Chapter 1: Introduction to macroeconomics Flashcards
What relationships does macroeconomics study?
Relationships between one country and another.
What does the circular flow of income revolve around?
The flow of goods and services and factors of production between firms and households.
Where will household income go?
It could be put aside for future spending, paid to the government in taxation, go towards businesses or be spent on foreign-made goods and services (imports).
What are withdrawals?
Increases in savings, taxes or imports which reduce the circular flow of income and lead to a multiplied contraction of production.
What are injections?
Additions to investment, government spending or exports which boosts the circular flow of income and lead to a multiplied expansion of output.
When is an economy in equilibrium?
When the rate of injections = the rate of withdrawals from the circular flow.
What happens when the economy contracts and there is a recession?
GDP declines and there is unemployment.
What happens if the economy grows too quickly?
We risk the danger of rising inflation and balance of payment difficulties.
What are the seven macroeconomic goals?
High and sustainable economic growth, full employment, low and stable inflation, a reduced current account deficit, an improved distribution of income, a reduced budget deficit and national debt and a reduced level of environmental degradation.
Economic growth:
Maintain a steady rate of growth of real national output i.e. real GDP.
Low unemployment:
Maintain a low rate of unemployment in the labour market.
Low inflation:
Maintain a low rate of price inflation i.e. the annual % change in the price level.
Current account equilibrium:
Maintain a balance in the trade of goods and services and net flows of investment income
A less unequal distribution of income:
Work towards a fairer, but not necessarily equal, share of income to be distributed to all members within the economy in an attempt to reduce the inequality and extreme unfairness which presently exists.
Protection of the environment:
This is about protecting the natural environment on individual, organisational or governmental levels, for the benefit of the natural environment and future generations.
