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Macro Econ > Key Info > Flashcards

Key Info Flashcards

1
Q

what is the Easterlin Paradox

A

life satisfaction does rise with average incomes but only up to a point

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2
Q

what are the macroeconomic objectives

A
  • low and stable rates of unemployment
  • high and stable rates of economic growth
  • low and stable rates of inflation
  • reducing inequality
  • protection of the environment
  • improving terms of trade
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3
Q

what makes up the current account

A
  • imports and exports
  • net income from abroad
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4
Q

what is the Philips curve

A
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5
Q

what is a recession

A

A period of two or more consecutive quarters (1) of negative
economic growth/falling real GDP (1)

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6
Q

how is CPI measured

A
  • It uses a weighted basket of goods and service (1)
  • The weights are in proportion to the amount of money spent on each item (1)
  • Monthly price surveys are undertaken (1)
  • An annual survey of household spending is used to set the
    weights/the contents of the basket (1)
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7
Q

what is comparative advantage

A

if countries specialise in producing goods where they have a lower opportunity cost – then there will be an increase in economic welfare

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8
Q

what is the drawback of using comparative advantage

A

it ignores transport costs and assumes perfect mobility of factors without any diminishing returns

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9
Q

what is the fisher equation

A

increase in the money supply will lead to an increase in price levels (MV=PT (M=money supply V=speed P=price level T=number of transactions))

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10
Q

whats the bank multiplier

A

like the multiplier but for how much QE will be loaned by banks

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11
Q

what factors impact short run AS

A
  • exchange rate
  • cost of raw materials and energy
  • tax rates
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12
Q

whats hysteresis

A

the idea that temporary shocks such as a recession actually have long-lasting effects and that the economy doesn’t bounce back fully

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13
Q

what are growth pessimists

A

those who question the sustainability of long term growth

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14
Q

what are the aims of supply side interventionist policies

A
  • to increase incentives
  • to promote competition
  • to reform the labour market
  • to improve the skills and quality of the labour force
  • to improve infrastructure
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15
Q

whats the difference between a direct and indirect tax

A
  • direct taxes are paid directly to the government by the
    individual taxpayer e.g. income and corporation tax
  • indirect taxes are where the person charged with paying the
    money to the government is able to pass on the cost to
    someone else e.g. VAT
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16
Q

what is the standard rate of VAT

A

20%

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17
Q

what are the supply side policies

A
  • free-market supply-side policies involve policies to increase
    competitiveness and free-market efficiency. For example,
    privatisation, deregulation, lower income tax rates, reduced
    welfare benefits and reduced power of trade unions.
  • interventionist supply-side policies involve government
    intervention to overcome market failure. For example, higher
    government spending on transport, education and
    communication.
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18
Q

how might a government control their exchange rate

A
  • interest rates
  • buying/selling foreign/domestic currencies
  • QE
  • set a ceiling and floor
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19
Q

what are the limitations of using HDI

A
  • ignores qualitative factors (quality of education)
  • ignores income distribution (inequality)
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20
Q

pros of contractionary monetary policy through increasing interest rates

A
  • reduce inflation (demand pull)
  • reduce current account deficit through reduced imports
  • discourage debt - chance of defaulting (systemic
    risk)
  • more sustainable borrowing/lending - preventing
    bubbles
  • more affordable housing as it will increase the cost of mortgages - reduce demand - reduce price
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21
Q

cons of contractionary monetary policy through increasing interest rates

A
  • demand side shock - lower growth and higher unemployment
  • reduced investment
  • worsen current account deficit - hot money flows - appreciation of the currency - less competitive exports
  • indebted - bankruptcy/homelessness
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22
Q

pros of contractionary fiscal policy

A
  • reducing national debt - increased confidence - improved credit ratings on government bonds / attract FDI
  • greater flexibility for fiscal policy
  • less crowding out/x-inefficiency
  • less demand pull inflation and improved current account - lower spending on imports
23
Q

what is cyclical budget surplus

A

budget surplus in a boom

24
Q

what is structural budget surplus

A

budget surplus at full employment

25
Q

cons of contractionary fiscal policy

A
  • negative multiplier
  • demand side shock - fall in growth and rise in unemployment - AD shifts in
  • decreased incentive from higher taxes and increased tax avoidance - laffer curve
  • income inequality increased if taxes aren’t progressive and cut in government spending on benefits
  • cutting government spending on education, healthcare and infrastructure
  • inward shift in LRAS in long run as less profit to invest for firms
26
Q

cons of expansionary fiscal policy

A
  • crowding out / x-inefficiency - however possible crowding in as
    increased confidence
  • ricardian equivalence - people save as they expect a tax rise later on
  • if multiplier is large it may not need to be such a heavy policy
  • if automatic stabilisers are strong then less need for discretionary fiscal policy
27
Q

what is ricardian equivalence

A

that households and firms know that a fall in income tax rates as an expansionary fiscal policy cannot be afforded in the long run so increase savings in anticipation

