Macroeconomics Flashcards

1
Q

where will the economy always be at in the long run

A

the economy will always be at full unemployment

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2
Q

what indicators in macroeconomics tell us how the economy is doing

A

growth -> indicator of income and living standards in economy

unemployment -> keep it low

inflation -> rate of growth of prices in an economy

trade -> looking at the value of imports of goods and services compared to the value of exports of goods and services

distribution of income -> how incomes are distributed across households in an economy

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3
Q

what are the different macroeconomic objectives

A

growth to be strong, sustained and sustainable -> growth is measure of living standards so want that to be high and sustained over time

low unemployment, full employment

low and stable inflation rate 2% (+-1%)

balanced trade in and out of country (trade deficit, trade surplus)

fair distribution of income -> idea of fair changes of whoever is in charge

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4
Q

Why did the UK use heavy expansionary fiscal policy during covid?

A

massive increases in government spending -> huge increase in healthcare spending on NHS + furlough scheme paying wages of employed and self-employed despite no production of goods and services taking place

massive tax cuts -> VAT cut for industries that were hit hardest e.g. leisure, hospitality, tourism from 20% to 5%

these industries were exempt from paying business rates -> tax on the value of physical property

why?

To increase aggregate demand -> bring economy out of recession + close the negative output gap and propel the economy towards recovery

increase inflation to avoid deflation with increased AD

increased AD to keep unemployment low

consequences:

demand pull inflation

massive budget deficit

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5
Q

aid and globalisation havent really been tested yet so make heavy revision on that

A
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6
Q

do this video when rest of notes are made and understood

A

https://www.youtube.com/watch?v=ZlJ8TfmzgL4&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=3&ab_channel=EconplusDal

https://www.youtube.com/watch?v=kJAJiFEmzLg&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=4&ab_channel=EconplusDal

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7
Q

what is the circular flow of income and draw it illustrating the different parts

A

a useful way of modelling the economy

model - https://www.youtube.com/watch?v=2BINy9AzHhQ&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=5&ab_channel=EconplusDal

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8
Q

what is the equation for calculating an index number

A

an index always has a base year of 100

Index number = (raw number / base year raw number) x 100

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9
Q

What is GDP and what does it measure

A

GDP -> the value of all goods and services produced in an economy annually

-measures growth
-measures living standards as it measures income

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10
Q

What is the problems with using GDP as a measure of economic growth

A

Double counting -> when the value of output in the primary sector is included again when the primary commodity is manufactured again into something in the secondary sector -> inflates the final figure

informal activity isn’t accounted for e.g. black market, illegal activity (businesses that aren’t registered), DIY work etc.

errors given the vast data collection

negative externalities of production aren’t included -> e.g. cost of air pollution, resource degradation, loss of biodiversity

Income inequality -> nothing in GDP mentions the distribution of income

the output produced -> e.g. if majority was capital it wouldn’t benefit consumers much + only benefits firms -> takes a long time for it to benefit consumers

other quality of life aspects GDP takes into account that would benefit living standards -> level of healthcare, education in society etc.

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11
Q

What is GDP per capita and what does it measure, give the equation to calculate it

A

GDP per capita gives us an average measure of individual incomes in an economy

calculated by GDP / Population

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12
Q

what are the issues of GDP per capita

A

remittances (when a worker leaves a country to work abroad and earn higher income, with that income being sent back to their home country)-> GDP per capita doesn’t take into account any factor income made abroad e.g. domestic business working abroad -> even though that income is clearly raising living standards

influence of FDI -> foreign business comes and produces in a home country -> will increase their GDP figure -> however a lot of the income generated will be sent back to their own home country and wont stay within the domestic economy

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13
Q

what is GNI and what is it used for, what is the equation to calculate it

A

GNI is used to find the total income generated by a countries factors of production regardless of where they are located

as long as the worker or firm is domestic, it will be included in GNI -> therefore FDI will not be included as is foreign

GNI = GDP + net factor income (income earned by domestic workers/firms - income earned by foreign workers/firms who operate at home)

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14
Q

what does green GDP account for that other measures don’t, how is it calculated

A

accounts for the environmental costs of production -> which can massively effect living standards

