Macro Flashcards

1
Q

Aggregate Demand

A

Is the total amount of spending on goods/services produced in an economy during a period of time

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2
Q

AD formula

A

AD = C + I + G + X – M

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3
Q

Wealth

A

Is the value of assets that people own e.g. houses, stocks and bonds, jewellery, works of art etc + not the same as income

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4
Q

Nominal GDP

A

Value of GDP that has not been adjusted for inflation + not a clear measure as it overstates the value

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5
Q

Real GDP

A

Value of GDP that has been adjusted for inflation/ takes it into account

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6
Q

Investment

A

Is an increase to the capital stock of the economy (i.e. factories, machines) used to produce other goods/services
For an economist, investment only occurs if real products are created e.g. buying new machinery

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7
Q

Economic growth

A

Increase in the productive capacity of the economy

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8
Q

Gross Domestic Product (GDP)

A

Value of goods/services produced by a country in a year OR total output of an economy

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9
Q

3 ways to measure GDP

A

1) Total value added produced by firms in the domestic economy during a period
2) Total expenditure in a period
3) Total amount of income earned
Calculated as an average of the 3 measures

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10
Q

Gross National Income (GNI)

A

Takes into account the income flows between countries
Some residents receive some income from abroad + some income earned in the domestic economy is sent abroad

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11
Q

Standard of Living

A

Quality of life that is enjoyed by the country’s residents

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12
Q

Inflation

A

Sustained rise in the general price level over time
Cost of living increases + purchasing power of money decreases

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13
Q

Deflation

A

When the average price level in the economy falls
-ve inflation rate

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14
Q

Disinflation

A

Falling rate of inflation + when average price level is still rising but to a slower rate

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15
Q

Consumer Price Index (CPI)

A

Survey is used to find out what consumers spend their income on
From this a weighted basket of goods is created
Measures average price change of these goods
Updated annually

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16
Q

In employment

A

Includes those who are employed by firms or other organisations (e.g. governments) + self-employed

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17
Q

Economically inactive

A

Includes students, retired, sick or looking after family members

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18
Q

Discouraged workers

A

People who have failed to find work + given up looking

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19
Q

Unemployment

A

Number of people who are looking for a job but cannot find one

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20
Q

Underemployed

A

People who are unable to work as many hours as they want to or are overqualified for their job e.g. a doctor working in McDonalds

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21
Q

Balance of Payments

A

Records all financial transactions of a country with other countries
States how much is spent on imports and what the value of exports is

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22
Q

Trade in goods

A

Measures imports + exports of visible goods

23
Q

Trade in services

A

Measures imports + exports of services

24
Q

Primary income

A

Results from loans of factors of production from abroad
E.g. deposits in foreign banks receive interest payments + businesses set up overseas by a UK firm will earn profit

25
Q

Secondary income

A

Transfers include payments made to family members abroad + aid paid to or received from foreign countries

26
Q

Current account surplus

A

Occurs when exports are greater than imports
Money flowing into the country from trade in goods/services + primary/secondary income is greater than money flowing out of the country from these transactions

27
Q

Current account deficit

A

Occurs when imports are greater than exports
Money flowing out of the country from trade in goods/services + primary/secondary income is greater than money flowing into the country from these transactions

28
Q

Aggregate supply

A

Is the total output produced in an economy at a given price level over a given period of time

29
Q

Depreciation

A

Also called capital consumption
Is when the value of capital stock depreciates over time as it wears out + used up

30
Q

Gross investment

A

Measures investment before depreciation

31
Q

Net investment

A

Gross investment minus value of depreciation

32
Q

Advantages of GNI

A

1) More closely reflects the income of residents (including net flows of income between countries)
2) Well-established indicator + available in almost all countries so used to compare income levels

33
Q

Limitations of CPI

A

1) Basket of goods is only representative of the average household + so not accurate for households who don’t own cars
2) Different demographics have different spending patterns
3) Slow to respond to new goods/services despite updated regularly

34
Q

Rate of unemployment

A

No. of people out of work as a percentage of the labour force
Used when making comparisons between countries as they have differently sized populations

35
Q

Disadvantages of unemployment

A

1) Leads to reduced incomes + reduced spending + impact on firms as they sell fewer goods or need to cut prices + make less profit
2) Unused labour so fewer goods/services produced
3) Governments have extra costs e.g. welfare benefits + less revenue as less tax paid
4) Underutilised resources as FoP are not used efficiently (labour)

36
Q

Closed economy

A

No foreign trade or no gov

37
Q

National output (O)

A

Value of flow of g/s from firms to households

38
Q

National expenditure (E)

A

Value of spending by households on g/s

39
Q

National income (Y)

A

Value of income paid by firms in return for land, labour, capital

40
Q

Injection

A

An injection into the circular flow of income is money which enters the economy + in the form of gov spending, investment, exports

41
Q

Withdrawal

A

A withdrawal from the circular flow of income is money which leaves the economy + in the form taxes, savings, imports

42
Q

Marginal Propensity to Consume (MPC)

A

Refers to the additional spending following a change in income

43
Q

Average Propensity to Consume (APC)

A

The total spending as a proportion of total income

44
Q

Reasons for changes in consumer confidence

A
  1. Falling unemployment
  2. Rising incomes
  3. Rising economic growth (because it leads to a more sense of job security)
  4. Lower inflation rates
45
Q

Influence on consumer spending (AD)

A
  1. Interest rates
  2. Consumer confidence
  3. Wealth effects
46
Q

Influence on investment (AD):

A
  1. Rate of economic growth
  2. Business expectations/confidence
  3. Demand for exports (more demand, more investment)
  4. Interest rates
  5. Access to credit
  6. Influence of gov and regulations
47
Q

Expansionary fiscal policy

A

Gov may use it during periods of economic decline
Involves increasing spending or reducing taxes to boost AD + leads to an increase in real GDP

48
Q

Contractionary fiscal policy

A

May use during periods of economic growth
Falling gov spending and rising taxation
Leads to a decrease in real GDP

49
Q

Influence of the net trade balance (AD):

A
  1. Real income
  2. Exchange rates
  3. Degree of protectionism
  4. Competitiveness
50
Q

Multiplier effect

A

Occurs when an initial injection into the circular flow causes a bigger final increase in real national income
Multiplier coefficient = final change in real GDP / initial change in AD

51
Q

Economic trade off

A

A trade off occurs when one macroeconomic objective is achieved but that worsens performance of another macroeconomic objective

52
Q

Current account on the BoP

A

Is the balance of trade in goods and services

53
Q

Evaluation of supply side policies:

A
  1. Long time lags
  2. Magnitude of impact of policies (only affects a small place)
  3. Opportunity cost
  4. Conflicts between objectives (environment vs growth)
  5. Gov spending leads to budget deficit
54
Q

Investment (exam def)

A
  • An increase in capital stock of the economy
  • Money spent on purchasing capital goods to raise productivity, LRAS, to provide consumer goods
  • An injection into the circular flow of income