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economics a2 > macro > Flashcards

macro Flashcards

1
Q

characteristics of money

A

durability, portable, divisible, hard to counterfeit, acceptable, valuable, scarce

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2
Q

greshams law

A

bad money drives out good money

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3
Q

functions of money

A

medium of exchange, store of value ,unit of account, standard of deferred payment

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4
Q

fishers equation

A

mv=pt (m= money supply, v= velocity of circulation, price level, t= number of transactions

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5
Q

M0 (money supply)

A

notes and coins and central bank reserves

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6
Q

MzM

A

notes and coins plus all sight deposits held by the non bank private sector

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7
Q

M2

A

notes and coins plus all retail deposits held by the non bank private sector

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8
Q

M4

A

notes and coins, deposits, certificates of deposits securities with a maturity of less than 5 years held by the non bank private sector

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9
Q

narrow money

A

definition of money supply ->measure of the value of the coins and notes in circulation and other money equivalents that are easily converted to cash

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10
Q

broad money

A

measure of the total amount of money held by households and companies in the economy( mostly made up of commercial bank deposits, and currency)

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11
Q

motives for holding money

A

precautionary motive, transaction motive, speculative motive

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12
Q

precautionary motive

A

to help face unforeseen circumstances

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13
Q

transaction motive

A

money held for everyday trransactions

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14
Q

speculative motive

A

money held to grow your wealth

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15
Q

factors affecting supply of money

A

open market transactions(QE) reserve requirement , policy interest rates

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16
Q

reserve requirements

A

the % of deposits made by customers at a bank that must be held instead of being lent out

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17
Q

factors affecting demand of money

A

interest rate, number/ value of transactions we expect to carry out, changes in GDP, extent to which it is is possible to use credit/debit cards, anticipated rate of inflation

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18
Q

money market

A

market for short term finance, for businesses and households, money borrowed and lent for about 12 months, includes inter bank lending, includes short term gov borrowing

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19
Q

Capital market

A

(hot money) market for medium to, long term finance, shares and bonds issued here, includes long term gov bonds

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20
Q

Foreign exchange market (forex)

A

market where currencies are exchanged

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21
Q

role of financial markets in the wider economy

A

facilitate saving, lends to businesses and individuals, facilities exchange of goods and services, provide forward markets in currencies and commodities, provide market for equities (stocks and shares)

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22
Q

monetary policy tools

A

interest rates, money supply, exchange rate, reserve requirement, forward guidance

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23
Q

reasons for interest

A

reward for risk, inflation, pay for admin of loan

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24
Q

debentures

A

corporate bond

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25
Q

gilts

A

government bonds

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26
Q

debt financing

A

borrowing money from an outside source with the promise of paying back the borrowed amount plus interest

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27
Q

long term business finance

A

finance whole business for years e.g. share capital, retained profits, venture capital, mortgages, long term bank loans

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28
Q

medium term business finance

A

finances major projects or assets with a long life e.g. bak land, leasing, hire purchase, government grants

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29
Q

short term business finance

A

finances day to day trading of the business e.g. bank overdraft, trade creditors, short term bank loans, factoring

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30
Q

public sector debt

A

debt owned by central and local government and public corporations

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31
Q

private sector debt

A

debt owned by private businesses and households

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32
Q

financial debt

A

debt that is also part of the private sector, the outstanding debts of banks and financial corporations

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33
Q

consequences of debt

A

constraint on future spending power for individuals, banks with high debt can’t issue new loans this reduces business investment, in an economy with a high debt : GDP ratio deflation of prices and wages will worsen the debt problem and if interest rate rises debt payments are harder to make

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34
Q

coupon of a bond

A

the amount paid to the bearer of the bond this is a fixed amount

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35
Q

yield of a bond

A

the % of the the price of the bond that the bond pays. This varies inversely with the market price of the bond

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36
Q

GDP

A

gross domestic product, the value of the the output of the goods and services produced in an economy in a year

