Macro and Global Economics Flashcards
Demand side shock
A sudden unexpected event that increases or decreases demand. E.g Covid
Supply side shock
A sudden unexpected event that increases or decreases supply . E.g Russia Ukraine war
National Income
Measures the income received by the factors of production CELL.
National Output
Measures the actual goods produced in an economy
National Expenditure
Measures the spending of these incomes on G+S.
Factors that influence short run AS
Cost of production - capital, minimum wage, tax, Economies of scale…
Factors that influence AD
Consumption, Investment, Gov. Spending, net exports
Factors that influence Long Run AS
CELL - Capital, Enterprise, land labour
Factor mobility
looks how easy it is to change the factors of production out of one production process and into another.
economic development
The measure of living standards in an economy.
Marginal Propensity to consume (MPC)
the change in consumption following a small change in income. = change in consumption/change in income
Marginal Propensity to save (MPS)
The change in savings following a change in income. = change in total savings/change in total income
Multiplier effect
The final change in equilibrium AD from an initial change in AD. = 1/marginal propensity to save. or 1/marginal propensity to withdraw
AD formula
The total demand in the economy at different price levels. = C+I+G+(X-M)
define Accelerator effect
When the economy is growing and then leads to inncreased investment. due to increased bussuniuess confidence and decreased spare capacity.
3 Formula for the multiplier effect
- 1/MPW
- 1/1-MPC
- Change in GDP/Injection
Formula for marginal propensity to withdraw (MPW)
Marginal propensity to save + marginal propensity to tax + marginal propensity to import
Actual GDP growth
% change in GDP
Potential GDP growth
change in productive potential of the economy over time LRAS or PPF curve shifts
Positive output gap
when actual production is outside the potential possibility curve (PPC)
Negative output gap
when actual production is inside the potential possibility curve (PPC)
Benefits of economic growth
- improved public services
- decreased unemployment
3.reduced poverty - increased consumption
How does the CPI calculate inflation
- The CPI send out a survey to households to see what they buy more/less
- The CPI then updates the basket of goods included
- They then calculate the change in price for all these goods and then they come up with the inflation rate
Structural unemployment
When unemployment happens due to the changing structure of the economy.
Cyclical unemployment
When unemployment happens due to negative economic growth
Seasonal unemployment
When unemployment happens due to changing seasons.
frictional unemployemnt
unemployment that happens due to changing of jobs
What causes short run economic growth (increase in AD)
- lower interest rates (C,I,(x-m))
2.lower taxes (C,I) - higher business/ consumer confidence (C,I)
4.higher gov spending (g) - weaker exchange rate (x-m)
short run growth can decrease spare capacity
What causes Long run economic growth
(increase in LRAS)
- Increase labour productivity
- increase size of workforce
3.increased investment
4.infrastructure improvements
5.increase in competition
6.new resource discoveries
underemployment
when somebody has either accepted a job bellow their skill set or working fewer hours than they intend to.
How does quantitive easing work (7)
1.Bank of England electronically print money and buy gov. bonds
2.This increases the demand and price for the bonds
3. This causes the yield of the bond to fall
4. This makes consumers want to invest in commercial bonds instead/ make people want to save the money in the bank
5. Businesses would then need to save the money in the bank
6. this increases the money supply in the economy. resulting in lower cost of borrowing
7.This causes AD to increase
How does quantitive tightening work
- Bank of England sells all the government Bonds
- Demand for Bonds decrease and the price for the bonds decrease
- This causes the yield of the bond to rise
- Causing individuals want to invest in government bonds instead/ give money to the gov.
- Bank liquidity would fall, decreasing lending
6.This would increase the cost of borrowing, causing AD to shift inwards
Interventionist supply side polices
- public sector investment
2.Education
3.Vocational training
4.Housing supply - Health Spending
6.Subsides on research and development
Free Market Orientated supply side policies
- Deregulation
2.Relaxation of Sunday trade
3.Privatisation
4.Free trade agreements - Decreased welfare benefits
6.Flexible labour market
