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Economics > Macroeconomics > Flashcards

Macroeconomics Flashcards

1
Q

GDP

A

the total market value of all final goods and services produced in an economy in a given period of time (produced within borders)

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2
Q

National Income Accounting

A

measurement of the economy’s income or value of output

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3
Q

Nominal GDP

A

refers to the value of goods and services in terms of prices at the time of measurement

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4
Q

Real GDP

A

refers to a measure of value that accounts for price changes over time (ie adjusted for inflation)

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5
Q

GDP per capita

A

refers to the total GDP of a country divided by its population to account for population growth or difference between countries

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6
Q

Purchasing Power Parity

A

special exchange rates between currencies to equate the buying power of each currency

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7
Q

GNI

A

total income received by residents (regardless of location of factors), equal to GDP plus or minus foreign income (add money earnt abroad, subtract money earnt onshore that is received offshore)

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8
Q

Business cycle

A

fluctuations in the growth of real output/GDP, consisting of alternating periods of expansion and contraction

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9
Q

Expansion

A

positive growth in real GDP (upwards-sloping portion); resource employment and inflation increases

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10
Q

Peak

A

represents the maximum real GDP, the end of a period of expansion; low unemployment and high inflation

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11
Q

Contraction

A

negative growth in real GDP (downwards-sloping portion); resource employment decreases and inflation slows, if lasts over 6 months classified as a recession

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12
Q

Trough

A

represents the minimum real GDP, the end of a period of contraction; high unemployment

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13
Q

Value of output unconsidered in GDP

A
  • Non-market transactions (if clean house yourself, grow own food)
  • Informal transactions (ie pay in cash and do not declare)
  • Parallel market transactions
  • Depreciation (if replaces past thing, ie house burnt then rebuilt counts as if added value)
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14
Q

Aspects of wellbeing GDP does not consider

A
  • Composition of output (eg spent on healthcare, education, food instead of nuclear weapons)
  • Distribution of income (inequality unconsidered)
  • Quality improvements (better quality computer over time for same price)
  • Negative externalities unconsidered (eg environmental damage)
  • Depletion of natural resources
  • Leisure (less work lower GDP yet increased wellbeing)
  • Health significant factor despite healthcare (eg even if good healthcare poor diet affects well-being)
  • Quality of life factors (conflict, freedom, traffic, etc)
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15
Q

OECD Better Life Index

A

Measures key aspects of individuals’ lives, ie housing, environment, social network, work-life balance, personal security, education, health, democratic processes

  • Doesn’t rank the 11 indicators so making comparisons can be difficult
  • Only a small number of countries
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16
Q

Happiness Index

A

surveys that require participants to rank their level of happiness based on an assortment of quality of life factors
- Index changes over time to reflect changing importance but this makes comparisons over time less valid

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17
Q

Happy Planet Index

A

Measure of sustainable wellbeing, ranking countries by how efficiency they deliver long, happy lives, using our limited environmental resources

  • Ignores some key factors e.g. Human rights violations
  • Australia regularly ranks highly in quality of life measures BUT ranks 105 on Happy Planet Index
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18
Q

Human Development Index

A

measure of a country’s average achievements in three basic aspects: health, knowledge and standard of living
- Wide divergence within countries, and reflects long-term changes like life expectancy. Higher national wealth does not indicate higher welfare etc

19
Q

Aggregate demand

A

the total quantity of aggregate output, or real GDP, that all buyers in an economy want to buy at different possible prices, ceteris paribus
AD=C+I+G+(X-M)

20
Q

Aggregate demand curve

A

shows the inverse relationship between the aggregate output buyers want to buy, or real GDP demanded, and the economy’s price level, ceteris paribus

21
Q

Changes in consumer spending

A
  • Changes in consumer confidence
  • Changes in interest rates
  • Changes in wealth
  • Changes in income taxes
  • Changes in the level of household indebtedness
  • Expectations of future price levels
22
Q

Changes in investment spending

A
  • Changes in business confidence (measure of degree of optimism among firms about future performance)
  • Changes in interest rates
  • Changes in technology
  • Changes in business taxes
  • Level of corporate indebtedness (degree to which corporations have debts)
  • Legal/institutional changes
23
Q

