Macro Flashcards
What does the Phillips curve show?
The phillips curve (short run) shows the relationship between unemployment and inflation.
It suggests that if there is a constant negative relationship between the two variables, then every economy faces a trade off between inflation and unemployment.
What does the Long Run Phillips curve show (LRPC)?
The LRP is vertical at the natural rate of unemployment (i.e. full employment), indicating that unemployment is independent of the rate of inflation, and that policy makers do not have a choice between the two competing alternatives.
What does the Lorenz curve show?
The lorenz curve is used to show the degree of income inequality in an economy.
In general, the closer a lorenz curve is to the diagonal representing perfect income equality, the greater the equality in income distribution.
What is the Gini coefficient?
The Gini coefficient is a summary measure of income inequality.
= area between diagonal and Lorenz curve/ entire area under diagonal
The closer the value is to 0 ,the greater the income equality; the closer the value is to 1 the greater the income inequality.
What is GDP?
The total market value of all finished goods and services produced in a set time period.
What is GNI?
GNI is the total income received by the country from its residents and businesses regardless of whether they are located in the country or abroad.
(GNI = GDP+ net income from abroad)
What is GDP per capita?
A country’s economic output divided by its population.
What is the Keynesian Multiplier effect?
The Keynesian Multiplier is an economic theory that asserts that an increase in private consumption expenditure, investment expenditure, or net government spending raises the total GDP.
Therefore, if private consumption expenditure increases by 10 units, the total GDP will increase by more than 10 units.
Formula for the Keynesian Multiplier ?
multiplier = change in real GDP/ initial change in expenditure
The value for the multiplier is given by 1/ 1-MPC
Also: multiplier> 1 , always
What happens to RGDP if there is a change in a component of AD?
Whenever there is a change in AD, there is likely to be a multiplied effect on RGDP
What is the marginal propensity to consume (mpc) ?
The fraction of additional income spent on domestically produced goods and services. Determines the size of the Keynesian multiplier; the larger the MPC, the larger the multiplier.
marginal propensity to save (mps)?
The fraction of additional income that is saved. The larger the MPS, the smaller the Keynesian multiplier.
marginal propensity to tax?
The fraction of additional income that is paid as taxes. The larger the MPT, the smaller the Keynesian Multiplier.
marginal propensity to import (MPM) ?
The fraction of additional income spent on imports. The larger the MPM. the smaller the Keynesian Multiplier.
Note: MPC+MPS+MPT+MPM= 1
Unemployment
People of working age who are actively looking for a job but who are not employed.