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37
Q

GNP

A

gross national product, GDP+ net property incomes from abroad/net income flows

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38
Q

standard of living

A

the amount of goods and services consumed by households in one year. Higher standards of living means households consume more goods and services

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39
Q

ppp

A

power purchasing parity, measures a how many units one countries currency are need to buy exactly the same basket of goods and services as can be bought with a given amount of another’s currency

40
Q

problems with using GDP as an indicator of standard of living

A

doesn’t take into account quality of life, public server provision, non market activities, informal economy, environmental factors, distribution of gap, cost of living

41
Q

benefits of economic growth

A

boosts standards of living, reduction of unemployment, increased tax revenue for Gove spending, improved business confidence is attractive to foreign investors, accelerator process, leads to improved technology

42
Q

risks of economic growth

A

bad for environment, widening income gap,

43
Q

how the government can encourage higher output

A

privatisation, deregulation, encourage enterprise, encourage business investment, trade union reform, increase spending on education and training, lower income tax, reduce benefits, introduce minimum wage

44
Q

unemployment

A

the % of people who are able and willing to work who can’t find a job

45
Q

methods of measuring unemployment

A

claimant count, labour force survey

46
Q

types of unemployment

A

seasonal, structural, frictional, cyclical

47
Q

cyclical unemployment

A

aka demand deficient unemployment, caused by a fall in ad

48
Q

frictional unemployment

A

transitional unemployment due to people moving between jobs

49
Q

structural unemployment

A

arises from a mismatch between skills and job opportunities

50
Q

seasonal unemployment

A

regular seasonal changes in employment

51
Q

economic and social effect of high unemployment

A

lost output/ efficiency (inside ppf), fall in real incomes + standards of living, drop in tax revenue, decline in labour supply as people emigrate, increase in poverty, extra demands on NHS,

52
Q

benefits of unemployment

A

reduced risk of inflation, rise in self employment, unemployed labour available for growing business

53
Q

labour scarring effects of high unemployment

A

loss of work experience, loss of current and future income, changes in pattern of jobs in the economy

54
Q

policies to reduce unemployment - labour demand

A

low interest rates, depreciation in exchange rate, cutting cost of employing workers- reductions in tax, financial support for apprenticeship programs, business grants,

55
Q

policies to reduce unemployment - labour supply

A

reducing occupational immobility, improving geographical mobility, better work incentives

56
Q

NAIRU

A

non accelerating inflation rate of unemployment, -> no involuntary unemployment , no cynical unemployment, natural rate of unemployment

57
Q

factors affecting the natural ratio unemployment

A

level of benefits, level of income tax, level of wage controls, trade union power, degree of power mobility, social attitudes and institutions

58
Q

ways to briefly of beyond LRAS

A

imports(bad for balance of payments) overtime, stock from previous years

59
Q

cost of inflation

A

people of fixed incomes loose out, loss of international competitiveness, lenders loose out, difficult for business to plan

60
Q

people on fixed incomes loose out eval

A

this could incentives people to work, some pensions are triple lock protected

61
Q

loss of international competitiveness eval

A

depends on foreign exchange rates, PED of our goods, could lead to a fall in a the pound

62
Q

lenders loose out eval

A

depends on interest rates, borrower gains

63
Q

difficult for firms to plan eval

A

reduced effect due to contractual arrangements, all firms affected

64
Q

limitations of the CPI

A

represents the spending of the average household, changing quality of the goods (harmonic adjustments), weighting given to goods, doesn’t include housing

65
Q

causes of demand pull inflation

A

increase in money supply, depreciation of exchange rate, reduction in tax rates, increase in wealth effect, booms in economies of trading partners

66
Q

causes of cost push inflation

A

economy wide increases in costs of production e.g. rising labour costs, higher indirect taxes, wage price spirals, depreciation of the exchange rate

67
Q

says law

A

supply creates its own demand (to supply something you demand things to make it)

