macroeconomics Flashcards
what are the 4 economic indicators?
- high economic growth
- low unemployment
- low inflation
- positive balance of payments
high economic growth?
- an increase in the availability of G+S produced in an economy at a given period of time
- measured by GDP (gross domestic product)
- it’s important because:
↳ firms make more profit
↳ consumers have more choice
↳ corporate tax (a tax on company profits) revenue rises for gov
low unemployment?
- the amount of people of working age who are willing, able and actively seeking work - but not yet employed → (close to full employment)
- measured by:
↳ claimant count → amount of ppl claiming JSA (job seekers allowance)
↳ labour free survey → survey for unemployment - it’s important because:
↳ receiving higher incomes
↳ gov would pay less welfare benefits
↳ more workers can lead to higher profits (more productivity)
low inflation?
- a rise in the general price level in an economy at a given time period
- objective = low + stable rate of 2%
- measured by CPI (consumer price index)
- it’s important because:
↳ cheaper for consumers –> they’re encouraged to buy more
↳ if G+S = too expensive in UK, exports may fall (deficit)
↳ firms may suffer due to lower demand (if prices rise too much)
positive balance of payments
- an accounting record of exports + imports w 1 country & the rest of the world
- it consists of 3 parts: the current, financial and capital accounts
- measured from trade deficit / surplus
- it’s important because:
↳ exports increase revenue for the economy
↳ more exports = higher demand for workers (full employment?)
↳ higher exports can encourage econ growth
list the possible conflicts between the objectives
- low inflation w high economic growth
- low unemployment w low inflation
- low unemployment w positive balance of payments
- high economic growth w sustainability of the environment
low inflation w high econ growth?
- high econ growth = more demand for labour
↳ this enables workers to have a higher disposable income (income after tax) - with higher income, the more encouraged they will be to spend more → causing consumption to rise, and in turn firms will increase prices this would increase inflation → [hence the conflict]
low unemployment w low inflation?
- there would be more worker with disposable income (income after tax)
- with higher income, the more encouraged they will be to spend more → causing consumption to rise, and in turn firms will increase prices → this would increase inflation → [hence the conflict]
low unemployment w positive balance of paymments
- lower unemployment = more disposable income → more inclined to import from abroad → imports > exports = negative balance of payments // trade deficit
- lower unemployment = higher inflation → can decrease international competitiveness in UK (meaning less exports) = exports < imports = negative balance of payments // trade deficit
high economic growth w sustainability of the environment?
- higher econ growth - more production of goods / possible services → can create pollution + congestion → harmful towards the environment
what is the circular flow of income?
a way of representing the flow of money (including injections + withdrawals) between the 2 main groups in society: producers (firms) & consumers (households)
income = output = expenditure
what are injections?
money / income entering the circular flow of income (to households + firms)
examples of injections?
- government spending
- if the gov decide to build a new school –> more jobs would be available –> households will receive income (form of injection)
- exports
- more exports = more revenue for UK firms ( = injection)
- foreign investment
- more jobs –> more income for households ( = injection)
what are withdrawals?
money leaving the circular flow of income (from households + firms)
examples of withdrawals?
- taxes
- money that gov takes from household income ( = withdrawal) –> {like income tax // corporate tax}
- imports
- money taken from UK firms & sent abroad to other firms ( = withdrawal)
- savings
- money saved aside which isn’t spent in firms / households ( = withdrawal –> as money is not being used)
what are the impacts of injections?
- exports:
- lower unemployment
- higher / more positive balance of payments
- higher producer revenue
- government spending:
- lower unemployment
- higher inflation
what is affected by withdrawals
tax, savings and imports
how is tax impacted by withdrawals?
- tax = income tax // corporate tax (tax of a firm’s profit)
- more tax = more voluntary unemployment (as they would receive little)
- {lower inflation} more tax = lower disposable income –> low inflation –> lowered prices (to encourage household spending)
- higher gov revenue –> can use these funds to invest in better infrastructure
how are savings impacted by withdrawals?
- more savings = less consumption –> can decrease inflation (lower prices to encourage spending)
- more savings = more unemployment –> reduces consumption –> firms higher less workers
- more savings = less growth / production –> consumption falls –> firms produce less
how are imports impacted by withdrawals?
- imports = purchasing goods + services (mostly from abroad)
- more imports = less domestic growth (reduces growth in UK as we’re not buying from there)
- more imports = more unemployment
- less demand for G+S = less produced = less workers needed
- more imports = less inflations
- less spent in UK –> low inflation
what is aggregate demand?
the total demand for G+S produced within the economy over a period of time
what makes up AD?
AD = C + I + G + (X-M)
- (C) consumption
- the spending of households of G+S in an economy @ a given time period
- (I) investment
- the spending on capital goods (machinery) in an economy @ a given time period
- (G) government spending
- the spending by the public sector on G+S on stuff like education // health care
- (X) exports
- when G+S in 1 country = shipped to another for future sale / trade (aka - an injection in the circular flow of income)
- (M) imports
- G+S brought from another country (aka - a withdrawal in the circular flow of income)
how would AD look on a graph and how would it shift?
- downwards sloping –> ‘ \ ‘
- increase in factors of AD causes it to shift to the right (and vice versa for when the factors decrease – imports being the opposite to this rule)
what is aggregate supply?
the total amount of G+S produced in an economy @ a given time period
what are the types of AS?
short-run aggregate supply (SRAS) and long-run aggregate supple (LRAS)
SRAS?
- impacted by changes in cost of production, like:
- corporate tax (tax on profits)
- wages
- cost of raw materials
- rent / mortgage
- energy bills
shifting SRAS on diagrams?
- increase in cost of production = less production –> hence, it shifts to the left
- decrease in cost of production = more production –> rightwards shift
LRAS?
- determined by all factors of production like:
- size of workforce
- size of capital stock
- quality of education
- labour productivity
shifting LRAS on a diagram?
- quantity / quality of FOP increases = rightwards shift
- quantity / quality of FOP decreases = leftwards shift
