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CIMA - BA1 > Chapter 9 > Flashcards

Chapter 9 Flashcards

1
Q

Economics =

A

The allocation of scarce resources

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2
Q

Micro economics

A
  • Individuals and firms
  • Demand, supply, markets
  • Firms, employers, employees, individuals
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3
Q

Macro economics:

A
  • the whole economy
  • inflation, unemployment, economic growth
  • government
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4
Q

Macro economics is made up of:

A

Production
Consumption
Income

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5
Q

Circular Flow of Money

A
  • Housholds spend income with businesses
  • businesses provide income to households
  • households provide labour to businesses
  • businesses provide goods and services to households
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6
Q

Aggregate Demand

A

Is the total size of the economy = the total spending of all households in a period of time

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7
Q

Withdrawals in the circular flow on money:
(Make the economy smaller)

A
  • savings
  • profits
  • taxes
  • imports
    Money being taken out of the economic flow of funds
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8
Q

Injections into the circular flow of funds (makes the economy bigger)

A
  • Borrowing
  • government spending
  • exports
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9
Q

Grow the economy:

A
  • increase injections (eg government spending)
  • reduce withdrawals (eg savings)
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10
Q

Slow economic growth

A
  • reduce injections
  • increase withdrawals (eg increase taxation)
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11
Q

Saving

A

Is a withdrawal
Any amount or money that is not being spent

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12
Q

6 factors affecting savings:

A
  • interest rate
  • job security
  • availability of credit (eg. access to credit cards)
  • contractual saving (eg. Pension scheme)
  • tax relief
  • inflation
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13
Q

2 Types of investments

A

This is an injection:
1. Capital items
2. Increase in inventory

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14
Q

5 factors affecting investments:

A
  • new or replacement investment
  • expected future returns
  • business confidence
  • interest rates (low interest rates means saving is not interesting, so will encourage investment)
  • government policy
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15
Q

Net investment =

A

New investment - replacement investment

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16
Q

Factors that help grow the economy:

A
  • encourage borrowing
  • reduce interest rates
  • reduce government regulation on borrowing
  • make it easier for banks to lend
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17
Q

Slowing economic growth:

A
  • increase interest rates, to encourage people to save
  • make borrowing more difficult, high rates
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18
Q

Savings - factors affecting saving

A
  • type of withdrawal

Factors:
- interest rates
- income
- job security - confidence
- availability of credit
- contractual saving
- tax relief
- inflation

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19
Q

Inflation

A

When you can buy fewer goods than before.

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20
Q

Real value of your money

A

It means that inflation causes prices to go up.
So you can buy less with your money.

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21
Q

Investment - examples

A
  • it’s an injection

Examples:
- increase in inventory or capital items

22
Q

Factors affecting investment:

A
  • Government policy
  • new or replacement investment
  • expected future returns
  • business confidence
  • interest rates
23
Q

Net investment =

A

New investment - replacement investment

24
Q

Grow the economy:

A
  • Increase injections
  • encourage borrowing
  • discourage savings
  • encourage spending
  • reduce interest rates
25
Q

Slow economic growth

A
  • increase withdrawals
  • discourage investments
  • discourage borrowing
  • increase interest rates
  • encourage savings
26
Q

Monetary policy =

A

One approach to managing an economy by a government:
- increase or reduce interest rates
- make lending easier or harder
- buying and selling currencies to change FX rates.
- imposing or removing trade barriers

27
Q

If interest rates increase:

A
  • decreased investment
  • borrowing more expensive and decreases
  • attraction of foreign funds
  • effects on the exchange rate
  • inflow of foreign funds, leads to increased demand for the currency
  • lead to decreased inflation rate
  • decrease in asset value
  • affect on sales; sales for which the consumer needs to borrow will fall
28
Q

Import leads to the payment:

A
  • leaving the country
  • withdrawal
29
Q

Export leads to payment:

A
  • coming into the economy
  • it’s an injection
30
Q

Balance of payments:

A
  • Imports and exports go through this.
    = difference between the value of imports and exports
31
Q

3 types of accounts on balance of payment:

A
  • current account
  • capital account
  • financial account
32
Q

What’s included on the current account of the balance of payment:

A
  • visible trade: goods
  • invisible trade: services, overseas income, transfer of money from abroad
33
Q

What’s included on the Capital Account on the Balance of Payments:

A
  • buying and selling of fixed assets (for example buying machinery abroad)
34
Q

What’s included on the Financial Account on the Balance of Payment:

A
  • overseas investment (buying shares overseas, setting up a factory abroad)
  • Reserve assets (gold and foreign currencies held by the government)
  • A balancing item
35
Q

Balancing item on the balance of payments:

A

Current account + capital account + financial account = ZERO

36
Q

When exports > imports

A

Surplus on the balance of payments

37
Q

When imports > exports

A

Outflow if funds; deficit on the balance of payments

38
Q

Imbalance in the current account of the balance of payments:

A
  • import penetration
  • export performance
39
Q

Reasons for import penetration:

A
  • exchange rate makes overseas products appear cheaper
  • imports are more competitive on price
  • imports being more competitive on non-price factors
40
Q

Reasons for export performance:

A
  • the exchange rate
  • price and non-price competitiveness against exports
  • willingness and ability of domestic producers to export
41
Q

How does a government manage the Imbalance in the current account on the balance of payments

A
  • do nothing
  • actively affect exchange rates
  • introduce trade barriers
42
Q

When a government does nothing to change the imbalance on the current account on the balance of payments:

A
  • exports are smaller, imports are bigger
  • more payments leaving the country
  • demand for the currency falls
  • price of the currency falls
  • imports will start to appear dearer
  • exports start to appear cheaper
    Leads to an Equilibrium
43
Q

How governments affect the exchange rate of their currency:

A
  • buying foreign currency:
    For example:
  • China bought lots of USD to keep their own currency cheap, this increased their exports, which lead to money coming into the country and growing the economy.
44
Q

Examples of trade barriers:

A
  • High tariffs to import goods
  • introduce quotas
45
Q

Narrow money =

A

M0 - notes and coins in use and amounts within accounts held at the central bank

46
Q

Broad money =

A

M4 - Notes and coins within circulations and all private sector bank accounts

47
Q

Consumption =

A

The amount of goods and services demanded in the economy

48
Q

Factors affecting consumption =

A
  • income
  • previous or future pay; some people start consuming more when they know their income is going to increase.
  • windfall gains or losses (winnings, gifts, inheritance v. Fraud and burglary)
  • Government policy, like monetary policy and fiscal policy
49
Q

MPC =

A

Marginal Propensity to Consume =
Change in consumption / change in income

50
Q

Wealth =

A

Market value of all assets - any money owed

CIMA - BA1 (12 decks)

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