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Macro Economics > Macro economics (Sarah G) > Flashcards

Macro economics (Sarah G) Flashcards

1
Q

What is Macroeconomics ?

A

the study of the economy as a whole

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2
Q

what is an economic indicator?

A

a quantitative measure of economic performance

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3
Q

what are the four main macroeconomic objectives ?

A
  1. Low and stable inflation
  2. Low unemployment
  3. positive economic growth
  4. stability and equilibrium in the balance of payments
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4
Q

what are the macroeconomic minor objectives ?

A
  1. stable exchange rates
  2. the eradication of poverty
  3. a more equitable distribution of income and wealth
  4. reduce national debt

and overall economic stability

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5
Q

What is economic stability ?

A

the avoidance in volatility in the main macroeconomic indicators

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6
Q

what is inflation?

A

a sustained rise in the average price level

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7
Q

what is a decrease in the increase of the rate of inflation

A

disinflation

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8
Q

how is inflation measured?

A

year on year % change in the average price level.

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9
Q

what happens to wages and prices if there is low inflation?

A

wages and prices remain relatively the same

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10
Q

what do firms do when there is low inflation?

A

Firms are more likely to invest

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11
Q

what happens to the value of incomes when there is low inflation ?

A

the value of incomes does not erode as fast

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12
Q

what is unemployment ?

A

a situation where people are out of work, but are actively seeking work and are willing and able to work

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13
Q

how is unemployment measured

A

unemployment is measured by the total number of people who are without a job but are actively seeking work as a percentage of the workforce

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14
Q

why dose the government want low unemployment

A

fewer people are claiming unemployment benefits
more people contributing to the economy
more tax revenue generated

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15
Q

what happens if more people are employed

A

people will have more income and therefore likely to have a better standard of living

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16
Q

what is the economic cycle

A

the fluctuations in real gdp around the long term growth path of output

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17
Q

2 synonyms for the economic cycle?

A

trade cycle

business cycle

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18
Q

what are the four main phases of the trade cycle

A

peak/boom
recession
slump/depression
recovery

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19
Q

how is a reccesion classified ?

A

two successive quarters of negative change in real gdp

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20
Q

how is a recovery classified?

A

two successive quarters of positive % changes in real gdp

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21
Q

what is the unemployment rate?

A

those who are out of work,but are actively seeking work as a percentage of the workforce/economically active

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22
Q

What is the formula for the unemployment rate?

A

unemployed/economically active x100

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23
Q

what is the workforce ?

A

those who are in work and those who are actively seeking work

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24
Q

What is the formula for calculating the workforce

A

employed + unemployed

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25
Q

what are 3 synonyms for workforce ?

A

labour force
working population
economically active

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26
Q

what is the population of working age ?

A

men and women aged (16-64)

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27
Q

what is the participation rate

A

the percentage of the population of working age who are economically active

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28
Q

how do we calculate participation rate

A

workforce/population of working age x100

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29
Q

what is a synonym for participation rate

A

activity rate

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30
Q

what are the two measures of unemployment

and which is the uk’s official measure of unemployment ?

A

the claimant count

the labour force survey (official)

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31
Q

how is the labour force survey conducted

A

the office for national statistics (ons) interviews 33000 households to collect figures of labour and employment status

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32
Q

how is the claimant count collected?

A

counts as everyone who is claiming job seekers allowance

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33
Q

how often if the labour force survey collected?

A

quarterly

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34
Q

how is the claimant count collected ?

A

the claimant count is everyone who is unemployed claiming job seekers allowance

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35
Q

how often is the claimant count collected

A

monthly

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36
Q

what are four problems measuring unemployment and a brief summary of each?

A

1.changes to unemployment statistic- changes are constantly made to the unemployment statistic to
reduce the unemployment figure

  1. hidden unemployment- many people who should be classed as unemployed are classed as unfit for work
  2. fraudulent claims- those claiming benefits fraudulently overestimate unemployment
  3. the labour force survey is only an estimate- not completely accurate of the whole population
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37
Q

what are 2 advantages and 2 disadvantages of the claimant count ?