Green GDP = GDP - Environmental costs

takes away all negative externalities from the GDP to find more accurate living standards

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15
Q

what are the problems with using green GDP

A

putting monetary value on environmental costs are quite subjective

GDP could dramatically fall -> too politically sensitive

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16
Q

Define economic growth

A

an increase in real GDP in an economy in a year caused by an increase in AD or an increase in LRAS

increased AD -> increases economic growth

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17
Q

what is the equation to calculate AD

A

AD = C + I + G + (X - M)

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18
Q

draw the diagram for the economic/business cycle and show the 4 phases of the cycle

A

Diagram -https://www.youtube.com/watch?v=CBvM3YqsJYs&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=9

show a positive and negative output gap aswell

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19
Q

define recession

A

two successive quarters of negative economic growth

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20
Q

define a boom in an economy

A

Growth faster than trend rate -> high profits + low unemployment + high consumer and producer business confidence + high demand imports + rising tax revenues

however this boom also causes inflation

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21
Q

define a recession/trough

A

Declining AD -> high unemployment -> sharp fall in consumer/producer confidence and investment -> destocking and discounting of goods by firms + lower inflation + low demand for imports

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22
Q

define a recovery

A

rising consumer confidence -> higher house prices -> rising business confidence -> higher investment -> increase in construction

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23
Q

what are the benefits of economic growth

A

higher disposable income

higher employment

higher profits of firms

fiscal dividends for gov (increase in tax revenues)

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24
Q

what are the costs of economic growth

A

inflation

income inequality e.g. one sector dominates the economy, poor quality jobs, lack of welfare state

environmental costs -> producing goods from it -> e.g. deforestation, palm oil production -> cause negative externalities in production -> welfare loss

current account deficit -> incomes rise -> household incomes rise -> increase in imports spending -> widens the current account deficit

