economy moves towards industrial, wages increase faster than the farmers, inequality, wealth is redistributed by education, inequality reduces once nations are developed

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17
Q

consequences of poverty

A

health, malnutrition, vulnerable to infections
society, crime and mental health issues
education, sometimes have to decide between school or working from a young age
economy, high paying jobs are not accessible, hinders the economy’s ability to improve potential

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18
Q

consequences of inequality

A

may motivate workers to learn new stills and work hard
monopolies can exploit
inheritance, inequality of wealth can lead to inequality of income, inheritance tax
discourages and demotivates people, social unrest

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19
Q

NAIRU

A

non accelerating inflation rate of unemployment

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20
Q

macroeconomic objectives

A

growth
unemployment
inflation
balance trade position
income distribution

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21
Q

ways of measuring unemployment

A

claimant count method
labour force survey

22
Q

claimant count

A

counts the number of people claiming benefits, excludes people who are looking for work

23
Q

labour force survey

A

asking 60,000 people whether they were unemployed and whether they were looking for a job
people may lie, sample

24
Q

costs of unemployment

A

loss of earnings, lower living standards
more difficultly getting work in future
stress problems of being unemployed

25
Q

causes of unemployment

A

frictional
structural
real wages too high
fall in AD

26
Q

balance of payments

A

capital account
financial account
capital account

27
Q

four sections to current account

A

trade in goods
trade in services
investment and employment income
transfers(secondary income)

28
Q

policies to redistribute income

A

progressive tax
benefits
min wage
education/training

29
Q

equity vs equality

A

equity- fair
equality- equal

30
Q

causes of poverty

A

unemployment
poor education
poor health
born into it
tax cuts for well off

31
Q

reasons for difference in income and wealth

A

age
education
ownership of assets
ownership of property
wage differences

32
Q

expansionary monetary policy cons

A

demand pull inflation
CA deficit
liquidity trap
negative impact on savers
time lags

33
Q

expansionary monetary policy

A

increase inflation
increase growth
reduce unemployment

34
Q

contractionary monetary policy

A

reduce inflation
prevent asset

35
Q

evaluating monetary policy use

A

size out output gap
consumer confidence
business confidence
banks willingness to lend
size of rate cut

36
Q

contractionary monetary policy pros

A
  • demand pull inflation down,cost push NOT
  • discourage debt, banks are safer
  • sustainable borrowing
  • encourage saving/ harrod domar
  • recuding rate of growth of house prices
  • reduce ca defecit
37
Q

cons of contractionary monetary policy

A
  • lower growth
  • more unemployment
  • higher debts
  • less investment, hurts LR growth
  • worsen CA deficit due to strong pound, hot money
38
Q

costs of inflation

A
  • lower purchasing power
  • erosion of real value of savings
  • lower exports
  • workers ask for pay rise, increases inflation even more
39
Q

benefits of inflation

A
  • workers get higher wages
  • firms encouraged to increase output
  • reduces real value of debt
  • improved gov finances
40
Q

interventionist supply side policy

A

gov spending on education
gov spending on infrastructure
subsidies to promote investment

41
Q

market based SSP

A
  • lower income and corporation tax
  • reduce benefits, min wages,TU power
  • privatisation/deregulation/trade liberalisation
42
Q

expansionary policy trade offs and conflicts

A
  • inflation
  • CA position
  • high growth from high skilled industries , income inequality
43
Q

contractionsry policy trade offs and conflicts

A
  • growth falls
  • unemployment
  • labour productivity bad, higher tax reduces willingness to work
44
Q

contractionsry policy trade offs and conflicts

A
  • growth falls
  • unemployment
  • labour productivity bad, higher tax reduces willingness to work
45
Q

floating exch rate positives

A
  • reduces need for reserves
  • can correct CA deficit
46
Q

monetary union advantages

A
  • non fluctuating exchange rate
  • more business confidence
  • currency is more stable
47
Q

monetary union disadvantages

A
  • loss of monetary policy control
  • lack of fiscal union, govt overspending
  • currency may collapse due to this
48
Q

terms of trade

A

average export price/
average import price
x100

49
Q

Marshall Lerner condition

A
  • depreciation will only correct CA deficit if
    PED net exports > 1
  • cause of P and TR changes due to inelasticity
50
Q

policies to recude CA deficit

A
  • contractionary fiscal and monetary policy
  • protectionist
  • depreciation
  • supply side
51
Q

j curve

A

inelastic net exports in the SR, currency depreciation actually decreases total revenue

Macroeconomics (5 decks)

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