Macro Supply N Demand N Equilibrium, Macro Fiscal N Monetary Policy

Question 1

Difference in supply n demand curves compared to AD and AS

Answer 1

AD and AS represent entire economy rather than individual goods n services

Question 2

Real gdp formula

Answer 2

Total consumption expenditure + investment expenditure + gov expenditure + total exports/imports

Question 3

Difference in micro economics graphs n macro ones

Answer 3

Macro, axes measure cpi and gdp but micro they measure price n quantity
Shape of curves varies more in micro depending on product, but more static shape in macro
LRAS curve included in macro but not in micro

Question 4

What does lras curve show

Answer 4

The point it will be difficult to increase supply as we have used all our most scarce resource, as markets reached max sustainable potential

Question 5

Why does AD curve slope down. 3

Answer 5

Wealth effect
Interest rate effect
Exchange rate effect

Question 6

What’s wealth effect

Answer 6

As prices decrease, households therefoe naturally feel wealthier, and therefore likely to consume more, increasing general consumption

Question 7

Interest rate effect

Answer 7

As prices decrease, houses need less money to buy same level of goods n services n have more money to save
So banks need to do less to incentivise households to save so they lower interest rates
So more money can be borrowed for cheaper, causing increase in investment type expenditure

Question 8

Exchange rate effect

Answer 8

As prices decrease in a country they become cheaper compared to country where prices don’t decrease
Thus net exports increase, so movements along curve are due to expectations about price changes

Question 9

Why does AS curve slope up

Answer 9

When price level for outputs increases while price level for inputs is fixed, opportunity for additional profits encourages more production

Question 10

When does AS curve shift to make a new one

Answer 10

If profit level from production increases or decreases for any reason other than price change

Question 11

5 reasons for AS curve shifty can be remembered through …

Answer 11

The mnemonic spite

Question 12

What does mnemonic spite stand for

Answer 12

Subsidiary subset subsidies for businesses
Productivity
Input prices
Taxes on businesses
Expectations about inflation or price

Question 13

Sticky prices and wages meaning

Answer 13

Rates of price increasing slightly slower for wages improvements

Question 14

What represents potential gdp

Answer 14

Lras curve

Question 15

What does lras curve reflect

Answer 15

The max quantity an economy can produce in total if all available resource have been utilised n there’s full employment

Question 16

When’s economy considered to be in recession

Answer 16

If sre is less than potential gdp output (lras curve)

Question 17

What’s a shock

Answer 17

Anything moving AS or AD curve left it right in short term

Question 18

What’s long run self adjustment mechanism

Answer 18

Idea that economies not achieving full potential will be self corrected without gov intervention

Question 19

Ways gov can influence economies using fiscal policy. 3

Answer 19

Spend more/less on eg hospitals/roads etc
Increase/decrease tax
Increase/decrease transfer payments

Question 20

What r transfer payments
Eg

Answer 20

When’s moneys given with no goods or services being received in return eg employment benefits

Question 21

When would economy need to use contractionary or expansionary fiscal policy

Answer 21

Contractionary if economy expanding too quick
Expansionary if economy in recession

Question 22

What’s a dual mandate used for and by who

Answer 22

Used by central banks to maintain stable prices

Question 23

How can central banks achieve mandate

Answer 23

Through monetary policy

Question 24

What is monetary policy concerned with?

Answer 24

Changing the level of supply of money in an economy

Question 25

What tools the central banks have generally to affect monetary policy

Answer 25

Open markets operations
changing the reserve ratio
changing the discount rate

Question 26

What’s reserve ratio

Answer 26

set by the central bank, is the percentage of a commercial bank’s deposits that it must keep in cash as a reserve in case of mass customer withdrawals

Question 27

Quantitative easing

Answer 27

nation’s central bank tries to increase the liquidity in its financial system, typically by purchasing long-term government bonds from that nation’s largest banks and stimulating economic growth by encouraging banks to lend or invest more freely

Question 28

What’s fiscal policy

Answer 28

the use of government spending and taxation to influence the economy

Question 29

Multiplier effect

Answer 29

when an initial injection into the circular flowcauses a bigger final increase in real national incom

Question 30

Types of economic intervention

Answer 30

Fiscal n monetary policy

Question 31

Limitations of economic intervention. 4

Answer 31

Economic issues hard to identify
Decisions to act often slow
Level of action required is unclear
Inappropriate action leads to negative, unintended consequences