Macro Review Flashcards
Sustainability
The ability of present generation to meet its needs without compromising the ability of future generations to meet their own needs
Progressive taxation
Taxation where the fraction of tax paid increases as income increases. The average tax rate increases.
Automatic stabilisers
Institutionally built-in features (like unemployment benefits and progressive income taxation) that tend to decrease the short term fluctuations of the business cycle without the need for governments to intervene
Infrastructure
Physical capital typically financed by governments that is essential for economic activity to take place including roads, power, telecommunications and sanitation, generating significant positive externalities.
Discrimnation
Discrimination against gender, race, religion, or any other factor plays an important role in perpetuating inequality
Transfer payment
Payments made by the government to vulnerable groups in a society, including older people, low income people, unemployment and many more. The objective is to transfer money taxpayers to those who cannot work, to prevent them from falling into poverty.
Unemployment
When a person (who is above a specified age and is available to work) is actively looking for work, but is without a job
Full employment level of output
The level of output that is produced by the economy when there is only natural unemployment
Recession
Occurs when real GDP falls for at least two consecutive quarters
Crowding out
The idea that expansionary fiscal policy is not very effective in increasing aggregate demand because the increased borrowing needs of the government to finance the increased expenditures could lead to increased interest rates. Thus, reducing private sector investment, consumer spending, and other components of AD.
Consumer Price Index
The average of the prices of the goods and services that the typical consumer buys expressed as an index number. The CPI is used as a measure of the cost of living in a country and to calculate inflation
Disinflation
When the average price level continues to rise but at a slower rate so that the rate of inflation is positive but lower
Inflation - targeting
When the central bank sets a desired rate of inflation, then manipulates its monetary policies so that the inflation rate stays within that range.
Direct taxation
Taxes on income, profits, or wealth paid directly to the government
Negative growth
Contraction in a country’s economy, reflected as decrease in GDP, expressed as negative percentage rate?
Investment
Spending by firms on capital goods such as machines, tools, equipment and factories
Industrial Policy
A type of interventionist supply side policies whereby the government chooses to support specific industries through preferential tax cuts, subsidies, subsidised loans and other means as they are considered pivotal in the growth prospects of the economy.
Inflation
A sustained increase in the average price level over time
Market - based supply side policies & what diagram do we use for it?
A set of policies based on well-functioning competitive markets in order to promote long term economic growth, shown by increases in LRAS
- USE NEW CLASSICAL DIAGRAM
Interventionist supply side policies
& what diagram do we use for it?
A set of policies that aim to increase an economy’s productive capacity that relies on a greater role for the government; these include expenditures on infrastructure, education, health care, research & development and all industrial policies
– USE KEYNESIAN DIAGRAM
Types of Unemployment
Cyclical - occurs in a recession, is a result of a decrease in AD
Seasonal - arises when people are out of a job because their usual job is out of season - lifeguards, ski instructors
Frictional unemployment - individuals who are in between jobs. as people who quit to find a better job or move to a diff location
Structural Unemployment
A kind of long term unemployment that arises from a number of factors including tech change, changes in patterns of demand for diff labour skills, changes in geographical location of industries, & labour market rigidities.
Contracted out
An alternate to direct provision, when a government hires the services of a private sector company
Deficit Spending
Deficit spending is when gov spending is financed through borrowing because the tax revenues are not enough to cover their spending.
National Income accounting
The services provided by a statistical entity in every country that measure the economy’s national income and output as well as other economic activity
Income approach
One of the three equivalent ways that GDP can be measured by adding all the incomes generated in the process ( wages, profits, interest and rent) for a given time period
Expenditure approach
one of three analytically equivalent approaches of measuring GDP that adds all the expenditures made on final domestic goods and services over period of time by households, firms, the government and foreigners.
Output approach
Adds up the value of the final goods and services produced by each economic sector such as agriculture, manufacturing, transport.
GDP & real GDP
gross domestic product - the value of all final goods and services produced within an economy over a period of time, usually a year or a quarter
real GDP = GDP adjusted for inflation
GNI & real GNI
gross national income - income earned by all national factors of production.
equal to GDP plus factor income earned abroad minus factor income paid abroad
real GNI - adjusted for inflation and differences in the cost of living between countries
OECD Better Life index
An index to compare well- being across countries based on several dimensions that have been identified as essential in the areas of material living conditions and quality of life
Happiness index
An index that is used to measure economic well being of a population using several quality of life dimensions
Happy Planet Index
An index that combines four elements to show how efficiently residents of diff countries are using environmental resources to lead long happy lives
Monetarist/New Classical View
Monetarists
Keynesian View
Keynesian scared of employment, prefer for government to intervene
KEG
Components of AD
consumption (C) + investment (I) + government spending (G) + net exports ( total exports (X)- total imports(M))
Determinants of AD
C = consumer confidence, interest rates, wealth, income taxes, level of household indebedtness, expectations of future price level
I = interest rates, business confidence, technology business taxes, level of corporate indebtednes
G = political and economic priorities
X -M = income of trading partners, exchange rates policies
Inflationary gap
the case where equilibirium output exceeds real output as a result of increases in AD
Deflationary/recessionary gap
arises when the equilibirium output is less than real output as a result of decreases in AD
economic growth
refers to increases in real GDP over time
Natural Rate of Unemployment
the rate of unemployment that occurs when the economy is producing at its potential output or full unemployment level output. = to structural + frictional + seasonal
Lorenz curve
a curve showing what percentage of the population owns what percentage of the total income or wealth in the economy. (the further the curve is from line of absolute equality, the more unequal the distribution of income)
cost push inflation and its causes
inflation caused by result of increased production costs ( typically because of rising money wages or rising commodity prices) illustrated by leftward shift of SRAS curve
Poverty
& difference between relative and absolute
arises when the lack of material possessions or money prevent an individual or a family from achieving a minimum satisfactory standard of living
relative is a comparative measure of poverty according to which income levels do not allow people to reach a standard of living that is typical of the society in which they live i.e - single parents stuggling while absolute poverty is people living below minimum income necessary to satisfy basic needs (homless & malnourished)
single indicators of poverty
international poverty lines
minimum income standards
Composite indicators of poverty
multidimensional poverty index
causes of deflation
regressive tax
will worsen the income & wealth distribution in an economy
proportional tax
works to redistribute income & wealth but is less effective than a progressive one.
direct tax
taxes on income, profits, or wealrg paid
demand side policies
supply side policies
aims to manipulate AD to smooth out short-term flunctuations in economic activity while supply side policies aims to increase AS in the long term
keynesian multiplier
multiplier / 1- mpc
market based policies
a set of policies based on well - functioning competitive markets in order to promote long term economic growth, shown by increases in LRAS - PIL
policies to encourage competition
deregulation, privatisation, trade liberalisation, anti-monopoly legislation
labour market policies
reducing unemployment benefits, reducing power of labour unions, abolishing minimum wage
incentive related policies
cuts in personal income taxes, business taxes & capital gain tazes
interventionist policies
policies that aim to increase an economy’s productive capacity that relies on a greater role on gov- i.e
ERIPI
- education & training
improvements in quality/access to health care
r & d
provision of infrastructure
industrial policies
economies of scale
falling average costs that a firm experiences when it increases its scale of operations
economic inequality
unequal distribution of income and wealth
economic inequalit
