macro year 2

Question 1

Philips curve

Answer 1

useful to show the inverse relationship between wages and unemployment

short run:
https://www.youtube.com/watch?v=VasoRAY1fGw&list=PLWeicFreBUYBW3kSFnfBC8MSvPdH6DbqQ&index=6

long run: youtube.com/watch?v=7K62Pfg27rg&list=PLWeicFreBUYBW3kSFnfBC8MSvPdH6DbqQ&index=7

Question 2

what is the multiplier, show it on a diagram

Answer 2

process by which any changes in the components of AD will lead to an even greater change in national output

https://www.youtube.com/watch?v=25KlFCoDW34&list=PLWeicFreBUYBW3kSFnfBC8MSvPdH6DbqQ&index=8

Question 3

how to measure the multiplier

Answer 3

1
/
1 - MPC

Question 4

what is the accelerator

Answer 4

changes in investment can be directly linked to changes in the rate of GDP growth

when the rate of GDP is increasing firms are more willing to invest -> increasing multiplier effect

if opposite -> firms will hold back or cut their expenditure

Question 5

what is the balance of payments

Answer 5

a big account/spreadsheet that measures in the inflows and outflows of money in a country

Question 6

what is the financial account

Answer 6

another part of the balance of payments

looks at:
portfolio investment transactions -> financial assets e.g. bonds, shares, derivatives

any movement of money in the country with the purchase of financial assets

Foreign direct investment -> money entering the UK from foreign firms setting up shop in the UK

or UK firms shut down in the UK and move elsewhere will be a debt on the financial account

reserves are held in currency or gold

Question 7

consequences of a current account deficit

Answer 7

rack up lots and lots of debt -> people who buy the debt will start to lose confidence in the firms ability to pay the debt back -> investors will pull away from buying debt -> currency crisis as people e.g. sell the pound -> economic crisis

diagram:
https://www.youtube.com/watch?v=kJ2PascK_Rg&list=PLWeicFreBUYBW3kSFnfBC8MSvPdH6DbqQ&index=10

Question 8

what ways can large current account deficit be solved as one of the government objectives is to have balanced trade

Answer 8

policies to reduce the amount of spending on imports in the economy (expenditure reducing policies) -> by reducing AD -> reduce incomes -> reduce marginal propensity to import (as when consumers are richer they tend to spend more)

Question 9

what two types of expenditure reducing policies can be used

Answer 9

contractionary monetary policy -> raise interest rates -> reduce money supply

contractionary fiscal policy -> increase taxation in economy

but

conflict of objectives ->

consumer and business confidence

output gap

Question 10

video 12