macro flashcards (bulk

1
Q

What are three ways money can be injected from the economy?

A

Investment, Government spending and exports

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2
Q

What is skimpflation?

A

Skimpflation is when companies lower quality to cut costs while keeping prices the same, reducing value for consumers.

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3
Q

What are three ways money can be withdrawed from the economy?

A

Saving , Taxation, Imports.

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3
Q

What is hotmoney?

A

Money that is used to be invested and borrowed.

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3
Q

What is shrinkflation?

A

Shrinkflation is when companies reduce product size/quantity but maintain the price.

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3
Q

What is exchange rate?

A

The value of one currency in terms of another.

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3
Q

What is corporation tax?

A

Tax that companies pay on their profits.

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4
Q

Describe the basic model of the circular flow of income

A

Households –> Firms : factors for production ( land, labour, capital, enterprise) and Consumer expenditure.
Firms –> Households : Goods and services and wages, rent, dividends.

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5
Q

What is interest?

A

Cost for borrowing / reward for saving/lending

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5
Q

What is the formula for the macroeconomic consumption function?

A

AD = C + I + G + (X-M)

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5
Q

What is Ceretus Parabus?

A

All the other things stay the same

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5
Q

Define aggregate demand

A

Total spending on goods and services in an economy.

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6
Q

What is national debt?

A

The accumalation of all of the previous deficits.

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6
Q

What is the macro economic consumption function

A

AD = C+I+G +(X-M)

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7
Q

What are the 6 government economic objectives in a mixed economy?q

A
  • Encouraging price stability (low inflation)
    *Ensuring the working population is productive (full employment/minimise unemployment)
    *Maintaining a favourable balance of payments on the current account (international trade)
    *promoting steady economic growth (2.25%)
    *Redistributing income and wealth more equitably (fairly)
    *Reducing the government budget deficit and the national debt.
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7
Q

What is quantitative easing.

A

When the government sells the money borrowed back into an account digitably whilst keeping the physical money

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8
Q

What is quantitative easing?

A

When the government sells the money borrowed back into an account digitable whilst keeping the physical money.

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9
Q

How do governments reduce deficits.

A

Borrow
Sell govt assets
Use surpluses form previous years
Print money - BAD IDEA

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9
Q

How do governments reduce deficits?

A

Borrow
Sell government assets
Use surpluses from previous years
print money

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10
Q

What is a bond

A

Certificate to show that money has been borrowed

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11
Q

What is a trade off?

A

When there is an increase in something that is bad for the economy (inflation) but there is an increase in something good (increased employment)

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12
Q

What are bonds?

A

Certificates to show that money has been borrowed

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12
Q

What are examples of input costs

A

Wage costs per unit of output
Labour productivity (higher efficiency lowers unit costs)
Raw material and component prices
Interest rates, business rents, fuel, energy costs.

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13
Q

What are shifts in Short run aggregate supply

A

-Input costs
-Business taxes, subsidies and imported costs
-Supply shocks

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13
Q

What are the factors affecting government spending.

A

Stage of the economic cycle
Unemployment levels
Government priority
Population growth
Tax revenue

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14
Q

What are the factors affecting exports

A

The stage of the economic cycle overseas
International competitiveness of UK goods and services
Exchange rates
Tariffs used by countries

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14
Q

What are examples of business taxes, subsidies and imported costs

A

VAT, employment taxes
Scale and size of government subsidies
Business rates, costs of meeting business regulation
Costs of imported components ( affected by exchange rate + fluctuations in the world commodity prices).

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15
Q

What are the factors affecting consumer spending.

A

Income tax
Stage of the economic cycle
Interest rates
Consumer confidence

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16
Q

What are the factors affecting imports

A

The stage of the economic cycle in the UK
International competitiveness of good and services.

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16
Q

What is the formula for AD

A

AD = C+I+G +(X-M)

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16
Q

What are the factors affecting business spending

A

Interest rates
Spare capacity in the economy
Profit levels
Corporation tax

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17
Q

What is aggregate demand?

A

The total spending on goods and services in an economy.

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18
Q

What is the definition of unemployed

A

Anyone who is able, available and actively seeking employment

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18
Q

What are the main UK measures of unemployment

A

Claimant count
Labour force survey

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18
Q

What are the 5 policies for cutting unemployment?

