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Macro Economics > Macroeconomic Models > Flashcards

Macroeconomic Models Flashcards

1
Q

3 withdrawals of the balance of payments

A
  • Saving
  • Imports
  • Taxes
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2
Q

3 injections in the balance of payments

A
  • govt spending
  • investment
  • exports
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3
Q

Definition of AD

A

Total demand of all goods in the economy

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4
Q

National output

A

Total output of all goods in the economy

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5
Q

Disposable income

A

income post the deduction of tax

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6
Q

GDP Equation

A

NI=NE=NO

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7
Q

Multiplier effect

A

increase in injections leads to a greater than proportional increase in AD

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8
Q

multiplier equation

A

Change in Real GDP //// Initial injections

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9
Q

Multiplier ratio

A

1// (1-MPC)

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10
Q

MPC

A

Marginal perpencity to consumer is the % of income which is spent rather than what is saved

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11
Q

Accelerator

A

the change in GDP (or NI) leading to greater investment

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12
Q

Do benefits count as government spending

A

benifits dont count as spending as the government isn’t buying anything

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13
Q

Balance of Payments

A
  • current account
  • Capital and financial account
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14
Q

Components of the current account

A
  • trade in services
  • Trade in goods
  • current transfers
  • investment income
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15
Q

4 Macroeconomic objectives

A

2% inflation (+- 1%)
steady growth
full employment
trade equilibrium

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16
Q

what is the balance of payments

A

record of all payments in and out of one country

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17
Q

investment income

A

money flowing into an economy from oversees investors investing in the UK economy

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18
Q

current transfers

A

remittances and money for nothing.

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19
Q

Why does the UK want an equal current account

A

so the capital and financial account then doesn’t have to be excessively positive to lead to a equal balance of payments

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20
Q

6 factors affecting the current account

A
  • exchange rate
  • relative inflation
  • costs of commodities
  • quality
  • income
  • protectionism
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21
Q

SPICy acroynym

A

Stronger
Pound
Imports
Cheaper

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22
Q

Mortgage

A

borrowing for a house

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23
Q

interest rate

A

cost of borrowing and the reward for saving

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24
Q

changes in the bank rate affecting the balance of payments

A

AD= C + I + G + (x-m)

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25
Q

impact of lower confidence

A

higher savings

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26
Q

dot.com bubble

A

over confidence in tech firms led to over investment and when may of these firms seemed unviable many firms withdrew and this spooked market led to low confidence and hence low investment

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27
Q

Animal spirits

A

The Kensian view that firms and economic agents act as one entity and follow what others are doing

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28
Q

Positive wealth effect

A

increase in wealth makes consumers feel more confident increasing AD through increasing consumption and investment.

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29
Q

What is the largest source of wealth in the US and the UK

A

Houses however US house owenership is higher than in the UK

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30
Q

Differences in wealth effect

A

In cities and in lots of European countries a high wealth effect from an increase in house prices is felt less than in the us as there is in the UK lower house ownership will mean that a negative wealth effect leads to a cancelling out of the wealth effect

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31
Q

Savings ratio

A

percentage of income saved

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32
Q

savings ration EQ

A

SR= saved/ disposable income

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33
Q

Income vs wealth

A

Income- the flow of money a person or economy receives each year

wealth- the sum of all of the assets in an economy

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34
Q

What are factor incomes

A

the income households earn from loaning factors of productions to firms

35
Q

Real GDP

A

A state of measuring the output of a county

36
Q

GDP Equation

A

National income = national output = national expenditure

NI = GDP= AD

37
Q

AS definition

A

total goods produced in the economy

38
Q

Short Run

A

A period where one factor of production is fixed

39
Q

SRAS

A

As in the short run where all factors of production is fixed and supply varies with demand and price

40
Q

Why does the SRAS slope upwards

A

if firms want to increase output in the short run they have to pay higher wages as they want to hire more workers. This increases firms cost and hence they increase prices

41
Q

Why does price increase when output increases

A

Costs of production increase (extra pay for workers working overtime) leading to an increases in the price level

42
Q

Does profit change with movement in the AS curve

A

profit doesn’t change with movements in the AS curve

43
Q

What does a Kenyan LRAS look like

A

its an SRAS curve meeting an LRAS curve.