68
Q

monetarist theory of inflation

A

inflation is always caused by an increase in the supply of money as mv=pt and v and t are relatively static

69
Q

planned gov revenue comes from

A

tax, fines prescription charges congestion charge etc

70
Q

ways to fund a deficit

A

selling gov assets, surpluses, borrowing-bonds

71
Q

wage price spirals

A

rising wages increases disposable income, thus raising the demand for goods and causing prices to rise. Rising prices cause demand for higher wages, which leads to higher production costs and further upward pressure on prices, creating a spiral

72
Q

fiscal drag

A

deflationary effect of a progressive tax system

73
Q

benign deflation

A

usually are a result of technological change, price of a good falls due to increased productivity

74
Q

Malign Deflation

A

falling prices caused by a down in economic activity

75
Q

laffer curve

A

shows the relationship between tax revenue and the tax rate. first tax rate rises but then it falls as people have a disincentive to work

76
Q

incidence of tax

A

on whom the burden of paying the tax falls, consumer or producer - depends on PED

77
Q

canons of taxation

A

a good tax should be economical, equitable, convenient, certain and efficient and flexible

78
Q

arguments for direct taxation

A

inventive effects, flexibility - can choose which goods to tax, choice- people can choose what goods to buy, corrects externalites

79
Q

arguments against indirect taxation

A

inflationary effects, gaffer curve, crime(people void tax via cinema means. lacks equity

80
Q

theory of second best (eval for indirect taxes)

A

the idea that in a free market resources are employed where they are most productive. Applying an indirect tax redirects resources to there second best use

81
Q

what the OBR (office for budget responsibility) does

A

produce forecasts for the economy and public finances, evaluating performance against targets, asses long term responsibility , Evaluate fiscal risks, scrutinising tax and welfare policy costing

82
Q

credit rating

A

evaluation of the credit risk of a prospective debtor predicting their ability to repay the debt

83
Q

sovereign credit rating

A

credit rating of a country/ national government, takes into account qualitative factors such as political stability

84
Q

comparative advantage

A

when for a country the relative opportunity cost pf production is lower than in another country. (a country is more productively efficient than another)

85
Q

factor endowment

A

countries have different factors of production in different quantities and qualities

86
Q

absolute advantage

A

country with the biggest output of a particular good or service

87
Q

weaknesses with the theory of comparative advantage

A

assumes all factors of production are equally productive, assumes all factors of production can be switched easily to produce other things, assumes there is only one type of a product, transport costs, fluctuations in exchange rates, barriers to trade exist

88
Q

whats more important than the Ethan gerate

A

how the exchange rate changes

89
Q

j curve

A

refers to the trend of a county’s balance of trade following a depreciation of their currency (gets worse before it gets better)

90
Q

effective exchange rate

A

weighted index of sterlings value against a basket of currencies the weights are based on the importance of trade between the uk and each country

91
Q

free floating currency

A

where the external value of of a currency depends wholly on the market forces of supply and demand

92
Q

managed free floating currency

A

when the central bank may choose to intervene in the foreign exchange markets to affect the value of a currency to meet specific macroeconomic objectives

93
Q

fixed exchange rate system

A

a currency peg either as part of a currency board system or membership of the ERM II for countries intending to join the Euro

94
Q

reserve currency

A

an anchor currency, a currency that national govenrments and other institutions to hold as part of their foreign exchange reserves, acts as a global pricing system of commodities

95
Q

requirements for a reserve currency

A

credible government that won’t default on its debt or attempt to debase its currency by printing money

96
Q

factors that determine a currency’s value

A

trade balances, FDI, portfolio investment, interest rate differentials

97
Q

impact on currency depreciation

A

higher import prices could increase inflation (cost of production), stimulus for economic growth (higher net exports), unemployment falls (increased productivity from more exports), balance of trade- possible j curve effect,

economics a2 (2 decks)

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