A

Targeted macro stimulus policies to boost growth
Expansion of apprenticeship schemes
Improving geographical immobility of labour
Measure to stimulate business start-ups
Active regional development policies.

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19
Q

What is real wage?

A

When a rise in real wages above a market-clearing level causes a contraction in labour demand and lower unemployment.

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19
Q

What is hidden unemployment

A

Unemployment which is known to exist but is not included in the official government figures. Also can refer to a persons skills being unemployed rather than the person being unemployed.

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19
Q

What are the economic costs of high unemployment.

A

Lost output (waste of revenue)
Lower GDP growth

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20
Q

What is structural unemployment

A

When there is a mis-match between the skills of those unemployed and the skills that new jobs require. Happens when there is a change in the structure of the economy.

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21
Q

What is a hysterisis

A

A prolonged recession where the unemployment rates still do not get back to where they were before the recession

21
Q

What is occupational immobility?

A

Skills that unemployed people have is different to the skills demanded.

22
Q

What is frictional unemployment

A

Unemployment related to the process of changing jobs, which may involve a period out of work

22
Q

What is cyclical unemployment.

A

The category of unemployed whose number varies according to the business or economic cycle.

23
Q

What are the Fiscal costs of high unemployment.

A

Less tax revenue (less income tax, VAT,
Higher welfare spending (opportunity costs of the benefits)

24
Q

What is opportunity cost.

A

The next best alternative forgone.

25
Q

Why do people remain structurally unemployed

A

Geographical immobility
Occupational immobility

25
Q

Why does high unemployment matter?

A

Economic costs
Fiscal costs

25
Q

What is geographical immobility

A

People cant work because of where they live e.g. housing costs, family ties.

26
Q

What is the wealth effect?

A

Access to additional borrowing because assets have increased in value. Therefore increased wealth for consumers.

26
Q

What does WPIDEC stand for?

A

Weak pound: imports dearer exports cheaper

26
Q

What does SPICED stand for?

A

Strong pound: imports cheaper, exports dearer

26
Q

What do businesses do that leads to demand-pull inflation?

A

Respond to high demand by raising prices to increase their profit margins.

27
Q

When does demand-pull inflation occur?

A

Occurs when there is an excess in AD i.e. occurs when there is a positive output gap (actual GDP > potential GDP)

27
Q

What happens when there is low inflation in the UK?

A

Increased competition in markets
Success of bank of england in controlling AD
Strong exchange rate has kept import prices low
Effects of globalisation -cheaper imports
Rising productivity and new technology
A fall in workers expectations of inflation

27
Q

What is demand pull inflation associated with?

A

The boom phase of the cycle ( when SRAS becomes inelastic)

28
Q

What are the main causes of demand pull inflation

A

A depreciation in the exchange rate increases the price of imports and reduces the foreign price of UK exports.
A reduction in direct or indirect taxes - more disposable income
Rapid growth of the money supply as a consequence of increased bank and building society borrowing
Rising consumer confidence and an increase in the rate of growth of house prices <– wealth effect
Faster rates of eeconomic growth in other countries - providing a growth to UK exports overseas

29
Q

What is an index?

A

An index is a system that measures changes in a set of variables, each of which moves in different directions in different amounts. The index gives us the average movement.

30
Q

When does cost-push inflation occur?

A

Occurs when the cost of production increases

31
Q

What are the causes of cost-push inflation?

A

External shocks (commodity price fluxuations)
A depretiation in the exchange rates
Acceleration in wages

32
Q

What is investment?

A

When firms spend money on capital goods to increase productive capacity

32
Q

What is the definition of inflation?

A

A general increase in the average price level from one year to the next
A fall in the value of money

32
Q

Describe the process of cost-push inflation?

A

Inward shift of the SRAS curve
firms raise prices to protect their profit margins - better able to do this when market demand is price elastic - ‘wages often follow prices’
A rise in inflation can lead to rising inflationary expectations

32
Q

What is self fullfilling prophecy?

A

If we expect prices to fall, they do.

33
Q

What does demand pull inflation look like

A
33
Q

What are the main causes of demand pull inflation?

A

Very fast growth of demand for credit/borrowing
high levels of consumer spending

34
Q

What does long-run mean?