28
Q

cons of expansionary monetary policy

A
  • liquidity trap
  • dependent on willingness to lend - bank confidence for firms
    and households to pay
29
Q

pros of FDI + development

A
  • injection into the circular flow of income
  • fills savings gap - harrod-domar model
  • positive effect on the balance of payments
  • provide infrastructure development e.g. China in Nigeria for oil
  • improved domestic competition -> increased productivity
  • tax revenue through income, corporation and VAT
30
Q

cons of FDI + development

A
  • could be a short term fall in unemployment or firms might bring workers with them
  • exploit their power and influence policy making and avoid tax
  • may use capital intensive production so there will be little or no increase in employment
  • may strip country of natural resources and leave
  • there are environmental costs
31
Q

pros of economic growth on development

A
  • higher incomes -> increased employment/QOL
    -> decreased poverty/income inequality
  • higher profits -> improved employment/technology
  • fiscal dividend -> increased spending on healthcare/education/infrastructure
32
Q

cons of economic growth on development

A
  • increased inequality
  • negative externalities e.g. pollution
  • growth pessimists -> growth isn’t sustainable in the long run (use of non-renewables)
  • growth in one dominant sector e.g. Nigeria 90% of exports being oil
33
Q

what does foreign aid help to do

A

fill the savings gap - harrod-domar model

34
Q

pros of the role of markets on development (free market supply side policies)

A
  • more efficient resource allocation as decreased government spending
  • increased competition -> increased productivity
  • encourages FDI - de-regulation + trade liberalisation
  • removes x-inefficiency from nationalised industries
35
Q

forms of free market supply side policies

A
  • de-regulation
  • trade liberalisation
  • privatisation
  • promoting FDI
  • reduced government spending
36
Q

cons of the role of markets on development (free market supply side policies)

A
  • lack of infrastructure to promote development
  • public goods not provided - free rider problem
  • market failure - environmental
  • increase income inequality as no welfare payments
  • reduced protectionism in developed countries exposes firms to low unit costs of cheap labour in developing countries
  • lack of financial institutions - government can fill savings gap
37
Q

pros of role of government on development (interventionist supply side policies)

A
  • infrastructure development - as no free rider problem
  • government are a major employer - e.g. NHS 1.5 million
  • government are a major investor into human capital
  • welfare payments
  • can adopt fiscal and monetary policies
38
Q

cons of role of government on development (interventionist supply side policies)

A
  • bureaucracy
  • x-inefficiency - nationalised industries -> reduced competition -> reduced productivity
  • corruption
  • government debt
39
Q

forms of interventionist supply side policies

A
  • protectionism
  • exchange rate intervention
  • regulations
  • nationalisation
  • increased government spending
40
Q

what does 0 and 1 show as values of HDI

A

0 is low development
1 is high development

41
Q

methods of increasing international competitiveness

A
  • increased government spending -> increased productivity -> lower unit cost
  • privatisation/de-regulation/trade liberalisation
42
Q

pros and cons of debt relief

A

pros:
- fill savings gap
- increased government spending

cons:
- corruption
- dependency
- moral hazard
- opportunity cost/time lag

43
Q

economic effects of a depreciation of currency

A

pros:
- improvement in current account - J-curve
- increased aggregate demand -> improved living standards

cons:
- not most significant component of AD and depends on output gap
- marshall-lerner condition

44
Q

how to calculate a real value

A

nominal - inflation

45
Q

relative poverty

A

60% below median income

46
Q

2 causes of inequality

A
  • discrimination - gender
  • post code lottery
47
Q

2 ways to reduce inequality

A
  • government investment into deprived areas
  • increasing NMW or improved tax system
48
Q

how to calculate unemployment rate

A

unemployed people / economically active population

49
Q

how to calculate employment rate

A

employed people / labour force

50
Q

what are the types of restrictions on free trade

A
  • tariffs
  • quotas
  • subsidies to domestic producers
  • non-tariff barriers e.g. embargo
51
Q

what is meant by ‘dutch disease’

A
  • increase in revenue from natural resource exports leading to an appreciation of the currency and negatively impacts other sectors
  • can also lead to primary product dependency and therefore instability and volatility
52
Q

what is meant by the Prebisch-Singer theory

A
  • over time export lead growth from natural resources is slower than manufactured goods
  • deterioration of term of trade in the long term
53
Q

what is meant by the unemployment trap

A

when benefits are higher than the wage people would
otherwise receive.

Macro Econ (2 decks)

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