Macroeconomic Issues Flashcards
What is macroeconomics?
It is studying the performance and decision making of the economy as a whole
What are the macroeconomic issues?
Inflation
Unemployment
Economic growth
Government debt
What are major macro economic objectives?
Achieve high economic growth
Reduce unemployment
Control/reduce inflation
Improve current account balance by lowering deficit and increasing surplus
Reduction of national debt
Ensuring better income distribution and equality
What is the circular flow of income?
It is an economic model which shows the flow of goods and services, factors of production and their payments around the economy
What are 3 methods used to calculate economic activity?
National output: value of all goods produced
National income: value of total income paid by firms to households
National expenditure: value of total spending on goods and services
What is GDP?
Gross Domestic Product is the value of output produced within an economy no matter which nationality of citizens, residents are contributing to the the production
Why is it important to calculate GDP?
It is an important statistic that indicates economic growth or contraction. It measures economic growth
Helps government to take decisions regarding policies to stimulate the economy if economic growth is slow
Acts as a framework for investors to make investment decisions
How can you measure GDP by using the expenditure method?
Consumption + Investment + Govt spending + Net exports
What are the ways to measure GDP?
Nominal GDP
Real GDP
Per Capita GDP
What is gross national income (GNI)
It is the total income earned by the citizens of an economy including income earned by citizens working abroad.
How do you calculate GNI?
GDP + Net property income from abroad
It includes:
Net international transfers =
Income earned on investments/assets made abroad - income paid to foreigners on their investments from our country
What is government spending?
It is used to purchase goods and services to provide the public
What is a business cycle?
It is the regular fluctuations in the level of economic activity around the productive potential of the economy.
What are the phases in a business cyle?
Boom
Peak
Recession
Depression
Trough
Recovery
Why are business cycles important?
Because governments can use monetary and fiscal policy to intervene economic performance and adjust real GDP
Investors and businesses might use the cycle to choose the right time for investments
What is inflation?
It is the general rise in price level.
Hyper inflation: Very high price levels
Deflation: Very low price levels
How can we measure inflation?
By using the consumer price index
It helps to identify the changes in the cost of living of an economy over a period of time
How do government control inflation?
Tighter monetary policy: High interest rates
Tighter fiscal policy: High income tax, low govt spending
Supply side policies: Encourage free trade, privatization, deregulation increase supply which lowers price
What is unemployment?
It is the fraction of the labour force without a job but registered to look for a job
Name the different types of unemployment
Cyclical/Demand deficient: redundancy
Classical: trade unions, unemployment benefit, minimum wage
Frictional: Short term between jobs
Structural: regional, sectoral, technological
What are the costs of unemployment to an economy?
Increase poverty and inequality
Loss of output to the economy
Rising government budget deficit
Increase in social costs
