Definitions Flashcards
What is the big mac index?
a comparative tool used to compare the prices of a Big mac in different countries.
How does something maintain its value?
If other people continue to want it.
Derived demand statement.
The demand for labour is derived from the demand for the goods and services that labour produces.
6 government macro objectives.
Stable Prices (2% inflation +/- 1%),
Steady Economic Growth (2.25% pa),
Full employment,
Favourable Balance of Payments,
Fairer distribution of income and wealth,
reducing the government budget deficit and national debt.
What is a surplus?
When the money coming in is more than the money going out, meaning they haven’t gone over budget.
What is a deficit?
When money spent is more than the budget.
A shortfall of each year
What is a labour force?
The amount of people in the economy who are working or are available to work, includes employed and unemployed.
3 injections into a 2-sector closed economy.
Exports.
Investments,
Government spending.
3 withdrawals from a 2-sector closed economy.
Taxation,
Savings,
Imports.
What is a tax allowance?
The amount of money you are allowed to earn without paying tax on it.
How do governments finance a deficit?
Tam more, Borrow, Sell government owned assets, Print money, Use surpluses from previous years.
What is the consumption function (aggregate demand formula)?
aggregate demand (AD) = consumer spending (C) + business spending (I) + government spending (G) + net exports (X-M)
What is aggregate demand?
the total demand in the economy in a year.
What is the FTSE 100?
100 shares traded on the stock exchange that represent the economy.
What is an Index?
a general average of movements of things going up and down in price.
What is an exchange rate?
the value of one currency compared to another.
What are white goods?
appliances such as fridges, freezers and washing machines.
What is ceteris parabus?
All other things being equal.
What is inflation?
prices rising.
What is deflation?
prices falling.
What is a recession?
two consecutive quarters of negative growth.
3 factors that affect consumer spending.
interest rates,
wealth,
levels of consumer debt
3 factors that affect government spending.
size of the public sector,
debt levels,
stage of the economic cycle.
3 factors that affect business spending.
interest rates,
profit levels,
stage of the economic cycle.
3 factors that affect exports.
tariffs and quotas overseas,
exchange rate,
stage of economic cycle overseas.
3 factors that affect imports.
tariffs and quotas,
stage of economic cycle in the UK,
exchange rate.
What are interest rates?
the reward for saving and the cost for borrowing.
What are bonds?
buying bonds is ‘saving’ money with the government and they will pay back after a time period with some interest added on.
What is the foreign exchange market?
where exchange rates between currencies are settled.
What is a quota?
a set amount of something, countries set a quota/limit on how much they will import/export.
What makes AD fall?
fall in net exports,
cut in government spending,
higher interest rates,
decline in household wealth and confidence.
What makes AD rise?
depreciation of the exchange rate,
cuts in direct and indirect taxes,
increase in house prices,
expansion of supply of credit + lower interest rates.
What is capital and equity release?
the bank owning your house.
What is negative equity?
owing the bank if the value of your property decreases and you don’t have enough to pay off the mortgage if you sold the house.
SPICED
strong pound imports cheaper exports dearer (more expensive)
WPIDEC
weak pound imports dearer(more expensive) exports cheaper
What is a shock?
an unexpected event that causes changes in demand, output and employment.
What is spare capacity in the economy?
any factors of production in the economy that are not being used.
What causes shifts in SRAS?
labour productivity, production costs, reduction in indirect taxes, wage costs, raw material and component prices, interest rates, government subsidies, cost of imported components.
What is a debenture?
bonds in a business
What is a gilt?
Bonds in the government
What is debt?
the accumulation of the deficits over the years.
What is unemployment?
the unemployed are those who are able, available and willing to work but cannot find a job despite an active search for work.
What is the claimant count?
One way to measure unemployment by counting the number of people who are claiming unemployment benefits.
What is the labour force survey?
another way of measuring unemployment by counting the number of people who are without work including part time but have looked for work in the past month and are able to start working immediately.
Types of unemployment.
Seasonal - regular seasonal changes in employment,
Structural - mismatch of skills and job opportunities,
Frictional - traditional employment from being between jobs,
Cyclical - companies letting people go due to a recession.
Types of immobility of labour.
geographical immobility - when someone can’t take a job opportunity because they can’t move to where the job is,
occupational immobility - when the person doesn’t have the skills to take up a job vacancy.
What is Short-run economic growth?
This is an increase in GDP from one year to the next.
What is Long-run economic growth?
This is an increase in our productive capacity from one year to the next.
What is OPEC?
Organisation of Petroleum Exporting Countries
What is infrastructure?
All the physical capital that helps a country to run and work efficiently.
What is demand pull inflation?
Inflation that is caused by an increase in AD.
What is cost push inflation?
Inflation that is caused by a shift in supply to the left.
What is monetary policy?
The use of interest rates, the money supply and/or exchange rates to influence AD.
What is fiscal policy?
The use of planned government revenue (taxation) and/or planned government spending to influence AD.
What is disposable income?
An individuals income after taxes have been deducted and benefits added.
What is discretionary income?
Disposable income minus any contractional deductions. e.g. loan repayments
What are the main causes of demand pull inflation?
- a depreciation of the exchange rate,
- a reduction in indirect taxation,
- rapid growth of the money supply,
- faster rates of economic growth in other countries,
- rising consumer confidence.
What are the main causes of cost push inflation?
- external shocks,
- a depreciation in the exchange rate,
- acceleration in wages.
Why do we have taxes?
- to finance public spending,
- to discourage the consumption of demerit goods,
- to distribute income more fairly,
- to influence aggregate demand,
- to reduce demand for imports,
- to reduce monopoly profits.
What is a direct tax?
A tax that is levied on income, wealth and profit.
e.g. income tax, corporation tax, inheritance tax.
The burden of a direct tax cannot be passed on.
What is an indirect tax?
A tax on spending.
e.g. VAT, excise duties on fuel, cigarettes and alcohol.
Producers may be able to pass on an indirect tax depending on PED and PES.
What is monetary policy?
Influencing the macroeconomy via changes in monetary variables such as the money supply, interest rates or exchange rates.
Who is in control of monetary policy?
The Bank of England
What is one of the fundamental problems of barter?
‘The double coincidence of wants’
Meaning both sides need to want what each other are offering to trade for a transaction to take place.
What is real interest rate?
Money interest rate minus the rate of inflation.
What are the characteristics of money?
Durability, Portability, Divisibility, Uniformity, Scarce, Acceptability.
What are the functions of money?
Medium of exchange,
Measure of value,
Standard of deferred payment,
Store of value.
What are supply-side policies?
Policies to increase the quantity and improve the quality of the factors of production.
What is production?
The value of output of goods and services.
What is productivity?
A measure of the efficiency of factors of production. It’s measured by output per person employed or output per person hour.
What is outsourcing?
When a business takes a part of its production process and gets another business to do it because its cheaper.
What is the savings ratio?
The percentage of our national income that we don’t spend.
e.g. if the savings ratio is 8% it means we spend 92% of our income and spend 8%.
What is the balance of payments?
It records all financial transactions made between consumers, businesses and the government in one country with other nations.
What is marginal propensity to consume?
The likelihood to spend an additional amount of money gained (e.g. tax cuts)
What is capital gained tax?
Tax paid on the money made when selling as asset like a house, shares, etc.
Functions of money poem:
Money, it has functions four,
medium, measure, standard, store.
What are current accounts?
Accounts where cash can withdrawn immediately, so these perform the function of a medium of exchange and a store of value etc.
What are savings/term/time deposits?
Accounts where you can’t withdraw cash immediately, so this type of money doesn’t act as a ‘medium of exchange’, but it does act as a ‘store of value’.
What are external sources of finance?
Finance provided by people or institutions outside the business, some creates a debt that will require a payment.
E.g. loans, overdraft(loan), shares, debentures/bonds
What is a bridging loan?
An extremely short term loan that allows two things to be connected e.g. buying and selling a house.
will be charged large amounts of interest on the loan.
What is the money market?
A financial market that provides short-term finance (1 day to 1 year) to individuals, firms and governments.
It could be loans between banks (libor) or loans from banks to citizens.
What are ordinary shares?
Shares bought on the stock market and people who buy them have voting rights. The more shares you own, the more votes you get.
What are preference shares?
Shares bought that don’t come with voting rights but they jump to the front of the queue when dividends are paid.
What is the Initial Public Offering (IPO)?
The first time a company issued shares on the public stock exchange.
What is the rights issue?
When a company creates new shares, the shares are issued to the existing shareholders in the same percentage of ownership as before the new shares were created.
Why don’t we want high levels of national debt?
- may become impossible to pay back,
- opportunity cost of repayment interest,
- bad credit rating.
What is current spending?
Spending that sees a benefit straight away.
e.g. paying a doctor for a month means they’ll work for a month.
What is capital spending?
Spending that will see a benefit in years to come.
e.g. paying for a hospital to be built, it won’t be up and running straight away but it will in years to come.
What are the key roles of fiscal policy?
- financing government spending,
- changing the distribution of final income and wealth,
- managing the economic cycle,
- including long run competitiveness,
- tackle important market failures.
What are the tools of monetary policy?
- money supply (rarely),
- interest rates (often),
- exchange rates (never),
- quantitative easing (sometimes),
- reserve ratio (don’t),
- forward guidance (once, now don’t),
- quantitative controls: type of loan etc (don’t).
What is factor endowment?
The natural resources given to a country.
What is the formula for net investment.
Net investment = capital accumulation-depreciation
What is the paradox of thrift?
If everyone was to save and not spend money, then AD will fall and unemployment will rise so the money will be spent anyway.
What is Gresham’s Law?
- ‘bad money drives out good’
- debasement of the currency
When is the multiplier effect referred to?
If there is an injection or withdrawal into the economy.
What is capital gained tax?
Tax paid on the money made when selling an asset like a house, shares etc.
What is the functions of money poem?
Money, functions it has four,
Medium, Measure, Standard, Store.
What are current accounts?
An account where money can be withdrawn immediately, so these perform the function of a medium of exchange and a store of value etc.
What are savings/term/time deposits?
An account where you can’t withdraw the cash immediately, so this type of money doesn’t act as a ‘medium of exchange’, but it does act as a ‘store of value’.
What are some external sources of finance?
Finance provided by people or institutions outside the business, some create a debt that will require payment. Examples: -Loans, -Overdraft (loans), -Shares, -Debentures/bonds.
What is a bridging loan?
An extremely short term loan that allows two things to be connected e.g. buying and selling a house.
Will be charged large amounts of interest on the loan.
What are ordinary shares?
Shares bought on the stock market and people who buy them have voting rights. The more shares you own, the more votes you get.
What are preference shares?
Shares bought that don’t come with voting rights but they jump to the front of the queue when the dividends are paid.
What is an initial public offering (IPO)?
The FIRST time a company issues shares on the public stock exchange.
What is the rights issue?
When a company creates new shares, the shares are issued to the existing shareholders in the same percentage of ownership as before the new shares were created.
What is the money multiplier equation?
Money multiplier = 1 / reserve ratio
