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Macro Economics > Balance of payments > Flashcards

Balance of payments Flashcards

1
Q

What is the circular flow of income?

A

The flow of national output, income and expenditure between households and firms

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2
Q

What are the injections in the CFI?

A
  • Gov spending
  • Investments
  • Exports
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3
Q

What are the leakages in the CFI?

A
  • Taxes
  • Imports
  • Savings
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4
Q

What are the 4 factors of production and examples in the CFI?

A

Labour= Wages
Land= Rent
Capital= Interest
Enterprise= Profit

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5
Q

What are the 3 ways of measuring GDP?

A

Output= Value of all the final goods and services produced
Income= Sum of all factor income
Expenditure= Sum of all spending on goods/services by households

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6
Q

Formula for AD

A

C + I + G + (X-M)

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7
Q

What is aggregate demand?

A

Total planned expenditure on goods and services at a given price level, in a given period of time

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8
Q

What is ceteris paribus?

A

All other things remaining the same

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9
Q

What factors cause an increase in consumption?

A
  • Lower unemployment
  • Reduced interest rates
  • New tech and products
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10
Q

What factors cause an increase in investment?

A
  • Increased business confidence
  • Lower interest rates
  • Higher company profits
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11
Q

What factor causes an increase in gov spending?

A

Higher gov spending without tax increases

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12
Q

What factor causes an increase in net exports?

A

Improved innovation and quality in UK goods increase exports

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13
Q

What causes a decrease in AD?

A
  • Decrease in C, I, G and X
  • Increase in M
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14
Q

What is the accelerator process?

A

Change in the level of investment in new capital goods induced by a change in the rate of growth of AD

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15
Q

What causes a movement along the AD curve?

A

Changes in price level

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16
Q

What causes a shift in the AD curve?

A

Changes in C, I, G, X or M

17
Q

What causes an increase in AD?

A
  • Increase in C, I, G, and X
  • Decrease in M
18
Q

What is trade balance?

A

The difference between the value of its exports and the level of its imports

19
Q

What is trade surplus?

A

Occurs when a country exports more than it imports

20
Q

What is trade deficit?

A

Occurs when a country imports more than it exports

21
Q

Pros of trade surplus?

A
  • Increases national income
  • Boosts employment
  • Strengthens the country’s currency
22
Q

Cons of trade surplus?

A
  • Can lead to inflation if there’s too much demand for a country’s goods
  • May cause trade tensions with other countries
  • Over reliance on exports can make the economy vulnerable to global market changes
23
Q

Pros of trade deficit?

A
  • Access to a wider variety of goods and services
  • Can lower prices of imports
  • Indicates strong domestic demand
24
Q

Cons of trade deficit?

A
  • Weakens the country’s currency
  • Dependency on foreign goods may harm domestic industries
  • Job losses in sectors that cannot compete with cheaper imports
25
Q

How to calculate weighted inflation rate

A

Total price change x weights/ Total weights

26
Q

What is aggregate supply?

A

Measures the total output produced within an economy at a given price level

27
Q

Why is the SRAS curve upward sloping?

A

If there is an increase in price level, there’s an increase in production as firms would be more willing to produce as the price is higher

28
Q

What are two macroeconomic assumptions that are made?

A
  • All firms aim to maximise profits
  • In the short run, cost of producing extra units of output increases as firms produce more
29
Q

What causes the SRAS curve to shift?

A

Changes in cost of production

30
Q

What is the results of a reduction in business costs?

A
  • Increase in national output
  • Deflationary pressure
31
Q

What is the results of an increase in business costs?

A
  • Decrease in national output
  • Inflationary pressure
32
Q

What does LRAS show?

A

The maximum possible output when all factors of production are fully and efficiently employed

33
Q

What does the classical version of LRAS show?

A

AS is fixed at a given level of real output whatever the price level as the price level does not affect these long run determinants of real GDP, it is determined by factor of productions

34
Q

What factors influence LRAS?

A
  • Higher productivity of labour and capital
  • Growing population and increased market participation
  • Innovation and enterprise
  • Stock of natural resources
35
Q

What does the Keynesian version of LRAS show?

A
  • Disagrees with there being a SRAS and LRAS
  • Argue that wages don’t necessarily fall even if there is unemployment
  • Agree that there is a point of full employment
36
Q

Why are wages sticky?

A
  • National minimum wage
  • Trade unions
  • Concern of causing demotivation for existing staff
37
Q

What causes a higher price level in LRAS?

A

When FOP is becoming scarce enough for a rise in demand to push up wages

38
Q

Where does macroeconomic equilibrium occur?

A

AD = AS

Macro Economics (2 decks)

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