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Economics A level - Jaya > Gaps in my knowledge - Macro > Flashcards

Gaps in my knowledge - Macro Flashcards

1
Q

4 reasons why the AD diagram slopes downwards

A
  1. Keynes interest rate effect
  2. Pigou’s wealth effect
  3. Mundell flemings wealth and substitution effect
  4. Microsummation
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2
Q

What is the pigou wealth effect?

A

When there is deflation in the economy, this will cause a decrease in PL, increase in unemployment. More people hoard their cash causing them to become wealthier and be able to spend more through consumption

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3
Q

Two influences in theme 2 on government spending levels

A
  • Trade cycle
  • Fiscal policy
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4
Q

Relationship between consumption and savings

A

y = c + s which shows how much money a person has from what they consume and what they save

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5
Q

Two causes of a negative wealth effect

A
  • Fall in house prices and a fall in bond prices
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6
Q

Significant of a multiplier effect for AD

A

The greater the multiplier the greater the shift in AD

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7
Q

Define rational Expectations theory and when to use it?

A

This is when people make decisions based upon: past experiences, human rationality and the information available to them

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8
Q

Is the phillips curve become steeper of flatter and why?

A

Steeper because there is high inflation in the economy and low unemployment

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9
Q

Twp good causes of deflation?

A

Falling import prices, improved technology and increased supply

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10
Q

Define an optimal currency area and what is the criteria?

A

This an area that invest in improving economic efficiency
- Similar trade cycles
- Labour flexibility
- Willingness to be integrated
- Capital mobility

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11
Q

5 limitations of the theory of comparative advantage

A
  • No transportation costs
  • No exchange rate
  • Production only involves 2 goods
  • Average cost of production
  • No trade barriers
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12
Q

Two reasons why trade imbalances are not significant

A

Investments in the future is necessary for growth and development.
- The BOP balances

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13
Q

To measures of an economies international competiveness

A

Unit labour costs and export prices

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14
Q

Two drawbacks of NGOs

A
  • Asymmetric information and they do not have the power like state firms do
  • Insufficient funding
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15
Q

Who was critical of the world bank and the IMF

A

Stiglitz

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16
Q

Why does stiglitz believe that inequality prolongs a recession?

A

Stiglitz believes that poor political decision making makes inequality worse and so in a recession, the poor will get poorer and the wealthy who have assets and income will benefit

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17
Q

Formula for real exchange rate

A

(Nominal ER x Domestic PL) / foreign PL

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18
Q

Who said more complex economies are better?

A

Schumpeter

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19
Q

What is internal devaluation?

A

Improving the competitiveness of a firm by reducing unit labour costs and increasing productivity

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20
Q

What is universal basic income?

A

This is a transfer payment from the government , usually given in developing economies

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21
Q

What is a trade effective index

A

This is an exchange rate comparison which the largest trading parents. The ones we trade the most with will have the highest rating

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22
Q

What is the significance of capitalism in inequality?

A

Capitalism - karl marx - is when the rich exploit the poor. This means that poor get poor wages and the rich earn high profits - this goes against the trickle down theory

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23
Q

Why does growth not guarantee development?

A

May create environmental damage, pose negative externalities

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24
Q

Why dos de soto believe property rights are important for development?

A

He states that property rights enable protection of capital for citizens because without them they are dead capital which are at risk of being taken. This will improve the wealth of people

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25
Q

What is the best time to use demand and supply side policies respectively?

A

A recession or econmic stagnation

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26
Q

Two pros of the world bank and cons

A
  • Gives out development loans and aid
  • aims to increase development
  • There may be some capitalism where richer countries benefit from more loans
27
Q

What are two pros and cons of the IMF

A
  • bailouts to countries
  • High IR and inadequate funding
28
Q

What is the difference between horizontal and vertical equity?

A

Horizontal is that all taxpayers earning at equal amount should be taxed the same and vertical is that the higher the income, the higher the tax

29
Q

What is the difference between objective and subjective happiness?

A

Objective is that it can be explained as to why some things make us happy
Subjective are the different requirements for someone to be considered happy

30
Q

Why is unemployment a lagged indicator?

A

During a recession, for example, a business won’t immediately respond by cutting workers and they may aim to make them more productive

31
Q

What are the benefits of using GDP as a measure of living standards?

A
  • An internationally comparable measure
  • Requires less data than some sophisticated data
  • Most countries have GDP data which makes it good measurement of living standards
32
Q

What are the limitations of using GDP as a measure of living standards?

A
  • Doesn’t consider population changes (gdp per capita may be better)
  • Does consider income inequality
  • Doesn’t consider underground or subsistence economy
33
Q

What is the process of calculating cpi in the UK?

A
  1. ONS food and living costs survey to 7000 households and then find 650 common goods and services
  2. Price survey - collect prices from ‘000s of shops to find the average price of thr 650 goods and services
  3. Finding the weighted average:
    (%of spending x price) / 100 and add them all up to find the PL
34
Q

What are 4 main limitations of using CPI as a measure of inflation?

