Macro - Topic 1 Flashcards
Macroeconomics Meaning
Looking at the economy as a whole
What are the 2 main things we look at in macroeconomics
Aggregate supply and demand
What is aggregate demand
Total Value of demand
What is the equation for AD
C + I G + (X - M )
Consumption +Investment +government expenditure +net exports
What is aggregate supply
Total value of supply
How does an economy supply?
With the 4 factors of production
Land
Labour
Capital
Entrepreneurship
What are the 4 Factors of Production?
Land
Labour
Capital
Entrepreneurship
What is GDP
Total value of goods and services sold in an economy
What does Real GDP measure
The total value of goods and services sold within a country in an economy adjusted for inflation
How do you increase GDP
Working on increasing one of the 4 components of AD
What is Nominal GDP
The value of national output at current prices without the affects of inflation accounted for
What is real GDP
Value of output with adjustments for inflation
What are the Gov Obj’s (6)
Economic Growth Keep Inflation Low Low Unemployment Inc Standard of Living Redistribution of income Balance of Payments
What is Economic growth
An increase in real GDP
What is Eco growth measured by
Real GDP
Is Eco growth Long term or short term
Both
To Economically grow you must inc productive capability, how can you do this
Work on the 4 Factors of Production
e.g. increase labour supply
When an economy increases its productive capability , is what type of Eco growth
Long run
When an economy uses spare capacity , is what type of economic growth
Short run
Unemployment definition
Where people can work but dont
Why do people not work
Not enough jobs
Unskilled or Uneducated
Poor attitudes
People inbetween jobs
What does unemployment cause (5)
Depression Low Standard of living Crime Gov spending on benifits Fall in income tax - empluyed taxed more
What is inflation
The increase in average prices of goods and services over time
What is deflation
The fall in the average price of goods and services
What is disinflation
Where inflation goes down but prices still go up
Is this an example of disiinflation
Year 1 = £100 inc to £200
Year 2 = £200 inc to £250
Yes
What is the UK inflation target
2%
What does the Balance of Payments look at
The inflows and outflows of an economy
What does Balance of Payments use
A current account to measure the amount in and out of an ecomony
What is a Balance of Payments surplus
Where export value is greater than import Value
What is a Balance of Payments deficit
Import Value>Export Value
What indicators are used for inflation
CPI and RPI
What is RPI
Retail Price index, a measure of inflation that includes everything in the rate of inlfation
What is CPI
Consumer Price Index - Looks at inflation of all types of household spending
Does CPI include house prices and related areas
No
Which inflation rate measure
is used to compare to the rest of Europe
CPI - it is easier, as house prices play a huge factor in an economy, yet they are not comparable to other economies prices
True or False - CPI causes inflationairy pressure on consumers
True
How is RPI and CPI calculated
By looking at what is commonly most bought, and seeing the change in prices of years
Economic growth uses real national income (GDP) - True or False
True
What type of GDP is this - GDP which measures the value of national output at current prices (no adjustment for inflation)
Nominal
What type of GDP is this- GDP That measures the volume of output, with adjustments for inflation
Real
Which GDP is used when looking at eco growth
Real GDP
What is nominal income
Income at current prices ( no adjustment for inflation)
What is the formula for converting nominal gdp to real?
Nominal GDP of the year x 100/ Price index of current year
How is GDP per capita calculated
GDP/Population
What is GDP per capita
The average income of a person within a country
Does real GDP take into account inflation
Yes
What are macroeconomic conflicts
Where objectives clash
What is a trade off
When one objective is chosen over another
What is policy conflicts
Where two objectives cannot be achieved together
In a economic cycle what are the features of a positive output gap?(6)
Low unemployemnt Low interest Low tax higher wages more profit increased prices
What are the issues in a positive output gap(3)
Increased inflation
Hard to maintain
Higher wages
Features of a neagtive output gap(6)
High unemployment Increased tax on employed Lower wages Less profit Decreased standard of living More money spent on benifits
What is a reccesion
Where an economy experiences negative growth for 2 or more quarters
Features of a recession(5)
Low employment Low purchasing Bankrupcy Loss of homes Lack of job availability
What are index numbers
Numbers that show percentage change
When using index numbers, what number is a base year given
100
Are index numbers percentages
Yes
What is national income
The value of a countries output in a year
To produce a National Income what does an economy need(4)
National Capital Stock
Human Capital
Land
Entrepreneurship
What is national wealth
Stcoks of all existing goods and services in an economy - that have value
Are consumer goods, capital stock and social stock apart of national wealth
Yes
Why is investment done
To improve efficiency
Lack of investment can cause what?
Negative eco growth
If investment stops what happens
Eco capacity and supply decrease
What does GNI stand for
Gross National Income
What is GNI
The money UK residents make from foreign assets and busienss investment
What is the more accurate view of productivity measures (GNI or GDP)
GDP
Is GNI an accurate view of Standard of living
Yes
What are the issues with using National income stats to compare countries standard of living
Non monetised economies unaccounted for
Exchange rates
Quality and price changes
What does PPP stand for
Purchasing Power Parity
What is Purchaising power parity used for
An economic thoery that compares currencies
What approach does Purchaising power parity use
A basket of goods approach
True or False - Purchaising power parity does not eliminate problems comparing living standards
False
Issues with using National Income stats to measure Standard of living
Hidden Economies
Non monetised economies
Quality changes
Negative externalities