Awknolege the increasing challenge to access the factors of production

as resources become competitive market prices

44
Q

Sick Back Flip acronym

A

3 features of the Kenyan LRAS

Spare Capacity
Bottleneck
Full Employment

45
Q

Maximum potential output

A

LRAS curve

46
Q

What does a neoclassical LRAS look like

A

Believes economics always at full employment in the long rum

This is because the economy has time to operate at full employment

47
Q

How does overtime lead to SRAS

A

as the factors of production are fixed to increase labour firms must pay above the usual cost of Labour in the form of overtime to increase production

48
Q

Which graph shows a shift in cost

A

SRAS

49
Q

Which curve is used to show the impact of quantity produced and productity

A

LRAS

50
Q

Impact od a change in price of Oil

A

Left shift in SRAS

51
Q

Impact of commons price changes

A

SRAS left

52
Q

What happened when diamonds were found in Sierra lean

A

increase in the factors of productio n

LRAS shifts right

53
Q

Impact of more investment on LRAS

A

Increased in investment

increased in productivity

shift right in LRAS

54
Q

What is the unit on the real national output line

A

Y

55
Q

Impact of decrease in incomes

A

shutdown of manufacturing

lower incomes

lower consumption

x multiplier

firms lowering saving

less investment

government gets less tax

as moves inwards

56
Q

How does exports and imports create demand for pounds

A

imports (sells pounds)

exports- buy pounds to purchase product

57
Q

Sources of currency supply

A

tourists abroad

imports

58
Q

Currency demand

A

Domestic tourism

exports

59
Q

What is an increase and decrease in the price of a currency called

A

appreciation
depreciation

60
Q

When the UK was concerted for imports of swine flu there was lower imports pigs

A

ER appriciated as less currency was being sold

61
Q

If the UK regulates exports what is the impact on the ER

A

the ER will depreciate

62
Q

Speculation

A

When investors predict changes to a currencies exchange rate to make profit

63
Q

Impact of speculation

A

speculation of a further appreciation causes a present appreciation noe

64
Q

SPICED acroynum

A

Stronger
Pound
Imports
Cheaper
Exports
Dearer

65
Q

Which graphs is to show the impact of exchange rate

A

SRAS
Changes dont last long

66
Q

Impact on appretion on AD

A

Stronger pound makes imports cheaper

Demand for exports is higher

balance of trade becomes more negative

Ad shifts to the right

66
Q

Oil prices, impact on graph

A

Oil is a commodity

increase in cost of production

cost push inflation

supply moves left

Inflation

67
Q

What was the dot com bubble

A

when investors, through heard behaviour, over invested in digital products.

This led to a crash in the price of technology prices

68
Q

What is VAT

A

% tax on goods and services

69
Q

George Soros

A

The guy who manipulated the pound and made billions of pounds

70
Q

Exchange rate

A

the price of one currency in terms of another.

71
Q

Axis on exchange rate diagram

A

price of pounds
Quantity

72
Q

factors that affect supply of currency

A
  1. tourism abroad
  2. imports
73
Q

How is the Labour Market different to the goods market

A

goods are demanded by households and supplied by firms

because labour is a factor of production (All factors of production are supplied by households to firms) households lend these to firms in return for factor incomes

74
Q

What is excess supply in the labour makret

A

unemployment

75
Q

8 factors changing demand for labour

A

Derived Demand
Productivity
Capital costs
migration
benefits
income tax
education

76
Q

Definition of derived demand

A

Demand for a factor of production that occurs as a consequence of demand of another good or service

77
Q

impact of productivity in a labour diagram

A

increase inproducitivity decreases the opportunity cost of productivity more product which may lead to the firm increasing the demand

they may not do this because an increase in productivity may encourage more market entrance

78
Q

Capital costs defined

A

Capital and labour are substitutes

a person operating a checkout or a self checkout

79
Q

Impact of migration on labour supply

A

if migrants leave the economy the supply of labour decreases

80
Q

Debate in the income tac rate

A

if apple have to earn a set amount

lower tax

work fewer hours

decrease in labour supply

orrr

lower tax

work more to earn more money

increase in labour supply

81
Q

Non percutinary benefits

A

non money benefits of a job

82
Q

Examples of non percutinary benefits

A
  • company car
  • paid holiday
  • job satisfaction
83
Q

Non percutinary benefits example Jobs

A

Bin man or Low pay admin.

  • subjective

Macro Economics (15 decks)

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