initial macro content

Question 1

exports

Answer 1

g and s sold to foreign countries and are positive in the BOP because they are in inflow of money

Question 1

what is the balance of payments

Answer 1

a record of all the financial transactions (every quater of the year) made between consumers, firms and the government in a given time period
states how much was spent on imports and what the value of exports is

Question 2

imports

Answer 2

g and s brought from foreign countries and they are negative on the BOP because they are an outflow of money

Question 3

what is the BOP made up of

Answer 3

the current account
capital account
financial account

Question 4

what is the current account

Answer 4

identifying the transactions in g and s between the residents of a country and the rest of the world

Question 5

what is the capital account

Answer 5

identifying transactions between physical capital between residents in a country and the rest of the world (smallest part)

Question 6

what is the financial account

Answer 6

identifies transactions between financial assets between the residents/firms of a country and the rest of the world

Question 7

current account sections

Answer 7

trade in goods
trade in services
primary income
secondary income

Question 8

trade in goods

Answer 8

balance of goods exported to good imported for a nation

Question 9

trade in services

Answer 9

balance of services exported to services imported for a nation

Question 10

primary income

Answer 10

net income flows
the net flow of profits, interest and dividends from investments in other countries

Question 11

secondary income

Answer 11

refers to transfers of financial resources between residents and non-residents without an exchange of goods, services, or assets, such as remittances, foreign aid, and pensions

Question 12

why is achieving a sustainable balance of payment important and what should it theroteically be at

Answer 12

aim for current account to be 0
A balanced current account implies that a country is not accumulating unsustainable levels of debt to finance its consumption or investment. Persistent current account deficits can lead to growing debt, making a country vulnerable to external shocks and financial crises

Question 13

current account formula

Answer 13

trade in goods+ trade in services+ primary income+ secondary income

Question 14

why should the balance of payments be equal to 0

Answer 14

all transactions should balance out, resulting in a net zero

Question 15

why is it important to achieve a sustainable balance of payments position (2)

Answer 15

an imbalance may make it seem the uk is reliant on other countries performance. if export markets become weak, uk economic performance may suffer- e.g 2008 financial crisis causing rises in unemployment and debt in the uk
it could become difficult to finance this deficit in the long run as you want to avoid having to rely on external financing e.g being in debt to other countries

Question 16

what causes a current account deficit

Answer 16

import value is higher than the export value
Wages. For example, if UK companies pay UK workers abroad, this leads to money leaving the UK and is a debit on the current account.
Since the mid 1980s, the UK has generally had a persistent current account deficit. Essentially, the UK has been importing more goods and services than it has been exporting.

Question 17

why may the bop not be equal to 0 (3)

Answer 17

high consumer spending
low competitiveness
differences in countries’ levels of exports and imports lead to trade imbalances, resulting in a surplus or deficit in the trade balance component of the BOP

Question 18

high consumer spending explained

Answer 18

If there is rapid growth in consumer spending, then there tends to be an increase in imports causing a deterioration in the current account. For example, in the 1980s boom, we saw a fall in the savings rate and a rise in UK consumer spending; this caused a record current account deficit. The recession of 1991 caused an improvement in the current account as import spending fell.

Question 19

competitiveness explained

Answer 19

If there is a decline in relative competitiveness, e.g. rising wage costs, then it is harder to export causing a deterioration in the current account.

Question 20

causes of exchange rate to increase (2)

Answer 20

Countries with stable political environments and sound economic policies tend to attract more foreign investment, strengthening their currencies.
Countries with trade surpluses (exporting more than importing) typically experience an appreciation in their currency, as foreign buyers need to purchase the domestic currency to pay for exports.

Question 21

causes of exchange rate to decrease (2)

Answer 21

Weak economic indicators, such as low GDP growth, rising unemployment, or declining productivity, can reduce investor confidence in a country’s economy. This may lead to decreased demand for the currency, causing its value to fall.
Uncertainty surrounding government policies, elections, or geopolitical tensions can lead to decreased investor confidence and capital outflows. As investors move their funds to safer places, the demand for the country’s currency may decrease, causing its value to decline.

Question 22

calculating inflation (cpi)- basket of goods

Answer 22

measures household purchasing power with the family expenditure survey. this finds out what consumers spend their income on. from this, the basket of goods is created. the goods are weighted according to how much income is spent on them. each year this is updated to see how spending patterns have changed.