A

advantages:

  1. useful in determining dependency on government
  2. relatively quick to compile

disadvantages:

  1. benefit rules change over time which make comparisons difficult
  2. can be manipulated by the government by benefit criteria
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38
Q

what are 2 advantages and 2 disadvantages of the labour force survey ?

A

advantages:

  1. allows international comparison between countries as based on international labour organisation definitions
  2. captures more of those unemployed or do not want to claim benefits

disadvantages:

  1. sampling errors means its not truly representative
  2. costly to collect data
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39
Q

what is the international labour organisation

A

an agency of the united nations that collects statistics on the labour market and seeks to improve working conditions

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40
Q

what is the uk’s target inflation ?

A

2%

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41
Q

what is hyper inflation ?

A

hyperinflation occurs when inflation rates exceed 100%

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42
Q

what is it called where there is a fall in the average price level of goods and service s over time

A

deflation

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43
Q

what do w e use to measure inflation

A

the consumer price index (cpi)

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44
Q

how often is the consumer price index calculated

A

monthly

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45
Q

how can we calculate the the rate of inflation

A

bu finding percentage changes in the cpi

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46
Q

how do we present comparisons of inflation over time

A

we use index numbers to show in relation to a base year the price increase or decrease of the year selected

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47
Q

the cpi collects the average price level of goods and services what is this known as

A

the basket of goods

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48
Q

how many goods and services are in the basket of goods

A

around 700

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49
Q

how do we calculate price changes (not using the base year)

A

new price - old price / old price x100

50
Q

what are weighted index numbers

A

weighted index numbers are index numbers which give a truer reflection of how people are affected by price changes

51
Q

how do weighted index numbers work

A

items in the basket of goods are weighted so that items which make up a larger proportion of a households spending show the true impact of how they would affect if the price changed.

52
Q

what is the formula for the weighted index

A

weighted index = weight x unweighted index

53
Q

the new ONS measure (2017) of measuring inflation is CPIH what does this stand for

A

consumer price index (including owner occupied housing cost)

54
Q

what does this measure introduce compared to just cpi

A

it adds housing costs and council tax when calculating inflation.

55
Q

why is CPIH better than just using CPI

A

it gives us a better measure of how we are experiencing price rises in the uk

56
Q

How do we get the basket of goods and how often is it collected

A

we use the living cost and food survey to find the spending patterns of 6000 households yearly.

57
Q

How often are the weights updated for the basket of goods

A

yearly

58
Q

how often is inflation calculated

A

monthly

59
Q

how do the ONS collect the prices of goods which make up the basket

A

the ONS visit 20,000 retail locations nationally and also include some online prices

60
Q

what are the 5 limitations of using price indices to measure inflation include a brief summary of each

A
  1. changes in quality-
    the cpi will overstate inflation whenever there are improvements in the quality of goods and services
  2. special offers-
    people may be purchasing some goods and services more cheaply than the cpi suggests so inflation may be overestimated
  3. substitution effects-
    weights are only calculated yearly so when consumers switch to cheaper products to limit the cost of goods in their basket therefore this changes the pattern of their expenditure.cpi will likely overestimate changes in living cost
  4. changes in the pattern of expenditure-
    the index is always at least a year behind and changing consumer spending may not be accurately reflected as the weights are not updated frequently enough
  5. statistical errors-
    the expenditure and food survey is only a sample of 7000 households which means this is just an estimate and not entirely accurate for the entire population
61
Q

what are the three differences between cpi and rpi and include a brief summary of each

A
  1. population base-
    rpi excludes very high and very low incomes therefore the cpi has a wider population coverage
  2. commodity coverage-
    the cpi excludes owners occupied housing cost therefore the rpi has a wider commodity coverage

