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Econ > Blink Chap. 13-16 > Flashcards

Blink Chap. 13-16 Flashcards

1
Q

Macroeconomics

A

the branch of economics concerned with large-scale or general economic factors and concerned with the allocation of a nation’s resources, such as interest rates and national productivity.

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2
Q

Equilibrium level

A

where aggregate demand is equal to long-run aggregate supply.

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3
Q

When can aggregate supply be elastic?

A

when there is an existence of spare capacity, high levels of used factors of production like unemployed workers, or underutilized capital.

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4
Q

Output gap

A

when there is not enough aggregate demand to buy the potential output that could be produced at the full-employment level of output.

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5
Q

Deflationary/ recession gap

A

where the economy is in equilibrium at a level of output that is less than the full-employment level of output.

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6
Q

Inflationary gap

A

the economy is in equilibrium at a level of output that is greater than the full employment level of output. (according to new classical: it is only possible in the short run)

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7
Q

spare capacity

A

there are spare factors of production

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8
Q

What happens when an economy has plenty of spare capacity?

A

Short-run aggregate supply (SRAS) is elastic, and the output gap is negative.

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9
Q

Inflation

A

is an increase in the general price level of goods and services in an economy.

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10
Q

GDP

A

the total value of all final goods and services produced in an economy in a year.

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11
Q

Variable: Economic growth
Objective: _____

A

Objective: A steady rate of increase of national income

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12
Q

Variable: Employment
Objective: _____

A

Objective: A low level of unemployment

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13
Q

Variable: Price Stability
Objective: _____

A

Objective: A low and stable rate of inflation

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14
Q

Variable: National Debt
Objective: _____

A

Objective: A sustainable level of government (national) debt

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15
Q

Variable: Income distribution
Objective: _____

A

Objective: An equitable distribution of income

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16
Q

Ways to measure GDP?

A

Output method, the Income method, the Expenditure method

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17
Q

Different sectors to measure in the Expenditure method

A

C: Consumption, spending by households
I: Spending by firms, known as investment
G: Spending by governments
(X - M): Net exports, spending by foreigners on exports minus spending on imports.

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18
Q

GDP = __ + __ + __ + (__ - __)

A

GDP = C + I + G + (X - M)

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19
Q

GNI

A

Gross national income, total income that is earned by a country’s factors of production regardless of where the assets are located.

20
Q

net property income from abroad =

A

(property income from abroad) - (income paid to foreign assets operations domestically)

21
Q

GNI = ___ + _____

A

GDP + net property income from abroad

22
Q

Nominal GDP

A

is the value at current prices

23
Q

GNI per capita =

GDP per capita =

A

GNI / size of the population

GDP / size of the population

24
Q

Limitation of national income statistics (5)

A
  1. Inaccuracies
  2. Unrecorded or under-recorded economic activity - informal markets
  3. External costs
  4. Other quality of life concerns
  5. Composition of output
25
Q

The business cycle is …

A

the periodic fluctuations in economic activity measured by changes in real GDP.

26
Q

Recovery phase:

Boom:

Recession:

Trough:

A

GDP increasing at a rising rate

the maximum GDP

2 consecutive quarters of negative GDP growth (falling GDP).

contraction comes to an end.

27
Q

What can happen in a recession?

A

lay off workers (unemployment rises) → less spending/ low demand → lower rates of inflation.

28
Q

What can happen in a trough?

A

There will be lower interest rates → demand will slowly increase again → cycle starts again.

29
Q

Measures of economic wellbeing

A

OECD Better Life Index, Happiness Index, Happy Planet Index (HPI)

30
Q

Aggregate demand

A

is the total spending on goods and services in a period of time at a given price level.

31
Q

Components of AD

A

Consumption, Investments, Government spending, Net Exports

32
Q

What causes a change in consumption?

A
  1. Changes in income taxes
  2. Changes in interest rates
  3. Changes in wealth
  4. Changes in consumer confidence/ expectations
  5. Level of household indebtedness
33
Q

What causes changes in investment?

A
  1. Change in interest rates
  2. Change in business taxes
  3. Technological change
  4. Changes in business confidence/ expectations
  5. Levels of corporate indebtedness
34
Q

Aggregate supply is

A

the total amount of goods and services that all industries in the economy will produce at every given price level.
Distinguishes short-run and long run

35
Q

2 key features of SRAS (short-run aggregate supply)

A

Prices of production are fixed. Most importantly, the price of labour- wage rate.

A change in any of the factors of production other than price will result in a shift of the SRAS.

36
Q

Examples in changes in the cost of production (SRAS)

A
  1. Changes in wage rates
  2. A change in the cost of raw materials
  3. A change in the price of imports
  4. A change in government indirect taxes or subsidies
37
Q

What does new classical LRAS look like?

A

Is it perfectly inelastic /vertical at “full employment level of output”

The full employment level of output represents the potential output that could be produced in the economy were operating at full capacity (called Y1)

The LRAS is independent of price levels.

38
Q

What does Keynesian AS look like?:

A

Does not distinguish between the short run and the long run

39
Q

Phase 1 of the Keynesian AS

A

AS will be perfectly elastic at low levels of economic activity. Producers can raise levels of output without experiencing higher average costs, this is because of the existence of “spare capacity”.

40
Q

Phase 2 of the Keynesian AS

A

as the economy approaches potential output, and the “spare capacity” is being ‘used up’, → economy’s available factors of production become more scarce → Producers have to bid/compete for scarce factors.

Higher prices for factors of production → higher costs for producers → increase in price levels. This results in (2) upwards-sloping AS.

41
Q

Phase 3 of the Keynesian AS

A

when all factors are used, full capacity. This suggests that AS is perfectly inelastic. Output cannot be increased without an increase in the quantity or improvement in the quality (productivity) of the facts of production.

42
Q

Inflationary gap

A

the economy is in equilibrium at a level of output that is greater than the full employment level of output.

(according to new classical: it is only possible in the short run)

43
Q

Deflationary/ recession gap

A

where the economy is in equilibrium at a level of output that is less than the full-employment level of output.

44
Q

Output gap

A

when there is not enough aggregate demand to buy the potential output that could be produced at the full-employment level of output.

45
Q

Purely inflationary

A

there is no increase in output only an increase in the price level.

Econ (3 decks)

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