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A-Level Economics YEAR 1 > EconPlusDahl MacroEconomics C1 - 10 > Flashcards

EconPlusDahl MacroEconomics C1 - 10 Flashcards

1
Q

Define Macroeconomics?

A

The aggregated analysis of many markets brought together into one economy.

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2
Q

What are the indicators of economic performance? (TIGER)

A

Economic Growth
Unemployment
Inflation
Trade / Balance of Payments
Distribution of Income

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3
Q

What are the objectives of economic growth?

A

To keep growth strong and sustainable

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4
Q

What are the objectives of unemployment?

A

Low unemployment
Full Employment

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5
Q

What are the objectives of Trade?

A

To keep balance between exports and imports

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6
Q

What are the objectives of Distribution of Income?

A

To keep it fair

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7
Q

What are the non-core macro objectives?

A

Sound Government Finances

Environmental sustainability

Productivity Growth

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8
Q

Define Balance of payments

A

A record of all financial transactions made between the consumers, businesses and government in one country with others

(The value of imports vs exports)

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9
Q

What are the key benefits of economic growth?

A

Job creation

Rising income

Improved standards of living

Improved confidence of: consumers to spend and businesses to invest

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10
Q

What are the key benefits of low unemployment?

A

Higher consumption and aggregate demand

Higher incomes and tax revenue

Improved standards of living

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11
Q

What are the 3 types of inflation?

A

Inflation
Deflation
Disinflation

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12
Q

Define disinflation

A

Where prices are still rising but at a lesser rate than before

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13
Q

Define Deflation

A

Where prices are falling

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14
Q

What’s policy conflict?

A

When 2 policy objectives cannot both be achieved at the same time.

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15
Q

What do firms or governments often do in response to policy conflict?

A

Find a trade-off

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16
Q

What do trade-offs provide?

A

A desirable overall balance between two objectives

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17
Q

What factors cause the importance of an objective to change?

A

Stage of development within the country

Global economic conditions

Political stability

Experience of other countries

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18
Q

What is considered a short run policy?

A

A policy that lasts up to 3 years

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19
Q

What is considered a long run policy?

A

A policy that’s longer than 10 years

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20
Q

What’s GDP?

A

Gross Domestic Product is a monetary measure of the market value of all the final goods and services produced in a period of time

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21
Q

What are the different forms of GDP?

A

Nominal GDP and Real GDP

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22
Q

What’s nominal GDP?

A

The total value of all goods and services produced in a given time period, usually quarterly or annually.

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23
Q

What’s real GDP?

A

An inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year

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24
Q

What are net exports?