3.index methodology-
the cpi and cpih use the geometric mean whereas rpi uses the arithmetic mean

62
Q

what are the three similarities between cpi and rpi and include a brief summary

A
  1. price collection-
    both indices collect prices of around 700 goods monthly from around 180,000 price quotes
  2. fixed basket approach-
    the basket of goods and services is fixed each year which is derived from the (LFS)
  3. weights-
    items in both baskets are weighted to give a truer reflection that price changes of goods and services which make up smaller and larger proportions of a households spending.
63
Q

what is econom ic growth

A

economic growth is the increase in an economy’s output of good and services

64
Q

what is economic growth

A

an increase in the economy’s output of goods and services over time

65
Q

what is actual growth

A

occurs when an economy produces more goods and services

66
Q

what is potential growth

A

this occurs when there is an increase in the productive capacity of the economy

67
Q

what causes actual growth

A

making more and better use of current resources

68
Q

what causes potential growth

A

increasing the quality and/or quantity of the factors of production

69
Q

what is an output gap

A

it occurs when the output of an economy is below potential output

70
Q

what is sustained growth

A

is a continued and steady increase in output

71
Q

what is sutainable growth

A

it occurs when thee needs of the current generation are met without compromising the ability of future generations to meet their own needs.

72
Q

what two vectors must increase simultaneously to achieve sustained growth

A

potential growth and actual growth

73
Q

how do we measure the qauntity of good and services produced in an economy

A

using pounds sterling to calculate the total value of the goods and services rather than the total number of goods and services

74
Q

how often is growth measured

A

yearly

75
Q

what is the formula for economic growth

A

GDP for current year - GDP for previous year /GDP for previous year x100

76
Q

what is national income

A

the monetary evaluation of the total output produced in a country usually within a year

77
Q

what is national wealth

A

is the monetary evaluation of the stock of money and goods that a nations citizens own

78
Q

what are the three methods we can use to measure gdp and a brief summary of each

A

1.income method-
calculate the total of everyone’s income in an economy

  1. output method-
    add up the total value of the new output of every firm
  2. expenditure method-
    a record of all the expenditure on new goods and services
79
Q

what is the formula which shows the relationship between the three methods of measuring gdp

A

income = output = expenditure

80
Q

what is the circular flow of income

A

it is a model of the economy which shows the movement of goods and services and factors and their payment around the economy

81
Q

WHAT IS THE FORMULA FOR THE INCOME METHOD WHEN CALCULATING GDP

A

gdp = rent + wages + interest + profits

82
Q

what is the problem when using the income method for calculating gdp

A

black market activity this means some income is unrecorded.leads to gdp being undervalued

83
Q

what are the three problems with the output method include a brief summary

A

where goods and services are not sold on a market-
those provided by the government,the cost of their provision however cost is not the same as value.
Double counting -
sometimes the output of one industry is used as an input to another industry,only the final products value must be included
unpaid output-
such as the work of carers is not recorded

84
Q

what are the five main types of expenditure and a brief summary of each

A

consumption - expenditure by consumers on goods and services
investment - expenditure by firms on new machinery and other capital goods
government - expenditure by the government on the provision of goods and services
export - expenditure by foreign individuals and organisations on domestic goods and services
import - expenditure by domestic individuals and organisations on foreign goods and services

85
Q

what is the formula for calculating gdp when using the expenditure method

A

gdp = consumption + investment + government + (exports - imports)

86
Q

what is the formula for net exports

A

exports - imports

87
Q

what is gdp

A

(gross domestic product) the total value of a nation’s domestically produced output ,within a specific time period , usually one year

88
Q

what is property income going abroad

A

where a foreign business or organisation receives income from the domestic economy as it owns some of its factors of production

89
Q

what is property income from abroad

A

income the domestic economy receives from the rest of the world as it owns some of its factors of production

90
Q

what is GNP

A

(gross national product) is the money evaluation of income accruing to the nations citizens irrespective of the location of the factors of production that generated it. usually over one year.

