Chapter 9 Flashcards
Define policy objective
A target or goal that policy makers aim to hit
What are the governments policy objectives
- Achieve economic growth
- Maintain low unemployment
- Limit inflation
- Attain satisfactory balance of payments
Difference between short and long run economic growth
Short run- Growth of using idle resources
Long run- employment of more factors of production causing an outward movement of the PPF
Define GDP
difference between nominal and real
Sum of all goods and services produced in an economy over a particular period of time
Nominal- not adjusted to inflation
Real- adjusted to inflation
Define recession
6 months or more of negative economic economic growth
How is employment measured
- Claimant count (amount collecting benefits)
- Labour force survey (quaternary survey)
What is full employment defined as
3% or less unemployment
Define inflation
Persistent or continuing rise in average price level
Define disinflation and deflation
Disinflation; rate of inflation is falling but still positive
Deflation: Continuing tendency for average price level to fall
What is the target inflation
2%
What is used to measured inflation
Price index
CPI (consumer price index)
Define indexation
Automatic adjustment of items like pensions and benefits in changes in price level through price index
Explain satisfactory balance of payments
Current account is at equilibrium, or when there is a small surplus of small deficit
Define balance of payments and current account
BoP: record of all currency flowing into and out of a country in a particular period
Current account: record of all currency flowing into and out of a country for exports and imports of goods and services
Difference between exports and imports
Exports: Domestically produced products sold
Imports: Produced in other countries and bought for domestic use
Explain when there is a balance of trade deficit and surplus
- Value of imports exceeds exports (deficit)
- Value of exports exceeds imports (surplus)
Define balance of trade
Difference between money value of country’s imports and its exports
Explain another macroeconomic objective
Balancing the budget
Gov spending=gov revenue
Define trade off
When two policies oppose each other, policy conflict occurs
Example of policy conflicts
Full unemployment ~ control of inflation
What do Keynesian economists believe
That gov should manage economy especially through fiscal policy
What do pro free market economists believe
No gov intervention and like the operation of free markets
Define fiscal policy
Use by gov of gov spending and taxation to achieve gov policy objectives
Define monetary policy
Use of gov and it’s agent , Bank of England, of interest rates and other monetary policies to achieve gov objectives
What is a macroeconomic indicator
Provides information about recent economic performance, judging the success and failure of particular gov policies
Examples of macroeconomic indicators
Real GDP, CPI, Measures of unemployment
What are the two categories macroeconomic indicators split into
Lead: provide information about future state of the economy
Lag: provide information about the past, and what not to do perhaps
Define national income
Flow of new output produced by the economy in a period of time
What must an economy possess in order to be able to produce national income
- National capital stock (part of national wealth)
- Human stock
Define national wealth
All physical assets owned by a nation’s residents that has value
Define consumption
Total planned spending by households on consumer goods and services produced within an economy
limitations of using national income data to assess changes in living standards
- Non monetised economy (living standards may improve just not through money)
- Hidden economy (illegal activities)
- Quality changes (house may become more expensive)
- Negative externalities, so national income over estimates as does not portray the real effects
limitations of national income data to compare living standards between countries
- Non monetised economy
- Are the exchange rates accurate?
- Traded and non traded goods may cost differently
Define Purchasing power parity
The rate of currency conversion that equalise purchasing power of difference currencies eliminating price levels between countries