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25
evaluation points for economic growth
Sustainable growth inclusive growth balanced growth role for private sector/ gov
26
define unemployment
consists of those of working age who are willing and able to work, actively seeking work but who do not have a job
27
what is the labour force survey, and give the equation to work out the unemployment rate
a method of measuring unemployment in an economy a survey that works out: -the number of employed people -number of unemployed people -number of economically inactive people Unemployment rate = Unemployment / Economically active labour (employed + unemployed) x 100
28
what is the claimant count
a measure of the total number of people who are claiming unemployment benefits
29
what are the issues with the claimant count
very difficult to compare between countries not everyone will claim not everyone can claim could be subject to fraud
30
what are evaluations you can make to unemployment measures (labour force survey, claimant count)
sampling errors -> very tiny sample of people may not reflect the entire domestic economy cost hidden unemployed -> discouraged workers that tried many times to get a job but then gave up and dropped out labour force -> not counted as unemployed inactive groups -> carers, early retired, people who are reliant on their spouses income ->workers with high productive potential for the economy -> wont be counted as they aren't willing to work under employed -> part time work is considered fully employed, workers on 0 hour contracts -> wrong to be recorded this way
31
what is cyclical unemployment
when there is a lower AD in economy there is less need for firms to employ labour -> labour is derived from the demand of goods and services -> if growth is low, there will not be much demand for labour leads to an increase in unemployment show a diagram demonstrating this
32
what is structural unemployment
the immobility of labour: occupational immobility of labour -> person doesn't have the skills necessary to enter a new industry geographical immobility -> workers are not willing to move due to e.g. family ties
33
what is frictional unemployment
occurs when workers are between jobs -> left a job and are looking for another
34
what is seasonal unemployment
workers that have worth depending on the season e.g. summertime for the tourism industry
35
what is casual unemployment
workers that have contracts that end at random times might be casually unemployed until they get a new contract
36
what is real wage unemployment
where wages are fixed above the equilibrium in the labour market -> causing an excess supply of labour
37
what is inflation
the persistent increase of prices in an economy in a year
38
how do we carry out a consumer price index (CPI)
Family expenditure handed out to households -> to write down every fortnight the goods and services they buy, the prices they pay, the quantity, where they are buying them from and the % of income that is being spent on them A consumer basket is then formed of the most popular goods/services which represents what the average family is buying over the fortnightly period with the average prices of them attached prices of the goods/services are weighted based on the % of income (0-1) weighted prices are then added to give total weighted price of the basket index of them is created which is updated yearly
39
what is demand-pull inflation, draw a diagram demonstrating it
shift of AD to right due to increase in demand, may be caused by: decreased interest rates decreased income tax increased consumer/business confidence increased government spending weak exchange rate diagram -https://www.youtube.com/watch?v=q8LwZkid740&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=14
40
what is cost-push inflation, draw a diagram representing it
increased cost of production for firms -> decreased supply as a result caused by: increased price of raw materials increased wages increase business taxes e.g. VAT increased price of imported raw materials due to a weaker exchange rate
41
what are the costs of high inflation
lower purchasing power -> consumers can buy less with the same amount of money erosion of savings -> increased costs for things make people go through their savings faster lower export competitiveness -> if inflation is higher in one country than the others then that country becomes less internationally competitive -> reducing demand for exports -> reducing revenue from exports wage spirals -> increased price of things -> people ask for higher wages -> higher wages are given and increases costs of production for firms so pass on costs as higher prices -> increasing inflation -> workers ask for higher wages again etc. fiscal drag -> inflation is rising + workers are receiving higher income -> only in line with inflation therefore the workers are not better off -> however may get dragged into a higher tax band and make themselves worse off -> if tax bands rise with inflation however it isn't a concern
42
define cyclical unemployment and show it on a diagram
when there is a deficiency in demand in the economy for goods and services (perhaps due to a recession so people have less income to spend) -> less demand for firms to hire labour therefore less demand for labour
43
what are the two types of immobility of labour and describe them
occupational immobility of labour -> when workers dont have the skills to enter a specific market geographical immobility of labour -> when workers are unable to move for work due to e.g. family ties
44
frictional unemployment
occurs when workers are in between jobs therefore are searching for a new job and are unemployed for the time being may be e.g. seasonal
45
what are the benefits of low and stable inflation
workers with higher wages
46
benefits of low and stable inflation
workers with higher wages consumption is natural -> consumers buy goods and services when they need too (not anticipating anything) firms encouraged to increase output -> firms can raise their prices and earn more revenue -> make more output + sell more at a higher price -> earn more can keep unemployment low in a recession -> (we know in a recession its normal for firms to sack workers as revenues are falling and is a good way to keep revenues under control and their profit margin at a decent level) ->
