Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Macro-economics > 2.1 Measures of Economic Performance > Flashcards

2.1 Measures of Economic Performance Flashcards

1
Q

What are the Macro-economic objectives?

A

Strong, sustainable growth

Low unemployment

Low and stable inflation 2% (+/- 1%)

Balance of Trade

Fair distribution of income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is the circular flow of income?

A

A model of the economy in which the major exchanges are represented as flows of money, goods and services between economic agents.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are the leakages of the circular flow of income?

A

Taxation

Imports

Savings

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are the injections of the circular flow of income?

A

Government Spending

Exports

Investment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is the equation for “Aggregate Demand”?

A

Aggregate Demand = Consumption + Investment + Gov. Spending + (Exports - Imports)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Causes of economic growth

A

Lower Interest Rates

Lower Income/Corporation Tax

Higher Consumer/Business Confidence

Increased Gov. Spending

Weaker Exchange Rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is an output gap?

A

When actual growth in the business cycle is less or greater than the potential growth.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Characteristics of an Economic Boom

A

Growth faster than the trend rate of growth

Increased Business and Consumer Confidence

High Demand for Imports

Rising Tax Revenues

Low Unemployment

Inflation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Characteristics of a Recession

A

Declining Aggregate Demand

High Unemployment

Falls in Consumer and Business Confidence i.e. Consumption and Investment

Fall in house prices

Lower Inflation

Increased Government Spending

Lower Tax Revenue

Lower Demand For Imports

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Characteristics of a Recovery

A

Rising Consumer Confidence

Higher House Prices

Rising Business and Consumer Confidence

Higher Investment

Increased Gov. Spending

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is Monetary Policy?

A

The Government using Interest Rates or the Money Supply to Change the Level of Aggregate Demand and National Income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is Fiscal Policy?

A

The means by which a government adjusts its spending levels and tax rates to monitor and influence a nation’s economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is unemployment?

A

The unemployed consist of those who are of working age, who are willing and able to work, actively seeking work but do not have a job

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is Nominal GDP

A

Gross Domestic Product without taking inflation into account

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is Real GDP

A

Gross Domestic Product with Inflation taken into account

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is quantitative easing?

A

The central bank purchasing illiquid assets from the open market to increase the money supply in the economy and encourage lending and investment.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What are Purchasing power parities

A

Measurement of prices in different countries that uses the prices of specific goods to compare the absolute spending power of the countries’ currencies.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Limitations of using GDP to compare living standards

A

No indication of the distribution of income

May need to be recalculated in terms of purchasing power, to account for international price differences

Large hidden economies such as the black market which aren’t taken into account.

No indication of welfare

19
Q

What is Deflation?

A

When there is a sustained drop in the average price level. Negative Inflation rate

20
Q

What is Inflation?

A

The general increase of prices in the economy which erodes the purchasing power of money.

21
Q

What is Disinflation?

A

A reduction in the rate of inflation

22
Q

What is the Consumer Price Index (CPI) ?

A

A measure that examines the weighted average price of a basket of consumer goods and services.

23
Q

Limitations of CPI when measuring inflation

A

Basket of goods is only representative of the average household

Different demographics have different spending patterns

CPI is slow to respond to new goods and services

24
Q

What is the Retail Price Index (RPI) ?

A

Alternative measure of inflation to CPI, Includes housing costs such as payments on mortgage interest and council tax. It excludes the top 4% of earners and low income pensioners.

25
Q

Demand side factors in inflation

A

A depreciation in the exchange rate (causing imports to become more expensive and exports to be cheaper)

Fiscal stimulus in the form of lower taxes or more Gov. Spending. I.e. more disposable income

Lower interest rates to discourage saving and encourage borrowing and investment

High growth in UK export markets means UK exports increase and AD increases

26
Q

Supply Side Factors in Inflation

A

Raw materials become more expensive

Labour becomes more expensive

Expectations of inflation (wage price spiral)

Indirect taxes causes goods to become more expensive

Depreciation in the exchange rate causing imports to be more expensive pushing the price of raw materials

Monopolies using their dominant market position to exploit consumers with higher prices

27
Q

Effects of inflation on consumers

A

Those on fixed or low incomes are hit hardest by inflation as they will have less purchasing power decreasing their disposable income thus decreasing their standard of living

Loans are cheaper to pay as the amount owed does not increase with inflation, so the real value of the debt decreases

28
Q

Effects of inflation on Firms

A

High inflation means interest rates are likely to be higher discouraging investment

Workers might demand higher wages increasing cost of production

Less price competitive on a global scale if inflation is high

29
Q

Effects of inflation on the Government

A

Must increase the value of the state pension as cost of living is increased

Must increase the value of welfare payments as cost of living is increased

30
Q

Effects of inflation on Workers

A

Real incomes fall with inflation, so workers will have less disposable income

Firms may face higher costs, meaning there could be more redundancies when firms try to cut their costs

31
Q

Who are the Underemployed?

A

Those who have a job, but their labour is not used to its full productive potential. E.g. those who are in part time work but are looking for a full time job, and those who are working below their skillset

32
Q

Effects of unemployment on Consumers

A

If consumers are unemployed, they have less disposable income and their standard of living may fall as a result

Psychological consequences of losing a job which could affect mental wellbeing of the workers

33
Q

Effects of unemployment on Firms

A

Firms have a larger supply of labour to employ from, causing wages to fall which would help firms reduce their costs

Higher rates of unemployment mean consumers have less disposable income thus meaning consumer spending falls causing firms to lose profits.

Producers which sell inferior products might see a rise in sales

34
Q

Effects of unemployment on Workers

A

There is a waste of workers’ resources. Could lose existing skills if they aren’t fully utilised. Those in jobs are likely to see a fall in their wages as supply of labour increases.

35
Q

Effects of unemployment on the Government

A

Government may have to spend more on job seekers allowance, incurring an opportunity cost

Receives less revenue from income tax, and from indirect taxes as consumption is down

36
Q

Effects of unemployment on Society

A

Opportunity cost to society since workers could have produced goods and services if they were employed

Crime and vandalism could increase if unemployment rate increases

37
Q

Who are the economically inactive?

A

Those who are not actively looking for jobs. Includes children, disabled, carers for the elderly or those who have retired and some who are discouraged from the labour market

38
Q

What is Structural Unemployment?

A

Unemployment resulting from industrial reorganisation, typically due to technological changes rather than fluctuations in supply and demand

39
Q

What is frictional unemployment?

A

Unemployment which exists in any economy due to people being in the process of moving from one job to another.

40
Q

What is Seasonal Unemployment?

A

Occurs during certain points in the year when demand for labour is decreased, i.e. during summer more people will be employed in the tourist industry

41
Q

What is Cyclical Unemployment?

A

Caused by a lack of demand for goods and services, typically occurs during periods of economic decline or recessions. Firms are either forced to make workers redundant or close because their profits are falling.
Could be caused by increases in productivity which means output per worker is higher so less workers are needed.

42
Q

What is real wage inflexibility?

A

When wages are above the market equilibrium typically causing unemployment.

43
Q

Components of the current account

A

Trade in goods

Trade in services

Investment incomes

Net transfers

44
Q

What is a current account surplus?

A

There is a net inflow of money into the circular flow of income. The UK economy has a surplus with services but a deficit with goods.

Macro-economics (5 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions