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MACROECONOMICS REVISION > Economic Performance > Flashcards

Economic Performance Flashcards

1
Q

What happens if there is a negative output gap

A

interest rates rise

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2
Q

what is most likely to reduce negative output gap

A

rise in exchange rate

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3
Q

what happens when you increase interest rates when exchange rate are rising

A

increases level of unemployment

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4
Q

what will lead to the bank of England lowering interest rates?

A
  • negative output gap
  • rising exchange rate
  • inflation below target
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5
Q

short run economic growth

A
  • comes from increased use of previously unemployed resources
  • result in an increase in overall output
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6
Q

determinants of short run growth

A
  1. increase in AD

2. Increase in SRAS

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7
Q

long run economic growth

A
  • comes from an increase in LRAS

- growth based on increasing the potential output level of the economy

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8
Q

determinants of long run economic growth

A
  • improvements in quantity or quality of FoP
    1) increasing labour force
    2) improvements in labour productivity
    3) capital investment
    4) new technology
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9
Q

Benefits of economic growth

A
  • higher living standards
  • easier to find jobs
  • increased tax revenue
  • greater international status for the government
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10
Q

costs of economic growth

A
  • increased inflation if short run growth rise too quicklu
  • depletion of natural resources
  • increased negative externalities
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11
Q

boom

A

period of above average short run economic growth

  • low unemployment
  • inflation rising
  • current account deficit
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12
Q

downturn

A

period where short run economic growth falls from above average to below average

  • unemployment stops falling
  • inflation stops rising
  • current account moves towards surplus
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13
Q

recession

A

two successive quarters of a year where short run economic growth is negative

  • unemployment rises
  • inflation falls
  • current account moves into surplus
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14
Q

recovery

A

short run economic growth starts to increase after a recession

  • inflation remains low
  • unemployment stops rising
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15
Q

Negative output gap

A
  • actual growth below trend growth
  • cyclical unemployment likely to increase
  • Econ growth below productive capacity
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16
Q

What is negative output gap caused by

A

low AD

17
Q

how to reduce negative output gap

A

increase AD

18
Q

Positive output gap

A
  • actual growth above trend growth
  • leads to inflation
  • to keep output high, costs rise inflationary pressures
19
Q

How to reduce positive output gap?

A

reduce AD

20
Q

cyclical unemployment

A

caused by insufficient AD

- if spending on output is low, workers producing that output won’t be required

21
Q

Frictional unemployment

A

caused by movements into and out of the job market ie occurs when people are between jobs

22
Q

how to reduce frictional unemployment

A

improvements in helping people find out what job vacancies are available

23
Q

structural unemployment

A

caused by mismatched between the labour supply available and the labour demand for differently skilled labour
- also caused by advancements in technology

24
Q

voluntary unemployment

A

where people are unwilling to accept a job at the going wage rate despite there being jobs available (frictional)

25
Q

involuntary unemployment

A

where people are unable to find unemployment at current market wage rate (cyclical)

26
Q

real wage unemployment

A

occurs when the real wage is above the market equilibrium wage rate in the labour market

27
Q

deflation

A

a fall in the average level of price over time

28
Q

disinflation

A

where the rate of inflation falls but is still positive

29
Q

Demand pull inflation

A
  • caused by excessively high levels of AD
  • high levels of spending gives signals to firms increase output
  • higher spending = firms increase prices due to high costs for producing more output
  • when economy operating LRAS,m increase in AD leads to inflation
30
Q

how to reduce demand pull inflation

A

decrease AD

31
Q

Cost push inflation

A
  • caused by a rise in costs of production

- higher prices and falling output

32
Q

consequences of inflation

A
  • uncompetitive exports
  • search costs
  • uncertainty
  • policy response
33
Q

search costs

A

individual spend more time researching goods (comparing prices)

34
Q

uncertainty

A

businesses cautious in production or expansion

35
Q

policy response

A

gov implement deflationary policies (eg higher interest rates)

36
Q

consequences of deflation

A
  • delays in consumption (people wait until goods are cheaper

- rising real value of debt (falls in prices, falls in income

MACROECONOMICS REVISION (9 decks)

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