47
give eval points of inflation
the rate of inflation the cause of the inflation the duration of the inflation how stable the inflation is
48
deflation
the persistent fall of prices in an economy in a year
49
what is demand-side deflation and what does it come with
bad deflation bad because -> if AD shifts left and a recession is caused in the economy -> recessions don't just go away -> they last for a while -> the deflation could last at the same time -> even though there are policies to increase AD and get the economy out of recession, they take time to work -> deflation could be long term as a result and could become anticipated occurs when ad shifts to the left draw diagram for it https://www.youtube.com/watch?v=PX9XdZGsFXs&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=16 comes with lower economic growth deflation can be long term and anticipated (an assumption but likely)
50
supply side deflation
good deflation occurs when SRAS shifts to the right good because -> comes with higher economic growth -> more likely to be short term and unanticipated -> as values of e.g. raw materials change a lot show on diagram https://www.youtube.com/watch?v=PX9XdZGsFXs&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=16 comes with higher economics growth this type of deflation is more likely to be short term and unanticipated
51
if deflation is anticipated it is dangerous because...
deflationary spiral -> consumers delay their spending (why buy now if in a couple of months prices will be even lower?) -> consumption is gonna fall now -> reduce AD -> lower growth and higher unemployment over time real interest rates will always be positive -> (nominal interest rate - inflation rate) -> money saved will still be gaining value even if there is a no interest rate as prices of goods are falling -> saving makes more rational sense -> AD reduces further -> more deflation -> lower growth + higher unemployment when deflation -> increases the real value of debt as when prices fall in economy -> profits for business and incomes for workers are going to be falling at the same time -> prices are falling firms will be making less revenue -> hit their profits and also -> if consumers are delaying spending -> firms are not going to be making as much profit
52
short term deflation is beneficial because
lower prices for consumers -> buy at cheaper prices -> improve their living standards -> purchasing power increases falling input prices for firms -> sell goods at a cheaper price -> increased revenue
53
what are the evaluation points for deflation
anticipated or unanticipated cause
54
what are the three different parts of the balance of payments (this is a major macroeconomic objective of government)
current account capital account financial account
55
what does the current account measure (the 4 different points)
measures trade (the value not quantity) Trade in goods Trade in services (both of them together are known as the trade balance) Income -> measures income entering and leaving the country transfers if overall figure is negative -> CA deficit if overall figure is positive -> CA surplus
56
What are the causes of a current account deficit demand side
Strong domestic growth -> people more willing to buy imports Recession overseas -> demand for exports fall -> revenue generated from it decreases Strong exchange rate -> imports will be cheaper + exports will be more expensive ->
57
What are the causes of a current account deficit Supply side
low investment low productivity high relative inflation high unit labour costs poor quality/reliability Depletion of resources
58
show a diagram about the current account deficit
https://www.youtube.com/watch?v=xLJEAdgDI5w&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=18
59
what is the exchange rate
the price of one currency, in the price of another currency https://www.youtube.com/watch?v=dc8QzXnqhxc&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=19
60
what would cause the exchange rate to appreciate, show it on a diagram
appreciated exchange rate (e.g. the pound can buy more of the dollar) https://www.youtube.com/watch?v=kAD02OZ9_Sc&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=20 Increase in relative interest rates (interest rates in the UK higher than everywhere else for example) -> incentivises foreigners to put money into UK economy as they provide great returns if traders anticipate a rise in the pound -> move their money into pounds -> let it rise in value and take it away so they can make a profit increase in FDI -> foreign firms enter the UK and set up in the UK -> they have to pay for factories in pounds + workers in pounds, machinery in pounds etc. -> exchange their money into pounds -> increases demand for the pound -> appreciation rise in incomes abroad -> foreigners might demand UK exports -> they got richer and might demand stuff produced in the UK so therefore have to buy in pounds
61
what would cause exchange rates depreciates
can buy less of another currency diagram https://www.youtube.com/watch?v=kAD02OZ9_Sc&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=20 fall in interest rates firms moving away from Britain increase in incomes domestically
62
what happens when a currency is strong. draw a diagram for it
SPICED strong pound imports cheaper exports dearer increased demand for imports increased expenditure on imports demand for exports fall revenue from exports falls https://www.youtube.com/watch?v=qwitOb7eRv4&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=21
63
what happens when a currency is weak, show a diagram
WIDEC weak pounds imports dear exports cheap imports become expensive demand for imports decrease expenditure on imports fall demand for exports increase revenue from exports increases diagram: https://www.youtube.com/watch?v=qwitOb7eRv4&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=21
64
what does the exchange rate depend on