A
  • Unusual spending habits are not considered
  • Time lags so goods that may be high in demand currently won’t appear until a year later
  • Changes in quality are not included
  • Doesn’t include mortgages repayments
35
Q

How to calculate the inflation rate?

A

(change in pl/original pl) x 100

36
Q

What are the positive effects of high inflation?

A
  • Protection from a deflationary spiral
  • reduces the real value of debt
  • Depends on how much it has increased by
37
Q

What are the negative effects of high inflation?

A
  • Price-wage spiral which may lead to higher inflation
  • Reduces the real value of savings which may reduce investment - savings gap
38
Q

What is the active population?

A
  • people of working age who are able to work and are actively seeking work or are working
39
Q

What is the inactive population?

A

Someone who is of working age but isn’t able to work or aren’t actively seeking work

40
Q

What is unemployment?

A

Someone who is able to work and is willing to work but is not currently in employment

41
Q

What is demand deficient or cyclical unemployment

A

When a fall in demand decreases derived demand for labour

42
Q

What is real wage inflexibility or classical unemployment?

A

When the wage is above the equilibrium wage which creates excess supply of labour - this is done by the national minimum wage or trade union power

43
Q

What are capital controls?
Include some examples?

A

Measures that limit the amount of foreign capital going into the domestic country
- Tariffs
- Quotas
- Taxes
- Restrictions

44
Q

What are shoe leather costs?

A

As a country is experiencing high inflation, people may exchange the currency for a more stable currency. This could increase domestic supply of the currency resulting in a depreciation of the currency

45
Q

What are menu costs?

A

These are costs of having to change the prices on menu when inflation is high and costs are rising

46
Q

What are the benefits of using HDI as a measure of Human development index?

A
  • Takes into account the most important 3 factors
  • Can be compared with other countries
47
Q

The drawbacks of using HDI and which measure is better?

A
  • Doesn’t consider any inequality (the inequality-human development index) may be better
  • Although it includes the 3 main factors it doesn’t consider them all which the genuine progress indicator which considers 26 categories
48
Q

What is intergenerational inequity?

A

The fairness on future generations of economic policies today.
- The impact later of the use of fossil fuels now
- The impact later of higher spending which may worsen the national debt now

49
Q

What are the main causes of income inequality?

A
  • Regressive tax rate system - richest taxed less than the poor
  • Cost of living means poorest become worse of a richest have no impact so remain the same
  • Reduced benefit payments - not everyone qualifies too
  • CEO pay was 2.3bn in 2022
50
Q

What is fiscal drag?

A
  • When the tax people pays is not keeping up with the line of inflation and so people have a higher MPT
51
Q

What are the 3 main policies used in the UK to limit poverty and inequality?

A
  • Higher marginal tax rates on the richest in society
  • Minimum wage
  • Rent controls
52
Q

What are the 5 main causes of globalisation?

A
  • Improvements of transport
  • Improvements in IT
  • containerisation
  • economies of scale
  • trade liberalisation
53
Q

What are the characteristics of globalisation?

A
  • Increased mobility of labour
  • Increased movement of financial capital
  • Increased specialisation
  • Increased international trade
  • Increased trade to GDP ratios
54
Q

How to calculate trade to gdp ratios?

A
  • (International trade value x GDP) X 100
55
Q

What are the benefits of a monetary union?

A
  • Reduction in transportation costs because less need to convert currency
  • Less vulnerability from speculative currency shocks - this could keep the exchange rate more stable
  • Reduces inflationary pressure because fewer changes to the ER
56
Q

What are the costs of a monetary union?

A
  • Only one central bank so monetary policy will impact all countries - worse if they all have different trade cycles
  • Loss of control over the exchange rate policy - Unable to adapt the ER to improve the current account
  • Unable to change monetary policy to respond to external shocks
57
Q

What are the 5 factors affecting the balance of payments?

A
  • Inflation (relative to other countries)
  • Exchange rate
  • Costs
  • Income
  • Quality
58
Q

Why may capital flight be damaging to a economy?

A
  • Leads to currency weakness as people supply their currency when they demand foreign currency
  • ## Fall in currency could lead to imported inflation
59
Q

4 main causes of income inequality

A
  • lack of education in the north
  • lack of infrastructure
  • unequal access to job opportunities across the UK
  • Progressive nature of taxation
60
Q

What are 4 negatives to an economy having a PPD?

A
  • Volatility of commodity prices
  • Falling terms of trade (prebisch singer hypothesis)
  • Over dependency
  • Dutch disease
61
Q

What is austerity?

A

This is government fiscal policy which is aimed at reducing a fiscal deficit

62
Q

What are the causes of globalisation?

A
  • Containerisation
  • Economies of scale
  • Technological advancements
  • Differences in tax systems
  • Less protectionism
63
Q

Why is productivity measured as GDP per hours worked?

A
  • This measure shows the use of labour inputs better than labour outputs

Economics A level - Jaya (26 decks)

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