lesson 1: introduction to macroeconomics Flashcards
when was the great depression and how long did it last for?
1930s
a decade
how much did unemployment reach during the great depression?
USA 25%
UK 21%
chain of reasoning for supply constraints
firms chase scarce resources
increases costs
increases price
leading to supply constraints
what is the paradox of thrift?
people saving is a bad thing because it means its not being spent in the economy
what do supply side policies aim to improve?
aims to improve economic performance by creating competitive and efficient markets
when was the long boom?
1992-2008
what were the characteristics of the long boom of 1992-2008?
low unemployment
trend growth of 2.75%
large BOP deficit (strong pound suck in imports and difficult to export)
inflation in check as the BOE used monetary policy to manage demand and government focused on supply side policies to boost LRAS
house prices rising so consumer confidence fuelled and this increased spending even more
a rise in the current account deficit
what is the sovereign debt crisis?
the bond markets get nervous
what is austerity?
economic policies that governments use to reduce their budget deficits
tax increases
spending cuts
when was austerity used?
when there was the coalition in 2010 to reduce the budget deficit because in 2010 debt % was 60
what does macroeconomic policy aim for?
low unemployment and control over inflation
what is aggregate demand?
the total planned spending on the goods and services produced within an economy in a particular time
when does a balanced budget exist?
gov spending = gov revenue
when are injections into the circular flow likely to lead to inflation?
rising consumption leads to supply constraints and shortages
what are the multiplier formulas?
1 1
——— = ——-
1-MPC MPS
expansionary policy chain of reasoning
expansionary policy
reduces unemployment
but leads to supply constraints
costs rise
inflation increases
PPQ: define the term deflation
decrease in price level
PPQ: what is a likely cause of deflation
a fall in oil prices
PPQ: what is a likely reason for a fall n the unemployment rate?
increasing consumer spending
PPQ: define the term real GDP
value of everything produced adjusted or inflation
PPQ: define the term direct tax + example
tax on profit
corporation tax