91
Q

what is the formula for net property income from abroad

A

net property income from abroad = property income from abroad - property income going abroad

92
Q

what is the formula for calculating gnp

A

gnp = gdp + net property income from abroad

93
Q

what is a synonym for gnp

A

gni ( gross national income)

94
Q

when is gdp> gnp

A

when countries have multinationals located within its business who provide significant investment to the economy

95
Q

when is gnp > gdp

A

when countries have invested overseas and set up firms there

96
Q

what is the formula for nnp

A

nnp = gnp - depreciation

97
Q

why must we account for deprciation

A

the nations wealth and capital stock falls in value over time

98
Q

what is a synonym for depreciation

A

capital consumption

99
Q

why do we need to know how much our economy depreciates

A

to gauge how are standard of living is affected

100
Q

what are the three measures of national income known as and what measures are they

A

the national income statistics
GDP
GNP/GNI
NNP

101
Q

why is NNP not often used

A

it is seen as too unreliable when calculating depreciation

102
Q

what 4 components help define living standards

A
  1. the amount of goods and services the citizens of a nation consume
  2. the wellbeing/welfare of the citizens
  3. the happiness of the citizens of a nation
  4. the quality of life that individuals experience in a country
103
Q

what three ways do we use the national income statistics

A
  1. to calculate growth
  2. to compare living standards
  3. to compare economic performance
104
Q

what 2 ways do we adjust gdp to make it more of an accurate reflection of living standards

A
  1. converting from nominal to real gdp

2. accounting for the size of the population

105
Q

what would a higher gdp suggest about living standards

A

the higher the gdp the more goods and services an economy consume therefore the better of it is

106
Q

what is the formula for gdp per capita

A

gdp per capita = gdp/population

107
Q

what are the 5 reasons why gdp and gdp per capita are limited measures of living standards and a brief summary for each

A
  1. composition of output -
    a country’s gdp may be comprised of goods and services not for current consumption by its citizens
  2. distribution of income -
    gdp per capita can be skewed where a country national income is owned by a very small proportion of the population leaving large numbers in poverty
  3. statistical problems - many ledcs have poor or no recording mechanisms and do not have the resources to accurately record and collect data
  4. illegal activities - unrecorded income for illegal activities in the black economy and tax fraud all contribute to the standard of living but cannot be recorded.
  5. non marketed economic activities - activities such as housework and diy significantly improve standard of living however we do not include this as it is unpaid work
108
Q

what is an ledc

A

less economically developed country

109
Q

what is an medc

A

more economically developed country

110
Q

what is the black economy

A

unorganised and unregistered mostly legal activities which provide income

111
Q

what is a synonym for the black economy

A

informal economy

112
Q

name 3 other factors that affect human welfare and why they aren’t included

A

these factors aren’t included as they cannot be easily qauntified

leisure
political freedoms
the quality of products
environmental factors

113
Q

what 2 indexes do we use to provide a better image of living standards

A

the happy planet index

the human development index

114
Q

what is nominal gdp

A

as inflation increases so will gdp to reflect these price increases. nominal gdp is gdp at current prices

115
Q

what is a synonym for nominal gdp

A

money value of gdp

116
Q

why doesn’t nominal gdp reflect economic growth

A

it may be the case that consumers cannot buy more goods and services with more income as prices have risen .it doesn’t reflect growth because its about producing more goods and services

117
Q

what is real gdp

A

the total value of an economy’s output in a time period adjusted to take inflation into account

118
Q

what is the formula for calculating real gdp using index numbers

A

real gdp = nominal gdp x price index in base year/price index in current year

119
Q

what is the price index in the base year/ price index in current year known as

A

GDP deflator

120
Q

what is a synonym for gdp deflator

A

gdp at constant prices

Macro Economics (2 decks)

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