Question 23

limitations of the cpi when measuring inflation (2)

Answer 23

only representative of your average household- so its not representative for those who don’t own cars as people who do spend 14% of their income on motoring
different types of people have different spending patterns - could be down to age, ethnicity etc

Question 24

what is the retail price index

Answer 24

alternative measurement of inflation unlike cpi, it also includes housing costs like mortgage interest payments and council tax. some consumers think this is a more accurate reflection of cost of living

Question 25

advantage of the rpi (1)

Answer 25

been used for a lot longer than cpi so its easier to make comparisons

Question 26

what are index numbers used for

Answer 26

making comparisons between years and to measure the size of change over time

Question 27

calculating the rate if inflation using index numbers

Answer 27

a base number is used (100) and, for example, if inflation has risen by 5%, the index number will be 105

Question 28

what are the triggers for demand pull inflation (2)

Answer 28

When real income increases, individuals have more purchasing power, enabling them to buy more goods and services. lower interest rates as people save less and spend more meaning ad will rise

Question 29

when does cost plus inflation occur (2)

Answer 29

labour becoming more expensive- if wages make up a large amount of a firms costs this could lead to them needing to increase prices to cover this. these price rises could lead to further wage demands leading to further price increases and so on (wage- price spiral) depreciation in the exchange rates may cause imports to be more expensive which increases the price of raw materials

Question 30

deflation meaning

Answer 30

Deflation is a process where prices of consumer goods and services fall and money increases in value.

Question 31

cause of deflation

Answer 31

when there is a significant decrease in spending, investment etc aggregate demand in the economy falls. This can lead to excess supply in the market, causing businesses to lower their prices in an attempt to stimulate demand, resulting in deflationary pressure If businesses produce more goods and services than consumers are willing or able to purchase, it can lead to a surplus of supply. In an effort to sell the excess, businesses may reduce prices, contributing to deflation.

Question 32

consequences of deflation (2)

Answer 32

When consumers expect prices to continue falling, they may delay purchases in anticipation of lower prices in the future. This reduction in spending can further worsen deflationary pressures by reducing demand for goods and services. Deflationary pressures can lead to layoffs and job losses as businesses cut costs in response to decreased demand and lower prices. Persistent deflation can exacerbate unemployment by discouraging hiring and investment, leading to a downward spiral of economic activity.

Question 33

consequences of inflation on consumers - explanation

Answer 33

those on low and fixed incomes will suffer the most as it erodes the purchasing power of money over time, meaning that the same amount of money buys fewer goods and services. As prices rise, consumers need to spend more money to purchase the same quantity of goods and services, reducing their standard of living as consumers' real incomes will decline. Even if nominal wages increase, if they fail to outpace inflation, consumers' purchasing power will be eroded. This can lead to financial insecurity for individuals and households.

Question 34

consequence of inflation on firms - explanation

Answer 34

High or unpredictable inflation rates can create uncertainty for firms, making it challenging to plan and make investment decisions. Businesses may hesitate to invest in long-term projects or expansion plans if they are unsure about future costs and revenues. this can reduce their confidence as they're unaware of what their costs will be leading to less investment

Question 35

how can economic growth be depicted on a graph

Answer 35

expansion of productive potential of the economy which can be depicted by an outwards shift on the ppc curve or the countries lras curve

Question 36

what is the economic cycle stages

Answer 36

Expansion (Recovery) Peak Contraction (Recession) Trough and then goes back around to the expansion

Question 37

what is the expansion (recovery)

Answer 37

During this stage, key economic indicators such as GDP, employment, consumer spending, and business investment typically rise. Confidence among consumers and businesses tends to increase, leading to higher levels of consumption, investment, and overall economic activity. Central banks may implement accommodative monetary policies, such as low interest rates to support economic growth during this phase.

Question 38

what is the peak

Answer 38

highest point of the economic cycle, characterised by strong economic activity and near-full employment. During this stage, the economy is operating close to its potential output, and inflationary pressures may begin to emerge as demand exceeds supply in certain sectors.

Question 39

what is the contraction (recession)

Answer 39

marked by a decline in economic activity, typically measured by a decrease in GDP for two consecutive quarters or more. During this stage, key economic indicators such as employment, consumer spending, and business investment decline, leading to reduced output and income levels. Consumer and business confidence often weakens, leading to cautious spending and investment behaviour.

Question 40

how can gdp change over time (use previous flashcards)

Answer 40

through the phases of the economic cycle- expansion it will begin to increase as consumers and firms will gain confidence to spend more and invest more. GDP tends to rise steadily as businesses expand production and output, leading to overall economic growth. The peak of the economic cycle represents the highest point of GDP growth in the expansionary phase. At this stage, the economy is operating at or near full capacity, with high levels of employment and production. economy enters a contractionary phase marked by declining GDP growth. This phase can lead to a recession, defined as two consecutive quarters of negative GDP growth. During a recession, economic activity slows, businesses cut back on production, and unemployment may rise as consumer spending declines. GDP reaches its lowest level during a recession. At this stage, the economy may experience high levels of unemployment, reduced consumer spending, and weak business confidence in the trough

Question 41

causes of short run economic growth (2)

Answer 41

Technological advancements and innovation can lead to productivity gains and efficiency improvements in the short run, driving economic growth. Investments in research and development, adoption of new technologies, and improvements in production processes can all contribute to short-run growth. Short-run economic growth can be influenced by changes in external demand for a country's exports. Stronger global economic conditions, increased demand from trading partners, or favourable exchange rate movements can boost exports and contribute to GDP growth in the short term.

