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Macro Economics - Year 1 🪀 > Macroeconomic Objectives And Policies > Flashcards

Macroeconomic Objectives And Policies Flashcards

1
Q

4 macro economic objectives (4)

A

Strong economic growth
Low inflation - 2%
Equilibrium of BoP
Reduced unemployment - 3%

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2
Q

What is full employment (2)

A

Everybody of working age who wants to work can
97%

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3
Q

Labour creates what demand

A

Derived
Wages = increased demand for g/s

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4
Q

Supply side causes of unemployment (8+) THINK

A

Real wage above equilibrium - firms lay of workers
Seasonal - ski instructors
Technology - machines replace workers
Occupational immobility - lack of skills
Frictional - worker leaves one and is looking
Structural - whole industry closes - 1980s coal mines in UK
Regional - region deeply affected - wales had coal mines
Geographical immobility - work tied to specific area = family ties

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5
Q

Definition of inflation

A

Sustained and general price level increase of goods and services in an economy

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6
Q

Causes of inflation (2)

A

Demand pull
Cost push

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7
Q

Causes of demand pull

A

Any increase components of AD

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8
Q

Causes of cost push

A

Supply side

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9
Q

Impact of inflation (5)

A

Increase unemployment
Shoe leather
Menu
Psychological + political
Hyperinflation

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10
Q

Ways to measure inflation (2)

A

CPI
RPI - includes mortgage payments = higher always

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11
Q

What is the balance of payments

A

Record of financial transactions between consumers, firms and government from one country to another

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12
Q

Sections of current account (4)

A

Trade in goods - visible
Trade in services - invisible = insurance
Primary income
Secondary income

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13
Q

What’s primary income

A

Flows of money in/out of country = investment

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14
Q

What’s secondary income (3)

A

Movement of memory between countries
Not paying G/S or I
Payments to family abroad

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15
Q

Fact about uk deficit

A

The uk has been in a deficit since 1980s + prior

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16
Q

Consequence of deficit (3)

A

Increased unemployment
Domestic demand is reduced
Reduced economic growth

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17
Q

Causes for deficit (2+)

A

SPICED = strong pound = cheaper imports
Economic growth = increased income = increased demand

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18
Q

How to reduce deficit (2+)

A

Devaluation: Exchange rate through pegged sytem
Currency falls = WPIDEC
Deflation! Reduced price = domestic price cheap

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19
Q

Fiscal policy involves (2)

A

Tax or government spending
Shifts AD

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20
Q

Positives of fiscal policy example (4)

A

Reduce VAT = increase Y
AD rises
Firms want to profit extra business = employ = EG = +K effect
2 objectives achieved = employment and EG

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21
Q

Negatives of fiscal policy (3+)

A

AD rising = inflation = recession
Price increase and demand reduces
Firms reduce costs = unemployment

22
Q

Conclusion of fiscal policy (2)

A

Reduces chance of recession = kickstarts economy
Stimulates economy quick and easy

23
Q

Monetary policy what it involves (3)

A

IR - long term
Money supply
Exchange rates

24
Q

What does supply side policy involve (2)

A

Influences AS
E.G - Subsidies

25
Q

What does supply side policy do + example

A

Encourage competition through privatisation and deregulation

26
Q

What is privatisation (2)

A

Gov owned businesses sold to private sector
Firms who move have to be efficient to compete

27
Q

Example of privatisation (2(

A

Post office 2022
BT + communications industry

28
Q

Another important example of Suplly side - employment (2)

A

Reduce employment benefits = incentive to return to work force
Current CAP = 26000

29
Q

Why SS good (3)

A

Fewer conflicts
Reduces cost push inflation = efficient
Long term solution

30
Q

Why SS bad

A

Unpopular = welfare benefits

31
Q

Definition of exchange rate

A

Price of currency in terms of another country

32
Q

Main trading partners of uk (4)

A

Japan
USA
China
Europe

33
Q

What fixed exchange rate (2)

A

Gov or central bank set it
China has there’s pegged to USA

34
Q

What’s free exchange rate (2)

A

Moves with changing S/D for currency
Mexico, Australia, UK

35
Q

Why is a weak pound good - WPIDEC (4+)

A

Exports cheaper
Domestic goods increase competitiveness
BOP deficit reduces = EG = employment
Increased tourism = uk is service based economy = kings coronation

36
Q

Why is weak pound bad - WPIDEC (3)

A

Demand pull inflation
Cost push = uk is import nation
Overheat = recession = neg output gap

37
Q

How does gov intervene indirectly to change pound (3)

A

Increase IR = strong pound = speculators invest in uk banks

38
Q

Why does a import nation (UK) want WPIDEC (3+) + bad

A

Reduced AD for expensive imports
Increase demand for domestic goods = increase output = exports increase and EG
However… if inelastic = cost push inflation

39
Q

What Big Mac index (2)

A

Measures internal AD
Big Mac exists worldwide in standard size so easily compare prices

40
Q

Using GDP to measure ER problem (3)

A

ER more volatile day to day - not acc rep
Overestimate cost of living in poorer countries
ER more relevant to traded goods

41
Q

What is PPP (2)

A

Purchasing power parity
Basket of goods

42
Q

Reason for fluctuating ER (2)

A

Reduced IR
Other countries ER fluctuating

43
Q

What contractionary policy - fiscal (2+)

A

Reduce GS = reduce employment = reduce income = reduced AD
Increase tax = reduce Y = reduced AD

44
Q

What contractionary policy monetary

A

Increase IR = encourage saving

45
Q

When is a contractionary policy used

A

When the economy is overheating
Tightening

46
Q

Expansionary policy - fiscal (2)

A

Increase GS on public goods/services
Reduce tax

47
Q

Expansionary policy - monetary (3)

A

Reduce IR = encourage borrowing = increased AD

48
Q

What is quantative easing - type

A

Expansionary monetary policy

49
Q

What is quantitative easing (3+)

A

Gov sells bonds
In return: receive interest each year + get money back at end of bonds life
Gov puts money into BoE = commercial banks = loans = increased AD

50
Q

Example of quantitative easing (3)

A

Introduced in 2008 to kickstart economy
Financial crisis = low investment and interest rates = 0.1 to 0.001% = historic low
Gov pumped £895bn = 3 attempts = first was 75bn

51
Q

Why no inflation 2008 - QE (2)

A

Already in period of deflation
Digital transaction so no physical money = can’t be spent just in balance sheet

52
Q

Why financial crisis in 2008 (2)

A

American banks lent money to people who couldn’t pay loans back = short term profit
Large scale unemployment

Macro Economics - Year 1 🪀 (9 decks)

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