Macro Year 1 Flashcards

1
Q

What are the four main macroeconomic objectives?

A

Low unemployment, low inflation, a balance on the balance of payments and high, stable economic growth

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2
Q

What are the other 3 macroeconomic objectives?

A

A balance on the budget balance, environmental sustainability and income equality

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3
Q

What is money into the economy called? Give examples of it

A

Injections. Government spending, export income and investment

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4
Q

What is investment?

A

The purchase of capital stock

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5
Q

What is money out of the economy called? Give examples of it

A

Leakages, or withdrawals. Savings, taxes, imports

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6
Q

What is a boom and some features of it?

A

An expansion in an economy. Rise in employment, rise in inflationary pressure, more confidence and bigger trade deficit

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7
Q

What is a recession and some features of it?

A

2 consecutive quarters of negative growth.

Increased unemployment, rise in raw material prices, fall in confidence, budget deficit rise

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8
Q

What is GDP and what can it measure?

A

Measures economic growth, is the total value of goods and services produced within an economy in one year

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9
Q

What’s the difference between GDP and GNI?

A

GDP - value of output within that country

GNI (Gross National Income) - Includes net income earnings from abroad

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10
Q

What are benefits of economic growth?

A

Rise in national income, increase in public goods supplied

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11
Q

What are some drawbacks of economic growth?

A

Increase in inflationary pressures, more environmental damage, income inequality worsens

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12
Q

What is economic growth?

A

A rise in output, production potential and GDP per capita over time

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13
Q

What is inflation?

A

The sustained increase of price levels in the economy

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14
Q

What is deflation?

A

The sustained decrease of price levels in the economy

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15
Q

What is disinflation?

A

The slow of sustained increase price levels in the economy (inflation at a slower rate)

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16
Q

How is Consumer Price index calculated?

A

Excludes house prices, council tax, etc. Measures the increase/decrease in prices of 650 commonly bought goods and services from 700 houses

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17
Q

What is demand pull inflation?

A

Too much demand chasing too little supply (too much money chasing too few goods)

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18
Q

What is cost push inflation?

A

Producers raising prices and producing less following an increase in production costs

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19
Q

What does inflation create in an economy?

A

More unemployment and debt is easier to pay back

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20
Q

What are some benefits of inflation?

A

Can boost growth, increase in the value of stocks, fall in value of debt

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21
Q

What are some disadvantages of inflation?

A

Uncertainty, can lead to unemployment, reduced investment, reduces savings value

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22
Q

What is unemployment?

A

Someone who is out of work but willing and able to work

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23
Q

What is underemployment?

A

Someone who is working but over skilled or underpaid for the job they’re working in

24
Q

How does the ILO labour count measure unemployment?

A

Measures those who are out of work for 4 weeks and ready and able to work in 2, records those aged 16-65. Is subject to sampling errors

25
Q

How does the Claimant Count measure unemployment?

A

Records those claiming Job Seeker’s allowance, for people aged 18-65 but the government changes criteria for those eligible for benefits

26
Q

What is frictional unemployment?

A

Changing between jobs

27
Q

What is structural unemployment?

A

Reduced demand for human labour, increase in tech that can do human jobs

28
Q

What is cyclical unemployment?

A

Unemployment due to negative growth (high in a recession)

29
Q

What is Aggregate Demand?

A

The total amount of money spent on goods and services at one time

30
Q

What are changes in AD called?

A

Short run growth

31
Q

What is the equation for AD?

A

AD = C + I + G + (X - M)

32
Q

What is Consumption?

A

Makes up 65% of AD, as disposable income rises, consumer spending rises (Wealth effect). High interest rates and low confidence will see a fall in consumer spending

33
Q

What is Investment (in relation to AD)?

A

When the economy grows, Investment increases as there are more returns to be made. Increased confidence leads to a rise in investment. Interest rates have an inverse effect with investment

34
Q

What is government spending (in relation to AD)?

A

25% of AD. In a boom, the budget balance will improve as the unemployment rate is low and there is high confidence. The opposite happens in a recession

35
Q

What is Net Trade (in relation to AD)?

A

Increase incomes lead to increased demand for imports, worsening trade balance. If the pound appreciates, UK’s exports will become more expensive and imports become cheaper. A rise in inflation makes UK goods more expensive. A rise in interest rates makes it more attractive to save in UK banks

36
Q

What is the Multiplier effect?

A

Changes in AD components will lead to a bigger change in RNO

37
Q

What is Aggregate Supply?

A

Measures the volume of goods and services produced annually

38
Q

What does the Short Run AS show?

A

Total planned output when prices change (Upward sloping)

39
Q

What does the Long Run AS show?

A

Total planned output when prices and wages change (is vertical or Keynesian)

40
Q

What happens to supply if taxes fall?

A

Supply increases

41
Q

What happens to supply if the currency depreciates?

A

Supply will fall

42
Q

What shifts the LRAS?

A

Changes in labour supply, changes in efficiency of allocation, tech advancements, productivity

43
Q

What is Fiscal Policy and its goals?

A

Policies controlled by the government. Stabilise economic growth, keep inflation at 2%, stimulate growth during recessions.

44
Q

What is deflationary fiscal policy?

A

Decreasing AD by increasing taxes and cutting government spending. Leads to an improvement in the budget deficit

45
Q

What is expansionary fiscal policy?

A

Increasing AD by decreasing taxes and raising government spending, which worsens the budget deficit

46
Q

What is Monetary Policy?

A

The Bank of England controlling interest rates and the supply of money

47
Q

What is expansionary monetary policy?

A

Fall in interest rate and expansion in the supply of credit to incentivise spending and increase AD

48
Q

What is deflationary monetary policy?

A

Rise in interest rates and tightening credit supply to disincentivise spending and decrease AD

49
Q

What are Supply Side Policies?

A

Policies used to manipulate AS

50
Q

Give some examples of supply side policies?

A

Reducing income and corporation tax, education and training, increase minimum wage, decrease benefits, improvements in transport infrastructure.

51
Q

What is Purchasing Power Parity?

A

Comparing the cost of a basket of goods and services in one country to it’s cost in another country

52
Q

What are some drawbacks of GDP as a measure?

A

Doesn’t measure wellbeing or welfare, ignores externalities, doesn’t show income distribution.

53
Q

Why would economic growth and the balance on the balance of payments clash?

A

Consumer boom will cause the trade deficit to rise

54
Q

Why would economic growth and low inflation clash?

A

Economic growth will lead to a rise in inflationary pressure

55
Q

Why would economic growth and Income Inequality clash?

A

Benefits from growth are not evenly distributed

56
Q

Why would low unemployment and the environmental sustainability clash?

A

As people are employed, they commute more, more environmental damage

57
Q

Why would low unemployment and low inflation clash?

A

Have an inverse effect (philips curve)