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macro economics Flashcards

1
Q

Gross domestic product

A

total production of goods and products of those within a country

aggregate output of the country per year. output is valued in what buyers pay for it and what it costs to produce

GDP is a good indicator of trends and the way i which country is working

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2
Q

gross national product

A

total production of goods and products of those factors of production owned by the nations citizens across the world and at home

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3
Q

money in a country

A

-stocks and flows of money
-stok: quantity of a good at point in time
- flow: amount of good which moves per period of time
GDP calculated in terms of a flow

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4
Q

methods to calculate GDP

A
  • expenditure approach
  • factor incomes
  • output approach
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5
Q

expenditure approach

A

the following are collected and added together:

  • consumption expenditure - household expenditure (C)
  • investment - new equipment (I)
  • government purchases on goods and services (G)
  • net exports (X sport spending, M import spending)

GDP = C+I+G+X-M

expenditure not included in the calculation:

  • intermediate goods and services
  • second hand goals
  • financial securities
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6
Q

factor incomes approach

A

the following are collected and added together:

  • wages and salaries
  • mixed income (Self employment income)
  • total operating surplus (trading profits)
  • rent and interest
  • statistical discrepancy

GDP = total domestic income TDI - stock appreciation +/- statistical discrepancy

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7
Q

output approach

A
  • contribution that industry makes to GDP. the value added by the individual industries, this avoids double counting
  • get output for each sector and look at trends
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8
Q

inflation

A

sustained increase in price level - need method to measure inflation

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9
Q

retail price index (RPI) and consumer price index (CPI)

A
  • base period selected
  • select ‘basket’ of goods
  • each month calculate the value of that basked and express as a percentage of same basket at base date
  • RPI deos not include top 4% of cashers or pensioners who have non state pensions
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10
Q

problems with comparing countries

A
  • currency changes
  • accounting methods
  • pricing and flow
  • climatic influences
  • distribution of income
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11
Q

standard of living

A

real GDP (GDP- inflation) / population

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12
Q

problems with measurement of RPI

A
  • changes in nature of goods and services
  • comparison becomes more difficult as time goes on
  • range of households - different income groups
  • base year may become unrealistic
  • spending patterns change rapidly
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13
Q

GDP deflator

A

GDP deflator = nominal gdp/ real gdp x 100

an attempt to look at all activity in similar terms to RPI
real GDP = GDP -inflation
nominal GDP = measured GDP

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14
Q

effects on inflation

A
  1. business confidence
    - fluctuation in inflation makes it difficult for businesses to predict the future and their returns on investment
  2. international competitiveness
    - prices of exports rise faster than competitors, would occur if country has high inflation
  3. redistribution of income
    - increase in food prices and rent hits poor families the worst
    - high inflation skews wealth to the rich
  4. deflation
    - depression tends to follow inflation but does not lead to lower prices, only a lowering of output and fewer jobs
  5. savings
    - value of savings fall with inflation
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15
Q

causes of inflation

A

demand pull and cost push inflation

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16
Q

demand pull

A
  • excess purchasing power the increase in demand pulls prices up if supply constant
  • increase in demand caused by increase in supply of money or gov running a budget deficit
  • tax reductions can cause demand pull. lower basic rate of tax, increase allowances, reduce NI contributions
  • government can stimulate growth via these measures
  • currently, interest rate is low to stimulate growth
17
Q

quantitive easing

A
  • low interest rate not enough for stimulation
  • central bank buys assets in bonds therefore money appears in the system
  • increasing money supply can lead to hyper inflation

see notes

18
Q

cost - push inflation

A
  • an increase in cost not matched by higher production will give a price rise which is passed onto customers will give inflation
  • increased costs due to: increase in money wages rate, increase in money prices of raw materials
19
Q

stagflation

A

result of a combination of a rise in price level and fall in real GDP

20
Q

factors that increase costs

A
  • imported raw materials
  • domestic costs
  • poor productivity
  • profiteering
  • world shortage
  • wages
21
Q

concerns of inflation for government

A
  • redistribution of income

- departures from full employment

22
Q

policies

A
  • reduce demand
  • limit the supply of money
  • curb activities of banks -reduce the amount of credit
  • reduce budget deficit/ generate a surplus
  • extra imports - take money out of economy
  • increased taxation - high tax lowers money supply
  • raise productivity
23
Q

perfect anticipated inflation

A
  • can adjust all variables to take into account the rate
  • difficulties in terms of currency as interest is not paid on it and loss of opportunity - shoe leather costs
  • menu cost - have to keep changing the price of things
24
Q

imperfect anticipated inflation

A

if ou can’t predict the inflation rate, money is redistributed in the system because of:

  • as money value of personal income rises - move into higher tax zone
  • inflation reduced the real value of gov debt
  • inflation effectively taxes cash

net result = flow of money from the private sector to gov and creditors loose out to debtors if rate higher than expected
-long term contracts at risk

25
Q

inflation and unemployment

A

phillips curve

in the long run, there is a natural and invariant unemployment rate

short tun phillips curve exists which have standard form

26
Q

inflation history in UK

A
  • low in 00s due to tight monetary policy
  • money supply was increased less than money demand when inflation was expected to rise by increasing interest rates
  • opposite occurred when inflation expected to fall

Business (18 decks)

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