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AQA Economics > Macro Application > Flashcards

Macro Application Flashcards

1
Q

2018 Annual growth rate

A

1.4%
Lowest since last recession
Impact of Brexit

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2
Q

Quarterly growth rate last quarter 2018

A

0.2%
Flirting with recession territory, close to negative
But from forecasts economists don’t expect a recession

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3
Q

Quarterly growth rate first quarter 2019

A

0.5%

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4
Q

Growth forecasts 2019

A

1.2% (OBR forecast)
Brexit slowing the economy down
Forecasts dependent on what happens with Brexit, if leave with no deal forecasts may be completely wrong

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5
Q

Growth forecast 2020

A

1.4%

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6
Q

Growth forecast 2021

A

1.6%

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7
Q

Growth forecast 2022

A

1.6%

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8
Q

Growth forecast 2023

A

1.6%

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9
Q

Annual growth rates pre-crisis

A

2-2.5% (potential growth rate)

But since financial crisis potential growth rate around 1.5% (impact of financial crisis)

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10
Q

Is the economy in a positive or a negative output gap?

A

Positive output gap 0.2% GDP

LR growth rate 1.5%, we’re kind of there

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11
Q

Real GDP/capita

A

Average incomes

£29,000

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12
Q

Total GDP

A

£2 trillion

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13
Q

How is the GDP constructed

A

Services: 79% (dependent on services. Financial, legal, education)
Manufacturing: 14% (no wonder weak pound done little benefit to U.K. Economy)
Construction: 6%
Agriculture: 1%

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14
Q

Unemployment rate

A

3.9%
Lowest rate since 1975
Employment rates also the highest since 1975

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15
Q

What is the Natural rate of unemployment? (Full employment)

A

4% (OBR estimate)

3.9% below that, matches POG estimate

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16
Q

Youth unemployment

A

11%

Not bad compared to Greece, Spain, Italy (much higher). But uk government probably wants this to come down

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17
Q

Long term unemployment (1 year or more)

A

1.1%

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18
Q

Wage growth

A

3.4%
High considering inflation is 1.9%
Means real wages are rising
Expect to see this as UE low, as wage bargaining high
Been a while since we’ve seen wage growth > inflation
But for last year has been higher

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19
Q

Consumer confidence

A

Weakening
Especially since January, Brexit has caused uncertainty and concern
BUT; retail sales figures have been positive so still spending

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20
Q

Income tax bands

A 
Progressive income tax
0% up to £12,500
20% between £12,501-£50,000
40% £50,001-£150,000
45% >£150,000
21
Q

What were income tax bands in 2010?

A

0% up to £6,500

20% between £6,501-£37,800

22
Q

CPI inflation rate

A

1.9% (close to 2% target).

Expectations of around 2% as 2019 progresses

23
Q

Core inflation

A

Mark Carney’s preferred measure of inflation, as strips out volatile prices from CPI basket (fuel, gas/electricity, food, clothing)
1.8%
Close to CPI, which tells us these volatile prices aren’t distorting the rate

24
Q

Producer price inflation

A

2.4%
Future indicator of inflation as measures price rises of goods as they leave the factory
If they rise, input prices rise, CPI inflation likely to rise in future as these goods end up in retail shops
2.4% matches inflation expectations in the short-term
CPI inflation expected to be around 2.2% in May and June (matches PPI), but PPI expected to fall as the year progresses

25
Q

Inflation expectations

A

2.7%
Figure high, Drives wage growth. Explains wage growth above CPI
Real pay rises.
As long as this remains robust and high, with low UE, real pay rises as long as wage growth > CPI

26
Q

Current account deficit

A

Large
4.4% GDP
Weak £ done nothing to help CA deficit. It’s just stoked inflation, SRAS shift left. Since it in fact, CA deficit hovered 3-5%. No long term sustained improvement in it

27
Q

Drivers of CA deficit

A
  1. High incomes: over last 2 years, real income rise. More M expenditure
    But underlying reason;
  2. Structural issues in the U.K. Economy (Supply Side issues): issues in particular:
    Productivity; since financial crisis been shocking. 19% below G7 average of the G7(7 most industrialised nations). Since financial crisis 18% lower than pre-crisis trend. Since financial crisis productivity has barely risen. No wonder exports not competitive. Despite weak £, productivity awful
    Investment: since Brexit vote, I desimated. Why would you invest when you’re uncertain about trade relations with major exporter the EU.
    This is all holds back competitiveness of U.K. Exports and driver of large CA deficit
    Need supply-side policies
28
Q

Exchange rate (euro and dollar)

A

£ weak since Brexit, haven’t seen recovery
£1 = $1.30
£1 = €1.16
Before Brexit:
£1 = $1.50, £1 = €1.30
Slight recovery against €, but more Eurozone’s weakness than £’s strength

29
Q

Eurozone Economy

A

Slowing, roughly 1% annual growth forecast

Trade concerns and issues with Chinese growth

30
Q

US economy

A

Full employment (roughly 3% annual growth). High for developed economy

31
Q

Budget deficit

A

2% GDP (annual borrowing by U.K.)
£41 billion
Even at FE running a budget deficit. So running a structural budget deficit

32
Q

What was the budget deficit in 2010?

A

10% GDP

Fallen since austerity

33
Q

Forecast of budget deficit in 2023

A

0.8% but dependent on relatively strong growth rates

34
Q

National debt

A

83% GDP

35
Q

2023 national debt forecast

A

74% GDP but dependent on growth rates

36
Q

Why should we know bond yields?

A

Representative of the cost of borrowing to the U.K. Government

37
Q

Current bond yield

A

1%

38
Q

Corporation Tax

A

19%
28% (2010)
Conservatives want it to fall to 17% in the future

39
Q

VAT

A

20%

40
Q

Gini coefficient

A

0.34
0.36 (2010).
Austerity not traditional as seen in Greece and Italy
But much higher than average for OECD countries

41
Q

Base rate

A

0.75%
November 2017: 0.25% -> 0.5%
July 2018: 0.5% -> 0.75%
Translating to low Interest rates throughout the economy

42
Q

Average lending rate

A

1% (by banks)

43
Q

Average mortgage rate

A

1.75% (for 2 year fix 1st time buyers)

44
Q

Business confidence

A

Weak since Brexit vote

45
Q

IR evaluation

A

Even though low. Consumer and business confidence low so not expecting increasing c or I

46
Q

Mortgage approvals

A

Flat growth
Sign of low consumer confidence
House prices rising slowly

47
Q

QE

A

£435 billion

48
Q

Most recent QE

A

August 2016: £60 billion

To try to prevent post-Brexit recession

49
Q

Willingness to lend

A

Very poor from financial crisis up to 2016. Banks pessimistic
Since increase but small and medium enterprises not in much value.

AQA Economics (6 decks)

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