A

When all of the factors of production are employed. There is no spare capacity in the economy

35
Q

What does short-run mean?

A

When not all of our factors of production are employed. There is spare capacity in the economy

36
Q

What are the main objectives of government macroeconomic policy?

A
  • economic growth
    *price stability
  • minimising unemployment
    *stable balance of payments on current account
36
Q

What is GDP and what is GDP per capita?

A
  • GDP is the value of total output in one year
  • GDP per capita is GDP/Population
37
Q

expenditure method of measuring national income

A
  • Consumer spending
  • Government spending
  • Investment spending
  • Net exports
38
Q

What is another name for total expenditure?

A

aggregate demand

39
Q

What is the trend rate of growth

A

The most optimal rate of growth to sustain a healthy economy - the target is 2.25 per annum

40
Q

Output method of measuring national income

A
  • Primary ( agrigulture, mining etc)
  • Secondary ( manufacturing)
  • Tertiary (Services)
  • Quartenary (information)
40
Q

What are the signs of an economic downturn?

A
  • Rising unemployment - depends on size of change
  • falling aggregate demand - interest rates may be changed
  • reduced output - maybe not all sectors
  • falling tax revenues - change in tax rates
  • increased government spending on benefits
  • order books of firms get emptier
  • stock market falls
    *reduced consumer confidence and spending.
40
Q

What 3 variables do we use to measure the economy and how are they related?

A

total expenditure = total output = total income

40
Q

Income method of measuring national income

A
  • wages
  • rent
  • interest
  • profits/dividends
41
Q

What is another name for total income?

A

National income

42
Q

What is the demand for labour derived from?

A

The demand for labour is derived from the demand for the goods and services that labour provides.

43
Q

What are the stages of the economic cycle?

A

Downturn –> Peak –> Recession –> Recovery

44
Q

What is nominal economic growth?

A

The percentage increase in GDP for one year to the next year.

44
Q

What is Real economic growth

A

Nominal economic growth - inflation

44
Q

What is negative output gap and positive output gap

A
  • negative output gap occurs when the actual level of output is less than the trend rate of growth ( potential level of output )
  • positive output gap occurs when the actual level of output is more than the trend rate of growth
44
Q

What is the definition of a recession?

A

A recession is two consecutive quarters of negative growth.

45
Q

What is the X and Y axis on the economic cycle graph

A

X axis = Time
Y axis = Employment/Income/Spending/Output/GDP

45
Q

What does higher productivity mean that we can do?

A

Produce goods at a lower cost per unit
Increase total output from our scarce factor recources
An improvement in productivity helps to bring out economic growth for a country in the longer term

46
Q

What 5 factors explain the productivity gap?

A

Relatively low rates of capital investment
Low rates of spending on research and development
Skills of the labour force
Not enough spending on healthcare
not enough spending on infrastructure

46
Q

What is the definition of productivity

A

Productivity is a measure of the efficiency of factors of production in the production process

47
Q

What is the productivity gap?

A

Difference in output per worker in different countries

47
Q

What are the economic benefits of higher productivity?

A

Lower average costs –> economies of scales
Improved competitiveness in international markets

48
Q

How can labour productivity be measured?

A

Calculating output per worker or output per hour worked

48
Q

How is Improved competitiveness in international markets a benefit of higher productivity

A

Gives a competitive advantage where there is an intense price and non-price competition from overseas suppliers

49
Q

What is the budget deficit?

A

Money that the govt needed to borrow through hot money

49
Q

What happens in contractionary monetary policy?

A

Higher interest rates on loans and savings
tightening of credit supply
appretiation of the exchange rate

49
Q

What happens in expansionary monetary policy?

A

fall in nominal and real interest rates
measures to expand supply of credit
depreciation of the exchange rate

49
Q

What 5 things are controlled by the bank of england in the context of monetary policy

A

Market interest rates
Bank lending
Currency markets
Inflation targets
Quantitative easing

49
Q

What does monetary policy involve?

A

Changes in interest rates, the supply of money and credit and exchange rates to influence the economy

50
Q

What is the base rate/repo rate?

A

The interest rate at which the central bank of a country lends money to commercial banks

50
Q

What does expansionary monetary policy intend to do?

A

To stimulate AD

50
Q
A