Macro 1 and 2 Flashcards
What is inflation
The rate of the increase of prices over time which means over time peoples money becomes less valuable as they can buy less.
How is inflation measured
By comparing the costs of good today to the costs of goods a year ago
What is CPI inflation
Consumer price index measures a representative basket of goods and services purchased by households e.g. rent, food, clothing
What is RPI inflation
Retails price index includes a broader set of expenses including housing costs, mortgage payments, council tax which CPI does not consider.
What is the target inflation rate in the UK
2%
What is the current UK inflation rate
6.3% for August 2023
What is the effect of high inflation rate on incomes
High inflation can lead to the erosion of real wages as the cost of living increases meaning people have to spend more just to survive so they will have less/no disposable income
What is macroeconomics
Macroeconomics is interested in many industries operating in or between national economies
What are the three economic agents
Households, firms, governments
What is an economic indicator
A statistic about economic activity
What is economic growth
The expansion of the productive potential of the economy
How is economic growth measured
By the GDP - The total production of goods and services in the economy
What does GDP measure
The monetary value of goods and services produced in the economy over a period of time.
What is the difference between norminal GDP and real GDP
Norminal GDP reflects the raw number in current British pound unadjusted for inflation. However, real GDP adjusts the value for inflation and deflation
What is GDP per capita
Per Capita GDP represents the average GDP per person and is calculated by dividing the total by the population.
What is the goverment aim for economic growth in 2022
2.5%
What is unemployment
The state in which an individual actively seeks employment but is unsuccessful
What is the difference between unemployment level and unemployment rate
Unemployment level is the number of people unemployed, however Unemployment rate is the percentage of people unemployed to the number of people employed
How is unemployment level measured
Labour force survey
How is unemployment rate measured
Number of people unemployed divided by the economically active population (number employed + number unemployed)
What is the difference between claimant count and Labour force survey as measures of unemployment
Claimant count is a count of the number of people who claim unemployment related benefits. Whereas, labour force survey is the self-classification of being ‘out of work’ but ‘actively seeking employment’
What are the four broad categories of unemployment
Seasonal, structural, cyclical, frictional
What is seasonal unemployment
When workers are unemployed at different times of the year
What is structural unemployment
Unemployment resulting from industrial reorganisation
What is frictional unemployment
Short-term unemployment between jobs
What is cyclical unemployment
Unemployment caused by fluctuations in the business cycle or economic cycle
What does the current account on the balance of payments measure
A record of a countries international transactions with different countries
What does the government aim to achieve with regards to trade
secure free trade agreements with other countries
What is the current balance of payments on the current account in the UK
- £21.1 billion
How is trade balance calculated
Value of a countries exports - Value of countries imports
What is labour productivity
Value of goods obtained from each employee
How is labour productivity measured
Output % number of employees
How might a firm or economy go about improving productivity
Improvement in the factors of production
What is the role of households
Supply factors of production and purchase goods and services
What is the aim of households
Maximise Utility - satisfaction
What motivates households
Price changes
What is the role of firms
Convert factors of production into goods and services
What is the aim of firms
Profit
What motivates firms
Cost changes
What is the role of governments
Generate revenue to provide an essential economic framework
What is the aim of governments
Maximise social welfare
What motivates the government
Votes
What is national income
The measure of a countries final output of all goods and services produced in a year
What is nominal income
Measures income at current prices with no adjustment for the effects of inflation
What is real income
Measures income at constant prices and has been adjusted for the effects of inflation
What type of income indicator is more regularly used to measure economic performance
Real income is used as it can calculate the rate of economic growth and assist in the measurement of cost of living standards in a country
What are Leakages (W)
When income leaves the circular flow
How can leakages occur
- When households saves (S) some of their income
- When goods and services are imported (M) from another country
- When the government imposes taxes (T) on firms and households
What are injections (J)
When income enters the circular flow
How can injections occur
- When the government spend (G) in an economy
- When goods and services are exported (X) to another country
- When firms invest (I) to expand their business
When does economic growth occur
When injections (J) are greater than leakages (W):
J>W
When does economic decline occur
When injections are less than leakages
J<W
When does economic equilibrium occur
J=W
What are the rewards for the factors of production
Land - raw materials
Labour - Wages
Capital - Interest
Enterprise - Profit
What is GDP
A measure of economic growth
What is growth
Change in national outputs over time
What is national output
All the goods and services produced in a country
What does GDP equal
Consumer spending (C) + Investments (I) + Government spending (G) + ( Exports (X) - Imports (M))
What takes up the greatest proportion of GDP
Consumer spending (C) - 60% of GDP
