Chapter 1: Why Macroeconomics? An Introduction To The Issues Flashcards
What is macroeconomics
The study of structure and performance of the national economy and government policies that are used to influence the performance of an economy
What are the main objectives of the macroeconomic policy
- economic growth and low employment
- stability of output and employment levels
- stable and low inflation
- balance of payments equilibrium in the long run
- distribution of income and equity
- economic development and poverty reduction
Define economic growth
Sustained increase in the trend level of aggregate production or average GDP per person
Define long-run growth path
Long-term trend line around which short-term cyclical fluctuations occur
What are the factors to consider when looking at economic growth and low unemployment
- inequality
- substitution of labor with capital
- employment growth
Explain the difference between the narrow and broad unemployment rate
Narrow unemployment rate only includes those that do not have a job but are actively looking, while broad includes those that are not actively looking for a job but are willing to work
What’s a business cycle
Economic upswings and downturns
What can be used to attempt to counteract the instability cost by business cycles
Countercyclical fiscal and monetary policies can be used
What is inflation
It is the sustained increase in the general or average price level
What is the impact of inflation
- Exports decrease and imports increase = the balance of payment account is under pressure
- Borrowers benefit from inflation because the real value of the debt decreases
- Lenders are harmed by inflation
- Pensioners are harmed by inflation
- Inflation harms tax payers
- Low income households are more harmed by inflation than higher income households
What is the trade-off between inflation and other macroeconomic objectives
- Increase in economic growth = higher inflation
- Lower unemployment rate = higher inflation
- If domestic inflation is > than inflation of trading partners then exports will be discouraged and imports encouraged
What is the objective of balance of payments equilibrium in the long run
- It is that balance of payments should be in equilibrium
- To attract more foreign reserves, increase interest rates
Explain Gini-coefficient
- It is a value that lies between 0 and 1 i
- If it is closer to 0 there is more equal distribution of income
- If it is closer to 1 there is an unequal distribution of income
Explain Palma ratio
A ratio of the top 10% of income earners relative to the bottom 40% of income earners combined
Explain what is development
It is the process that expands the range of choices that people have and improves their standard of living