PED for exports and imports size of the appreciation or depreciation restrictions on trade -> i.e. tariffs that increase the price of the good in other countries -> so may not export more offset by other factors
65
aggregate demand
the total demand for a countries goods and services at a given price level in a given time period
66
aggregate demand
https://www.youtube.com/watch?v=UnaQjVeTP6k&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=22
67
reasons why consumption would increase
level of real disposable income -> income tax interest rates/availability of credit -> lower interest rates incentivises consumption consumer confidence
68
reasons why saving would occur
interest rates consumer confidence range/trustworthiness of financial institutions tax incentives e.g. ISA age structure of population
69
reasons why investment would occur
interest rates -> low interest rates -> low cost of borrowing -> firms have a greater incentive to borrow money and then invest high business confidence -> expected profit to be high -> more likely to increase investment to meet the future level of demand low corporation tax -> high retained profit -> more likely to invest accelerator effect -> increase in rate of real GDP in economy -> encourages further investment
70
why is government spending done
governments will often spend to influence the level of economic activity -> influence long run and short run growth 1) current spending e.g. maintenance of public services and payment of public sector wages 2) capital spending e.g. infrastructure projects 3) welfare spending e.g. benefits and pensions 4) debt interest payments
71
factors that would shift the AD curve (focusing on net exports)
real disposable income earned abroad real disposable income earned at home strong or weak exchange rates -> spiced, widec protectionism at home and abroad relative inflation levels at home
72
draw both SR aggregate supply and LR aggregate supply
https://www.youtube.com/watch?v=BtgMwqHcRMc&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=28
73
what would shift the SRAS curve in an economy
wages raw material prices oil price business taxes import prices
74
what would shift the LRAS curve in an economy
increased labour productivity investment quality of labour -> productivity competition
75
show the negative and positive output gap diagrams
https://www.youtube.com/watch?v=SunVMj-c_ak&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=29 positive ouput gap - overuse of labour or
76
when do negative output gaps occur, draw a diagram for it
where actual output is less than potential output https://www.youtube.com/watch?v=-es6BW0ytdg&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=32
77
when do positive output gaps occur, draw a diagram for it
where actual profit is greater than potential output https://www.youtube.com/watch?v=-es6BW0ytdg&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=32
78
what are the two types of fiscal policy and what is it
changes to government spending and taxation in order to influence AD Expansionary fiscal policy Contractionary fiscal policy
79
expansionary fiscal policy outcomes
Boost growth -> if growth is sluggish or economy is in recession reduce unemployment -> e.g. cyclical if economy is in recession if AD shifts right so more goods/services produced and an increase in derived demand increase demand-pull inflation -> maybe a slight increase in inflation is desirable? redistribute income -> gov spending on welfare benefits + reduction in tax rates in lower tax bands or reduction in regressive taxation
80
contractionary fiscal policy outcomes
reduce inflation reduce budget deficit/national debt redistribute income reduce current account deficit
81
what are some examples of expansionary fiscal policy
reduction in income tax -> e.g. cut in income tax for people in higher tax bracket reduction in corporation tax -> increase retained profit for business -> increase investment increase in government spending
82
expansionary fiscal policy that will shift LRAS
reduction in income tax -> encourages economically inactive labour to enter the labour force reduction in corporation tax -> boost in investment -> boost in AD + LRAS (by increase of quality and quantity of capital + productive efficiency) increase in government spending -> government spending on education and health -> boost productivity of labour -> boost quality of labour + increase LRAS however primary policy of AD is to boost AD, this is only a side effect
83
how does expansionary fiscal policy lead to multiplier effect
increase in AD will lead to higher incomes in the economy -> more spending -> more AD -> more incomes -> more spending etc.
84
what are the problems with expansionary fiscal policy
demand pull inflation current account deficit both trade-offs of the policy worsening of government finances crowding out effect -> government spending is heavily borrowing fuelled -> reduce private sector investment x-inefficiency time lags
85
what are the problems with expansionary fiscal policy
demand pull inflation current account deficit both trade-offs of the policy worsening of government finances crowding out effect -> government spending is heavily borrowing fuelled -> reduce private sector investment x-inefficiency time lags
86
expansionary fiscal policy evaluation
size of the output gap size of the multiplier consumer/business confidence state of gov. finances LR returns to the Gov Laffer curve ideas role of automatic stabilisers crowding out vs crowding in classical view of self-correcting economy in a recession
87
what are automatic stabilisers, give examples
fiscal policy tools to influence GDP and counter fluctuations in the economic cycle progressive income tax system welfare benefits Boom (cushions demand) increased incomes -> workers pushed into higher tax bands -> increased average rate of tax -> slows down increases in consumption Unemployment low -> gov spending on benefits reduces Recession (supports output) decreased incomes -> workers move into lower tax bands -> decreased average rate of tax -> prevents large drop in consumption if unemployment high -> gov spending on benefits increases
88
What is a budget deficit
when government spending is greater than the tax revenue gathered in a year
