3 - Economic environment Flashcards
What is leakages in circular flow
Imports, Savings tax
What is injection in circular flow
Investment, Gov spending, Exports
What are the phases of economic cycle
- Recovery
- Boom
- Slowdown
- Recession
What is the difference between gov expenditure and revenue receipt called
Public sector net cash requirement
What is the purchasing managers index
A economic indicator from Chartered institute of procurement and supply CIPS.
What are key economic indicators
Earnings Growth
GDP
CPI
PPI
PMI
Unemployment rate
What does BOP consist of
Current Account
Capital and financial account
What is capital account and financial account
Deals with foreign investment in UK and UK investment abroad
Capital account -> movement of money for investment (property or financial assets)
Financial accounts -> change in ownership of financial assets between country residents and non-residents
What is current account
Import and exports of UK:
Trade in goods
Trade in services
Investment income
Transfer payment
What is UK official internation reserves made up of?
Foreign currencies
Gold
IMF, SDRs (Special drawring rights)
UK reserves tranche position at IMF
What is narrow money
A measure of money supply:
Consists of notes and coins in circulation, banks operational deposits within BOE
M0 -> Reflects changes in economic cycle but does not cause them - has litttle effect on National output or inflation
Indicator of consumer spending
What is broad money
M4
notes and coins in circulation. All instant access and deposit accounts of UK residents (banks)
Include deposits created by banks through lending activites and deposits when people want to save
Acts as economic indicator
Increase in demand for loans = M4 growth
What is a key measure related to money supply
Velocity of circulation of money
How do CB control money supply
Using repo markets - through OMO
How many members does MPC have and how often do they meet a year
9 members
8 times a year
What happens if CPI is missed by 1% either side
Governor of bank must write open letter to chancellor explaining reasons
What is the effect of interest rate on cash investment
Fluctuate with prevailing rate of IR.
Fall IR -> cash deposit less attractive
Rise IR -> Cash deposit more
What is the effect of interest rate on fixed interest securities
Inverse relationship between IR (PRICE OF FIXED INTEREST SECURITIES)
as ir falls fixed interest securities price increase
as ir increase fixed interest securities decrease
What is the effect of interest rate on equities
Equities benefit from low IR -> low ir more borrow more profit
What are inflation measures in UK
CPI
CPIH
RPI
What does CPI consist of
Basked of good - average change month to month in price of consumer goods
What does CPIH consist of
CPI + Owners occupiers housing cost and council tax
What does RPI consist of
Used for pensions for DB schemes and index-linked guilt
What is stagflation
stagnent growth and inflation
Wat can government policies affect
IR and currencies
Elections and economic cycles
