Macro Left Overs Flashcards
What are the functions of a comercial bank?
Private loans
Accept deposits
Overdraft
Investment of funds (of private equity)
Agency functions (admin stuff)
What are liabilities?
Liabilities are made up of share capital, deposits, borrowing and reserve funds. Assets are cash, securities and bills, loans and investments.
When may an overdraft be used?
An overdraft be used when a current account (in terms of consumers day to day spending) has no money.
What is the money supply?
The money supply is just the total amount of money circulating in the economy
What is narrow money?
Physical money (M0)
What is broad money?
The total value of money in the money supply (M4)
Explain the Phillips curve
Why does the current account go into deficit in economic growth
The high propensity to import
What is Fischers equation?
MV = PQ
How does Fishers equation link to the circular flow of income?
MV represents the expenditure method to calculate GDP)
PQ represents the output method
Explain Fishers equation in terms of a monetarist
P is directly proportional to M
Explain Fishers equation in terms of Keynesians
They argue that in recessions there will be liquidity traps and therefore V will decrease (so P isn’t directly proportional to M)
How does the free market explain the NRU?
Too many benefits and excessive labour market regulation (higher risk of hiring as you can’t fire easily)
How do interventionists explain the NRU?
Lack of Transport/Housing, Lack of in training in work
What is the NRU also called?
Why?
also called the NAIRU: non-accelerating inflation rate of unemployment. As inflation does’t have a tendency to increase at this unemployment rate.
Draw the diagram of NRU?
What are the costs of economic growth?
Consumers:
Economic growth is likely to be distributed inequitably
Demand pull inflation
Firms:
Increased menu costs meaning that they will need to increase prices at a steeper rate
• Menu costs are the costs of increasing prices (Eg printing new menus)
Government:
Consumption of Demerit goods may increase
Living standards:
Environmental degradation may increase (Kunitz curve)
What is a benefit of economic growth for the gov?
More people in work so less benefits to you
What are the different types of destabilising speculation?
Animal Spirit
Herding