Changes in government spending

A
  • Changes in political priorities

- Changes in economic priorities: deliberate efforts to influence aggregate demand

24
Q

Changes in net export spending

A
  • Changes in national income abroad
  • Changes in exchange rates
  • Changes in trade priorities, or level of trade protection
25
Q

Aggregate supply

A

the total quantity of goods and services produced in an economy over a particular time period at different price levels

26
Q

short-run aggregate supply curve

A

shows the relationship between the price level and quantity of real output produced by firms when resource prices (especially wages) do not change

27
Q

Reasons wages are rigid

A
  • Labour contracts fixed wage rates for certain periods of time (eg 1-3 years)
  • Minimum wage legislations fix the lowest legally permissible wage
  • Workers and labour unions resist wage cuts
  • Wage cuts have negative effects on work morale
28
Q

Factors causing shifts in SRAS

A
  • Changes in wages
  • Changes in non-labour resource prices
  • Changes in indirect taxes
  • Changes in subsidies offered to businesses
  • Supply shocks
29
Q

short-run equilibrium

A

the point of intersection of the AD and SRAS curves, determining the price level, level of real GDP and level of employment

30
Q

long-run aggregate supply curve

A

shows the relationship between the price level and quantity of real output produced by firms when resource prices change

31
Q

Deflationary (recessionary) gap

A

equilibrium real GDP lies to the right of potential GDP; unemployment is above the natural rate; economy is likely to be in recession; not enough demand so less labour is needed

32
Q

Inflationary gap

A

equilibrium real GDP lies to the left of potential GDP; unemployment is below the natural rate; economy is likely to be experiencing inflation; too much demand so more labour is needed

33
Q

full employment level of real GDP

A

equilibrium real GDP is equal to potential GDP, natural rate of unemployment

34
Q

Factors causing shifts in long-run supply curve

A
  • More resources (increased quantity)
  • Improved quality of resources (more educated workforce)
  • More efficient use of resources (technology/innovation; legal/institutional change to promote efficiency)
  • Improved natural rate of unemployment (jobs better matched; gives more and better quality resources)
35
Q

Inflation

A

a sustained increase in the general level of prices in an economy over a period of time

36
Q

CPI

A

a measure of the cost of living for the typical household, comparing the value of a basket of goods and services in one year to the value of the same basket in a base year

37
Q

Deflation

A

a sustained decrease (decline) in the general price level (increase in purchasing power)

38
Q

Disinflation

A

a deceleration or reduction in the rate of inflation (price level is increase at a slowing rate)

39
Q

Issues with CPI

A
  • Averages: not representative of all people/groups/incomes/regions/cultures
  • Changes in the basket: price change (consumption pattern changes due to substitution if prices change), sales (if often bought on sale, cheaper than price listed), new products (no longer comparable; time lag)
  • Other: international (different baskets across different areas), quality (computer quality improved for same price, therefore lower cost of living not accounted for), comparability over time (updating basket)
40
Q

Demand-pull inflation

A

increased total aggregate demand

41
Q

Cost-push inflation

A

short-run aggregate supply curve decreases due to increased costs of production

42
Q

Costs of inflation

A
  • Redistribution effects
    o Benefits: borrowers, payers of fixed incomes/incomes rising slower than inflation
    o Harms: fixed incomes/incomes rising slower than inflation, cash holders, savers, lenders
  • Uncertainty
  • Lowered incentive to save
  • Decreased aggregate demand from above reduces economic growth
  • Reduced international competitiveness
  • Inefficient resource allocation: signals/incentives distorted (price increase not uniform across products)
  • Social/personal costs unequally distributed (pensioners, unemployed)
43
Q

Hyperinflation

A

increase in price levels of more than 50% per month

44
Q

Costs of deflation

A
  • Redistribution effects: opposite to inflation; benefit savers/those on fixed incomes and harm borrowers
  • Increase in the value of debt
  • Rise of bankruptcies and financial crisis
  • Uncertainty
  • Deferred consumption (postpone spending, lower AD, unemployment increases, intensifying deflation)
  • Inefficient resource allocation: signals/incentives distorted (price decrease not uniform across products)
  • Policy ineffectiveness: difficult for governments to manage

Economics (3 decks)

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