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Macroeconomics > Chapter 9 > Flashcards

Chapter 9 Flashcards

1
Q

What is a policy objective

A

A target or goal that policy makers aim to hit

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2
Q

What is short run economic growth

A

Growth of real output resulting from using idle resources, including labour thereby taking up the slack in the economy

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3
Q

What is long run economic growth

A

An Increase in the economy’s potential level of real output, and an outward movement of the economy’s production possibility frontier

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4
Q

What is gross domestic product

A

The sum of all goods and services or level of output produced in an economy over a period of time eg a year

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5
Q

What is real GDP

A

a measure of all the goods and services produced in an economy adjusted for price changes or inflation. The adjustment transforms changes in nominal GDP which is measured in money terms into a measure that reflects changed in the total output of the economy

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6
Q

What is nominal gdp

A

GDP measured at current market prices without removing the effects of inflation

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7
Q

What is a recession

A

6 months or more of negative economic growth or declining real national output

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8
Q

What is full employment

A

Bevridge’s definition- full employment means means 3% or less of the labour force unemployed.
Free market - the level of employment occurring at the market clearing real wage rate where the number of workers whom employers wish to hire equals the number of workers wanting to work

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9
Q

What is the claimant count

A

The method of measuring unemployment according to those people who are claiming unemployment related benefits

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10
Q

What is the Labour force survey

A

A quarterly sample survey of household in the uk. It’s purpose is to provide information on the UK labour market. The survey seeks information on respondents personal circumstances and their labour market status during a period of 1-4 weeks

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11
Q

What is inflation

A

A persistent or continuing rise in the average price level

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12
Q

What is deflation

A

A Continuing tendency for the average price level to fall

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13
Q

What is disinflation

A

When the rate of inflation is falling but still positive

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14
Q

What is price index

A

An index number showing the extent to which a price or a basket of prices has changed over a month, quarter or year in comparison with the prices in a base year

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15
Q

What is a consumer price index

A

The official measure used to calculate the rate of consumer price inflation in the uk . It calculates the average price increase of a basket of 700 different consumer goods and services

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16
Q

What is indexation

A

The automatic adjustment of items such as pensions and welfare benefits to changes in the price level, through the use of price index

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17
Q

What is the balance of payments

A

A record of all currency flows into and out of a country in a particular time period

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18
Q

What is current account

A

Measures all the currency flows into and out of a country in a particular time period in payment for exports and imports of goods and services, together with primary and secondary income flows

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19
Q

What are exports

A

Domestically produced goods or services sold to residents of other countries

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20
Q

What are imports

A

Goods or services produced in other countries and sold to residents of this country

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21
Q

What is the balance of trade

A

The difference between money value of a country’s imports and its exports. Balance of trade is the largest company of a country’s balance of payment on current account

22
Q

What is balance of trade deficit

A

When the money value of a country’s imports exceeds the money value of its exports

23
Q

What is the balance of trade surplus

A

When the money value of a country’s exports exceeds the money value of its imports

24
Q

What is balancing the budget

A

When government spending equals government revenue

25
Q

What is a budget deficit

A

Occurs when government spending exceeds government revenue. This represents a net injection of demand into the circular flow of income and hence a budget deficit is expansionary

26
Q

What is trade off between policy objectives

A

Although it may be impossible to achieve two desirable objectives at the same time policy makers maybe be able to choose an acceptable combination lying between the extremes.

27
Q

What is a policy conflict

A

Occurs when two policy objectives cannot both be achieved at the same time: the better the performance in achieving each objective the worse the performance in achieving the other

28
Q

What are Keynesian economists

A

Followers of the economist John Maynard Keynes who generally believe that governments should manage the economy particularly through the use of fiscal policy

29
Q

What are pro free market economists

A

Opponents of Keynesian economists who dislike government intervention in the economy and who much prefer the operation of free markets

30
Q

What is monetary policy

A

The use by the government and it’s agent the Bank of England of interest rates and other monetary instruments to try to achieve the governments policy objectives

31
Q

What is fiscal policy

A

The use by the government of government spending and taxation to try to achieve the governments policy objectives

32
Q

What is the balance of payments equilibrium

A

A situation in which a deficit or surplus on the current account of the balance of payments is exactly matched by capital inflows or outflows in the other parts of the balance of payments

33
Q

What is a macroeconomic indicator

A

Provides information from recent economic performance for judging the success or failure of a particular type of government policy

34
Q

What is an index number

A

A number used in an index such as the CPI to enable accurate comparisons over time to be made

35
Q

What is national income

A

The flow of new output produced by the economy in a particular period eg a year measured by the flow of factor incomes

36
Q

What is national product

A

The flow of new output produced by different industries in a particular period eg a year

37
Q

What is national capital stock

A

The stock of capital goods eg buildings and machinery in the economy that has accumulated o we time and is measured at a point in time

38
Q

What is human capital

A

The skills knowledge and experience possessed by the population

39
Q

What is national wealth

A

The stock of all goods that exists at a point in time that have value in the economy

40
Q

What is consumption

A

Total planned spending by households on consume goods and services produced within the economy

41
Q

What is the hidden economy

A

All the economic transactions conducted in cash which are not recorded in the national income figures because of tax evasion

42
Q

What is the purchasing power parity exchange rates

A

The rates of currency conversion that equalise the purchasing power of different currencies by eliminating the differences in price levels between countries

43
Q

What are the main uk policy objectives

A

-Achieve economic growth improve living standards and levels of economic welfare
- create and maintain full employment or low unemployment.
Limit or control inflation
Attain a satisfactory balance of payments

44
Q

What objective has become very important since the 2008-09 recession

A

Balancing or at least reducing the governments budget deficit

45
Q

What are the main policy conflicts and their associated policy trade off

A

Full employments and growth —> achieving a satisfactory balance of payments

Achieving full employment—> controlling inflation

Increasing rate of economic growth —> achieving a more equal distribution of income and wealth

High living standards now—> future living standards

46
Q

What do pro free market economists argue in terms of policy conflicts in the long run

A

If appropriate and and successful supply side policies are implemented the main objectives of macroeconomic policy are compatible with each other

47
Q

How can macroeconomic indicators divided

A

Into lead and lag indicators
Lead provide information about the future state of the economy - survey of consumer and business confidence, investment intentions indicate the existence of a feel good or feel bad factor
Lag provides information about the past and possibly current economic performance recent unemployment factors figures level of gdp

48
Q

What does net investment do

A

Only net investment increases the size of the capital stock thereby facilitating long run economic growth

49
Q

What happens if spending on replacement investments doesn’t take place

A

The national capital stock shrinks in size negative economic growth occurs and the economy’s production possibility frontier shifts inward

50
Q

What are the problems when using national income statistics to measure living standards

A

The non monetised economy
The hidden economy
Quality changes
Negative externalities

51
Q

What limitations does national income date have when comparing living standards in different countries

A

Relative importance of the non monetised economy
Exchange rates
Traded and non traded goods

52
Q

What is the economists big max index

A

Big mac index as a light hearted guide to whether currencies are at their correct level

Macroeconomics (7 decks)

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