Macro - Topic 1 Flashcards by Ethan Parmar

Macroeconomics Meaning

Looking at the economy as a whole

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What are the 2 main things we look at in macroeconomics

Aggregate supply and demand

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What is aggregate demand

Total Value of demand

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What is the equation for AD

C + I G + (X - M )

Consumption +Investment +government expenditure +net exports

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What is aggregate supply

Total value of supply

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How does an economy supply?

With the 4 factors of production

Land
Labour
Capital
Entrepreneurship

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What are the 4 Factors of Production?

Land
Labour
Capital
Entrepreneurship

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What is GDP

Total value of goods and services sold in an economy

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What does Real GDP measure

The total value of goods and services sold within a country in an economy adjusted for inflation

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How do you increase GDP

Working on increasing one of the 4 components of AD

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What is Nominal GDP

The value of national output at current prices without the affects of inflation accounted for

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What is real GDP

Value of output with adjustments for inflation

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What are the Gov Obj’s (6)

Economic Growth 
Keep Inflation Low
Low Unemployment 
Inc Standard of Living 
Redistribution of income 
Balance of Payments

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What is Economic growth

An increase in real GDP

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What is Eco growth measured by

Real GDP

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Is Eco growth Long term or short term

Both

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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

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When an economy increases its productive capability , is what type of Eco growth

Long run

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When an economy uses spare capacity , is what type of economic growth

Short run

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Unemployment definition

Where people can work but dont

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Why do people not work

Not enough jobs
Unskilled or Uneducated
Poor attitudes
People inbetween jobs

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What does unemployment cause (5)

Depression 
Low Standard of living 
Crime 
Gov spending on benifits
Fall in income tax - empluyed taxed more

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What is inflation

The increase in average prices of goods and services over time

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What is deflation

The fall in the average price of goods and services

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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

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

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