macro Flashcards
What is Aggregate Demand and its formula?
Total demand for a country’s goods and services at a given price level and time period.
Formula: AD = C+I+G+(X-M)
What is consumption?
Spending of household on consumer products. Largest component of AD
What are the 6 determinants of Consumption?
- Wealth effect
- House prices
- Interest rates
- Confidence / Animal spirits
- Direct and Indirect tax rate
What is investment?
Spending on capital goods. It is the most volatile in AD
What are the determinants of investment?
- Interest rates
- Confidence
- Tax rates
- Risk
- Market demand
- Technological change
- Market competition
What are the determinants of net exports?
- The exchange rate
- The relative level of inflation
- Global confidence and demand
What is Government expenditure?
Spending of central and local government on goods and services.
What is jobseeker’s allowance?
Benefits paid from the government to the unemployed looking for a job.
What is trade surplus and deficit?
Surplus: when exports exceed imports
Deficit: when imports exceed exports
What is real GDP?
The countries output measured in constant prices and so adjusted for inflation.
What is GDP?
The total output produced by a country.
What is interest rate?
The charge for borrowing money and the amount paid for lending money or reward for saving money
What are the 4 macro objectives?
Sustainable economic growth: measured by GDP
Unemployment: full employment is 3%
Inflation: measured by consumer price index (CPI) and retail price index (RPI) - target rate is 2%
Balance of payments: measured in terms of value of net exports.
What is national income?
measures the total value of all goods + services produced in an economy
What are the 3 methods of calculating national income?
Income method, Output method, Expenditure method
What is the circular flow of income?
Economic model showing the flow of goods and services, the FOPS’s and their payments between households and firms within an economy
What are the positive and negative output gaps?
Positive: occurs when an economy temporarily grows faster than the trend rate, operating in the short run beyond its full capacity
Negative: occurs when AD is growing at a slower rate or falling in relation to its productive potential
What are the different types of unemployment?
Structural: caused by a mismatch of skills between the unemployed and available jobs
Frictional: period of time when workers are moving between jobs
Cyclical: a lack of employment as a result of fluctuations in the economic cycle/economy
Seasonal: occurs through fluctuations in demand throughout the year/seasons
Regional: a town or region experience a downturn, e.g. big companies moving away
Technological: increased degree of automation in production process, so replacing jobs
How does unemployment affect individuals?
- Lower living standards
- “Deskilling”
- Health implications such as stress etc
- Social issues: divorce, crime, social dislocation
- Unemployment trap (benefits)
- Long term employability
How does unemployment affect the economy?
- Lost output
- Increased government spending (positive) decreased tax so economy grows
- Lower international competitiveness
- Rising inequality
- Loss of resources invested in training
- Lower consumer spending
What are the 3 types of productivity?
Labour: output per worker
total output/no. Of workers
Capital: output per unit of capital, e.g. machines
Factor: average output of all FOP’s
The current account
Primarily records the trade in goods
What does the balance of payment include?
- The current account
- The financial account
What is the multiplier effect?
When an initial injection into the economy, or circular flow of income causes a larger final increase in the level of the real nation income/output
Formula:
final change in real GDP/initial change in AD