A

Exports - Imports

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25
What are the 4 expenditure methods?
Consumption Investment Government Net Exports
26
How is inflation measured?
Using either the consumer price index (CPI) or the retail price index (RPI)
27
Why do we use index numbers?
To make numbers look more appealing to the eye To allow for quick and easy data comparisons (percentage changes)
28
What's the index value of your base year?
Base year (year 1) always has an index value of 100
29
How do you calculate index values?
(Raw Number / Base year Raw Number) * 100
30
What's aggregate demand?
The total demand for a country's goods/services at a given price level at a given time period A measure of a country's total expenditure on goods/services
31
How aggregate demand measured?
Consumption + Investment + Government + (Net exports)
32
What letter represents GDP on graphs?
Y
33
Name a feature of aggregate demand?
AD only shifts when Consumption, Investment, Government spending, or Net exports change (independent of the price level)
34
What's the wealth effect?
As the price level decreases, the purchasing power of income increases (people are richer) People are more likely to spend money on goods/services in the economy Hereby increasing Consumption
35
What's the Trade effect?
As the price level decreases, exports become more competitive and imports become less competitive Hence, there's a greater demand for exports and the revenue generated from exports will increase Less spending on imports due to domestic goods/ services becoming more competitive This increases the value of Net Exports and AD and Real GDP
36
What's the interest Effect?
If the price rate decreases, interest rates will decrease in the economy Because central banks will adopt interest rate policies to meet an inflation target This stimulates: Lower consumption and exchange rate Higher investment Higher net exports Shifting AD
37
What do we call the willingness of a household to spend any extra income that they earn?
The marginal Propensity to Consume
38
What are the determinants of consumption (independent of the price level)?
Level of real disposable income Interest rates/ availability of credit Consumer Confidence Asset Prices Household Indebtedness
39
Why might the level of real disposable income increase?
A decrease in the marginal rate of income tax causes the level of real disposable income to increase and hence, increasing the marginal propensity to consume.
40
Why might the lack of availability of credit effect consumption?
Banks might be unwilling to lend money Reducing the impact of lower interest rates
41
Why might high consumer confidence effect consumption?
A low level of unemployment causes people to feel confident in their job prospects This deters them from saving money Increasing the marginal propensity to consume
42
Why might High Asset Prices effect consumption?
They make people feel more wealthy Causing an increase in the MPC E.g. Share prices, or house prices
43
Why might Household Indebtedness effect consumption?
Individuals are more likely to save their money if their family is in debt Reducing the MPC
44
Define savings
The part of disposable income that's not spent on goods/services in the economy It's also a determinant of Aggregate Demand- if savings increase, consumption decreases
45
Identify the 6 Determinants of Saving?
Level of Real Disposable Income Interest rates Consumer confidence Range of financial institutions Tax Incentives e.g. ISAs Age Structure of Population
46
What is an ISA? And what is it an example of?
An individual savings account that pays tax free returns on savings This is an example of a tax incentive
47
What are the determinants of investment?
Interest Rates Business confidence Corporation Tax Spare capacity Level of competition Price of capital
48
Define investment
When firms spend money on capital goods to increase their productive capacity
49
Why might interest rates effect the level of investment?
Firms finance investment either by borrowing money or investing retained profits If interest rates are lower the marginal propensity to invest will decrease
50
Why might the level of business confidence effect the level of investment?
Business confidence is determined by expected profit and expected demand in the economy If these are high then the marginal propensity to invest will increase to be able to supply their future demand
51
Why might corporation tax effect the level of investment?
The higher the corporation tax, the lower the level of retained profit is going to be Retained profit is used to invest Hence, the marginal propensity to invest will decrease
52
Why might spare capacity effect the level of investment?
If businesses are operating at close to full capacity then the MPI increases Because they want to increase capacity e.g. by building new factories
53
Why might the level of competition effect the level of investment?
If competition is high a lot of investment will occur So that businesses can get ahead of their competitors
54
Why might price of capital effect the level of investment?
If the price of capital is low then investment is less costly This increases the MPI
55
What's the price of capital
The cost of capital measures the cost that a business incurs to finance its operations. It measures the cost of borrowing money, or raising it from investors compared to the expected returns on an investment.
56
What are the 4 types of Government Spending?
Current Spending Capital Spending Welfare Spending Debt Interest Payments
57
What's current spending?
Govt spending on the maintenance of public services and payment of public sector wages
58
What's capital spending?
Govt spending on infrastructure projects
59
What's welfare spending?
Govt spending on benefits and pensions
60
What is the difference between debt interest payments and the other 3 forms of govt spending?
The Capital, Current and Welfare spending would all act as an injection into the circular flow of the economy Consequently shifting Aggregate Demand
61
What's budget deficit?
When govt spending is greater than taxation revenue in a fiscal year (April - April)
62
What's a budget surplus?
When govt spending is less than taxation revenue in a fiscal year
63
What's national debt?
The Total stock of debt over time The ACCUMULATION of budget deficits
64
What are the 5 determinants of net exports (x-m)
Real disposable income earned abroad Real disposable income earned at home Strong or weak exchange rates Protectionism at home/abroad Relative inflation levels at home
65
How does Real disposable income earned abroad and at home effect net exports?
If the real disposable income earned abroad is higher than the real disposable income earned at home The marginal propensity to export increases This increases export revenue and net exports
66
How do Strong or weak exchange rates effect net exports?
Strong: SPICED (Strong Pound = Imports Cheap Exports Dear) Export demand and revenue decreases Weak: WIDEC (Weak Exchange rate = Imports Dear Exports Cheap Export demand and revenue increases *Dear = Expensive
67
How does protectionism at home and abroad effect net exports?
If we have high tariffs on imports coming in from abroad, import expenditure will reduce Hence, net exports will decrease
68
How do relative inflation at home effect net exports?
If inflation in the UK is higher than that of trading partners Exports will be less competitive and will produce less revenue Net exports will decrease

A-Level Economics YEAR 1 (7 decks)

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