Introduction to Macroeconomics Flashcards
What is the circular flow of income
The idea that all money is passed between business and households
What are the 3 methods of measuring the size of the economy
Expenditure method
Income method
Output method
What is AD
Aggregate demand is the total value of all the goods and services demanded in an economy
What are the components of AD
C - Consumption
I - Investment
G - Government spending
(X - M) - (Exports - imports)
What are the 3 leakages
Taxation
Saving
Imports
What are the 3 injections
Consumption
Investment
Government spending
What is consumer confidence
How consumer view the state of the economy
Marginal propensity to consume
The % of a change in income that is spent
What is used to describe national output
AS
Why is it not necessarily a good thing that the economy is in equilibrium
Equilibrium can occur at a point where the factors of production are under-utilised
What is the accelerator theory
An increase in real GDP will lead to a proportionally higher increase in private sector investment
What is the multiplier effect
When an initial change in AD has a greater final effect on the level of equilibrium national income
What does the size of the multiplier depend on
The level of leakages from the system
What causes the multiplier
Due to the circular distribution of income money is spent multiple times
What is a likely effect of a POG
High inflation
Damage to the factors of production
What is the effect of a NOG
AD is smaller than it could be
Nominal value
Value based only on current value without taking into account how prices change over time
Real value
Value of an economic variable taking into account how the price changes through time
GNI
gross national income - GDP plus income from abroad
Seasonal adjustment
A process by which seasonal fluctuations in a variable are removed to reveal an underlying trend
Productivity
The measure of efficiency of a factor of production
Total factor productivity
The average productivity of all factors - total output over total input
Human capital
The stock of skills that contribute to the efficiency of a worker
Economic cycle
A phenomenon by which GDP fluctuates around an underlying trend
What is the equation for the price index
(Nominal GDP / real GDP) * 100
Index
A way of comparing the value of a variable with a base observation
CPI
Consumer price index - A measure of general prices in the UK
CPIH
CPI accounting for house prices
RPI
Retail price index
Deflation
A fall in price level
Disinflation
A fall in the rate of inflation
Hyperinflation
Extreme level of inflation
Cost push inflation
Inflation caused by an increase in firms costs
Demand-pull inflation
Inflation caused by an increase in AD
Money stock
The amount of money in the economy
Consequences of higher inflation
Increased inequality
Falling real income
Inefficient allocation of resources
Wage inflation - increased costs due to workers asking for more money
Uncertainty
Menu costs - firms must update prices more regularly
Advantages of inflation
The value of governments debt decreases
Allows for economic growth
Disadvantages of inflation
Causes uncertainty, increasing costs and fiscal drag
Fiscal drag
When high inflation causes people to move up tax brackets reducing RDI
Employment
People who are working
Economically inactive
People who are of working age and are unable to work
Discouraged workers
People who are have been unable to find work and are no longer looking for work
Workforce
People who are economically active
Unemployed
People who are economically active but not employed
Full employment
A situation in which everyone who is willing and able to find work is able to do so
Claimant count of unemployment
The number of people on JSA
JSA
Job-seekers allowance
ILO
Measure of how many people are without jobs but are willing and able to work
Frictional unemployment
People who are between jobs
Structural unemployment
Unemployment due to changes in the economic structure
Cyclical unemployment
Unemployment that arises due to changes in the economic cycle
Seasonal unemployment
Unemployment that arises during seasons when demand is low
Real wage inflexibility
A situation in which minimum wage is higher than the equilibrium wage resulting in excess supply of labour
Voluntary unemployment
A situation in which an individual chooses not to work
What are the causes of frictional unemployment
Will always exist due to the nature of job searching
What causes Structural unemployment
Difficulties learning new skills
Difficulty moving regions to find work
Changes in economic structure
What causes demand deficient unemployment
When the supply of people wanting to work is higher than the demand for workers
Often happens when the economy is below full capacity
What causes seasonal unemployment
Lack of demand during certain seasons e.g. January
What causes wage inflexibility
When wages are pushed above the equilibrium often due to a rise in minium wage
Advantages of low unemployment
Means that the long term unemployed decrease—increase in labour FOP
Multiplier effect
Disadvantages of unemployment
Causes an increase in inflationary pressure
Decreases size of labour force
balance of payments
A set of accounts showing how transactions are split between residents and other countries
Current account
Identifies transactions that dont have return
Financial account
account identifying transactions in financial assets between a country and the rest of the world
Capital account
Identifies transactions in physical capital
Credit
Money flowing into a country from a transaction
Debit
Money leaving the account from a transaction
Underemployment
Working fewer hours than you would like
