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Macroeconomics > Macro 1 > Flashcards

Macro 1 Flashcards

1
Q

What is the short-run?

A

A period in macroeconomics extending just a few years into the future.

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2
Q

What is the long-run

A

A period in macroeconomics extending many years into the future

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3
Q

What is an economic shock?

A

An unexpected event that causes a shift in AD and/or AS

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4
Q

What is a policy objective?

A

A target or goal that a government wants to achieve.

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5
Q

What are the UKs economic objectives?

A
  • Sustainable economic growth
  • Low unemployment
  • Low, stable rates of inflation (2%, +- 1% each side)
  • Satisfactory balance of payment
  • Achieving a more equitable distribution of wealth and income
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6
Q

What is a trade-off?

A

Where there are 2 or more desirable objectives that are mutually exclusive.

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7
Q

What are some examples of policy trade offs?

A
  • Economic growth vs a satisfactory balance of payments
  • Achieving full employment vs controlling inflation
  • Economic growth vs equitable distribution of income and wealth
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8
Q

What is the most important macroeconomic objective to achieve?

A

It is generally believed that sustainable economic growth is the most important macroeconomic objective due to it allowing other objectives to be achieved

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9
Q

How could all macroeconomic objectives be achieved?

A

Many free-market economists argue that supply side policies could be used as there are no trade-offs in the long run.

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10
Q

What is short-run economic growth?

A

When an economy utilises previously unused resources to bring the actual economic performance closer to the productive potential of the economy.

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11
Q

What is the main cause of short-run economic growth?

A

Demand side changes in the economy (which are a result of shifts in AD)

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12
Q

What is the limitation for short-run economic growth?

A

Once the spare capacity has been utilised, further increases in AD are purely inflationary - a shift in LRAS is required.

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13
Q

What is long-run economic growth?

A

When there is an increase to the productive potential of an economy, changing the trend rate of growth for a country

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14
Q

What is the trend rate of growth?

A

The rate at which output can grow without putting pressure on inflation

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15
Q

What causes long-run economic growth?

A

Supply side changes in the economy - caused by a shift in LRAS

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16
Q

What is the limitation for long-run economic growth?

A

An increase in AD is also required, ensuring that there is sufficient demand in the economy to match the increased AS

17
Q

What are the benefits of economic growth?

A
  • Increased standards of living
  • Development of more advanced technology
  • Increases tax revenue that can be used to correct market failures
  • Increase international competitiveness
18
Q

What are the costs of economic growth?

A
  • Finite resources are usually used up
  • It often results in environmental degradation
  • Local communities can be destroyed
  • It can widen inequalities in wealth and income
  • Automation may increase unemployment
19
Q

What is the economic cycle?

A

The stage of economic growth that an economy is in

20
Q

How long does each stage of the economic cycle last?

A

Usually between 4 and 12 years

21
Q

What are the 3 stages of the economic cycle?

A
  • The boom phase
  • The recession phase
  • The recovery phase
22
Q

What is the boom phase?

A

Where real GDP is above the trend rate of growth

23
Q

What is the recession phase?

A

Where the rate of economic growth declines

24
Q

What is the recovery phase?

A

Where real GDP grows after the recession phase

25
Q

What is a recession?

A

In the UK it is defined as 2 consecutive quarters of negative economic growth

26
Q

Does the economic cycle always cause negative economic growth?

A

No, the recession phase could involve a fall in the rate of economic growth but never negative economic growth

27
Q

What is a output gap?

A

We the real output in an economy is different from the trend rate of growth

28
Q

What is a positive output gap?

A

Where the real output in an economy is above the trend rate of growth

29
Q

What is a negative output gap?

A

Where the real output in an economy is below the trend rate of growth

30
Q

What are the different causes for fluctuations in economic activity?

A
  • Seasonal fluctuations
  • Cyclical fluctuations due to the economic cycle
31
Q

What are the causes for the different phases of the economic cycle?

A
  • Fluctuations in AD
  • Supply side changes
  • Speculative bubbles
  • Government interference to create pre-election booms
  • Economic shocks
32
Q

What are speculative bubbles?

A

Where rapid economic growth leads to the price of assets rising above their real value, causing a crash when people stop spending

33
Q

What do Marxist economics believe about the economic cycle?

A

It is a key part of capitalism as recessions allow larger firms to take over weaker competitors and increase profits

34
Q

What do Keynesian economists believe about the economic cycle?

A

It occurs due to the interaction between the multiplier and accelerator processes. The multiplier process increases national income due to an initial investment, and the accelerator takes the increase in national income and induces a change in the level of investment

35
Q

What is the multiplier process?

A

Where an initial injection (or leakage) leads to a greater than proportional change in real GDP

36
Q

What is the equation for the multiplier?

A

multiplier = change in nation income / initial change in government spending

37
Q

What is the accelerator process?

A

An increase in national income leading to a greater than proportional increase to investment

38
Q

What are macroeconomic indicators?

A

Data that is commonly used to measure the perforamcnce of an eocnomy

Macroeconomics (7 decks)

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