Question 42

consequences of short run economic growth (2) - 1 good 1 bad

Answer 42

Short-run economic growth often leads to higher demand for goods and services, prompting businesses to expand production and hire additional workers. This can reduce unemployment rates and improve labour market conditions, providing more opportunities for individuals to find jobs and earn incomes. Rapid short-run economic growth can lead to increased demand for goods and services, putting upward pressure on prices. If the supply of goods and services cannot keep pace with rising demand, it can lead to inflationary pressures, eroding purchasing power and potentially reducing real incomes, especially for fixed-income earners.

Question 43

causes of long run economic growth

Answer 43

Investment in human capital, including education, skills training, and health care, is essential for long-run economic growth. A well-educated and skilled workforce is more productive, adaptable, and innovative, leading to higher levels of productivity, technological adoption, and overall economic performance. Long-run economic growth is facilitated by the accumulation of physical capital, such as machinery, equipment, infrastructure, and buildings. Investments in capital goods increase the economy's productive capacity, enabling higher levels of output and income over time.

Question 44

consequences of long run economic growth 1 good 1 bad

Answer 44

Economic growth can help lift people out of poverty by creating employment opportunities, raising wages, and expanding access to essential goods and services. As incomes rise and economic opportunities expand, individuals and families at lower income levels can experience improvements in living conditions and greater economic security. While economic growth can bring significant benefits, it can also pose challenges to environmental sustainability. Rapid industrialisation, urbanisation, and resource extraction activities can lead to environmental degradation, pollution, and depletion of natural resources, threatening ecosystems, biodiversity, and public health.

Question 45

usefulness of gdp (positive-1)

Answer 45

GDP allows for comparisons of economic activity over different time periods. Changes in GDP provide insights into economic trends, cycles, and growth rates. For example, positive GDP growth indicates economic expansion, while negative growth suggests a contraction.

Question 46

usefulness of gdp (limitation-1)

Answer 46

there are things that don't get accounted as there are large hidden economies such as the black market which can make gdp calculations inaccurate therefore difficult to compare

Question 47

what is the claimant count

Answer 47

counts the number of people who are claiming unemployment related benefits, such as job seekers allowance (jsa). they have to prove they are actively looking for work

Question 48

what does the labour force survey directly ask people (3)

Answer 48

if they've been out of work for more than 4 weeks able and willing to start work within 2 weeks available for 1 hour per week. (part time unemployment included)

Question 49

what is frictional unemployment

Answer 49

the time between leaving a job and looking for another

Question 50

causes of unemployment (2)

Answer 50

During periods of economic downturn or recession, businesses may reduce production, cut costs, and then have to lay off workers due to this and decrease in demand human labour being replaced by tech

Question 51

consequences of unemployment- (2)

Answer 51

Unemployment often leads to financial strain as individuals lose their primary source of income. This can result in difficulty meeting basic needs such as food, housing, healthcare, and education. Financial hardship can exacerbate poverty, increase debt levels, and lead to economic instability. Unemployed individuals have less disposable income to spend on goods and services, leading to a decrease in consumer spending. This reduction in demand can negatively impact businesses, leading to lower sales and potentially further job losses.

Question 52

effects of full employment (2)

Answer 52

With labour markets tight and demand for workers exceeding supply, employers may need to offer higher wages and better benefits to attract and retain employees. This can lead to rising incomes for workers, improving their standard of living and purchasing power, and reducing income inequality. Full employment contributes to higher levels of economic output and growth as all available labour resources are engaged in productive activities. Increased labour force participation, rising incomes, and enhanced productivity can boost consumer spending, business investment, and overall economic activity, driving sustained economic expansion.

Question 53

what is demand pull inflation

Answer 53

a period of inflation which arises from rapid growth in aggregate demand. It occurs when economic growth is too fast. ad is bigger than as

Question 54

what is cost push inflation

Answer 54

when the costs of production, such as wages, raw materials, or energy, increase, leading to higher prices for goods and services. It is driven by a fall in the short-run aggregate supply

Question 55

3 ways of measuring gdp

Answer 55

national income output expenditure (three things equal each other)

Question 56

what is the relationship between aggregate demand and price level

Answer 56

Inverse Relationship: As the price level decreases, aggregate demand typically increases. As the price level increases, aggregate demand typically decreases.

Question 57

what is the relationship between income and consumption

Answer 57

direct relationship As disposable income rises, consumption typically increases because people have more resources to spend.

Question 58

why is the aggregate supply curve (sras) sloping upwards

Answer 58

at a higher price level, producers are willing to supply more because they can earn more profits

Question 59

if AD increases what is there in sras (expansion or contraction)

Answer 59

expansion

Question 60

if AD decreases what is there in sras (expansion or contraction)

Answer 60

contraction

Question 61

what do keynesians suggest about the price level (think lras graph) (i hope you understand what your past self is trying to explain. if not go onto pmt and aggregate supply 3rd page down )

Answer 61

the price level is fixed until resources are employed