89
what is structural budget deficit
budget deficit at full employment
90
what is cyclical budget deficit
budget deficit in a recession
91
what is national debt
total stock of government debt over time
92
what are the pros of a budget deficit/national debt
higher growth, lower unemployment benefits of increased gov spending (education, healthcare, infrastructure, public services) redistribution of income crowding in
93
what are the cons of a budget deficit
deterioration of government finances inflation conflict current account deficit conflict crowding out effect x-inefficiency
94
eval points for budget deficit
state of government finances SR and LR impacts stage of economic cycle specific policy used consumer/business confidence automatic stabilisers
95
what is a budget surplus
when tax revenue is greater than government spending in a year
96
pros of budget surplus
confidence in government finances flexibility with fiscal policy less crowding out/x-inefficiency lower inflation and CA deficit
97
cons of a budget surplus
Demand side shock micro and macro impacts of decreased government spending and increased taxes risk of income inequality
98
eval points for budget surplus
Need? Debt/GDP rising? policy used stage of the economic cycle
99
what is monetary policy
changes to interest rates, the money supply and the exchange rate by the central bank in order to influence AD expansionary monetary policy (increase AD) contractionary monetary policy (decrease AD)
100
examples of expansionary monetary policy, show on diagram
increase inflation increase growth reduce unemployment https://www.youtube.com/watch?v=uBaTPugw3M4&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=38
101
examples of contractionary monetary policy, show on diagram
reduce inflation prevent asset/credit bubbles reduce excess debt and promote saving reduce current account deficit https://www.youtube.com/watch?v=uBaTPugw3M4&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=38
102
what are the cons of expansionary monetary policy
demand pull inflation current account deficit these are both tradeoffs liquidity trap -> interest rates have a lower bound negative impact on savers ->
103
evaluation points of expansionary monetary policy
size of the output gap consumer confidence business confidence banks willingness to lend/pass on the full cut size of the rate of cut
104
https://www.youtube.com/watch?v=leHUzW04iZ0&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=39
https://www.youtube.com/watch?v=leHUzW04iZ0&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=39
105
what are supply side policies
policies designed to increase the productive capacity of the economy, shifting LAS to the right
106
name interventionist supply side policies
Government spending on education/training government spending on infrastructure subsidies to firms to promote investment
107
https://www.youtube.com/watch?v=PvfdPfEd-gk&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=40
https://www.youtube.com/watch?v=PvfdPfEd-gk&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=40
108
what are the two types of policies to increase growth
short run growth long run growth
109
short run growth. draw graph
if economy has low AD e.g. recession, lots of spare capacity in economy therefore need to increase growth via a boost in AD can be done using expansionary fiscal policy/monetary policy https://www.youtube.com/watch?v=y944DbL0vMA&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=41
110
evaluation of short run growth
conflict of objectives gov finances consumer/business confidence time lags
111
long run growth, draw graph
supply side policies interventionist or market based https://www.youtube.com/watch?v=y944DbL0vMA&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=41
112
evaluation of long run growth
type of growth strong, sustained, sustainable growth
113
what is cyclical unemployment and how could it be reduced, draw a graph for it
expansionary fiscal, monetary policy https://www.youtube.com/watch?v=0QKb_b2WGdU&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=42
114
evaluation of cyclical unemployment
conflict of objectives government finances consumer/business confidence time lags
115
what is real wage unemployment and how could it be reduced, draw a graph for it
reduce minimum wages reduce strength of trade unions
116
eval of real wage unemployment
impact on workers income inequality
117
what is structural unemployment and how could it be reduced
unemployment based on time of year or economic climate interventionist supply side policy market based supply side policy
118
what is frictional unemployment and how could it be reduced
unemployment when between jobs interventionist supply side policies market based supply side policies
119
policies to reduce demand pull inflation, draw a graph for it
contractionary monetary/fiscal policy
120
policies to reduce cost push inflation, draw a graph for it
implement/reduce inflation target reduce VAT/ Subsidies to firms intervene in FOREX markets to strengthen the exchange rate
121
policies to reduce high long term inflation, draw a graph for it
supply side policies e.g. interventionist or market based supply side policies
122
evaluation points for policies to reduce demand pull inflation
conflict of objectives impact on investment impact of the indebted strong exchange rate + current account deficit
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evaluation for high long term inflation rates policies to reduce inflation
no guarantee of success cost time lags
124
policies to rectify a current account deficit
https://www.youtube.com/watch?v=2IcRbSQc9WM&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=44
125
what are the pros of contractionary fiscal policy (austerity)
confidence in government finances by reducing budget deficits etc. or getting a budget surplus -> translates to improved credit ratings on government bonds as they are seen as a less risky borrower -> government can issue lower coupon rates over time making it easier and cheaper for governments to borrow over time and e.g. fund public services can attract inward FDI -> foreign firms more likely to invest into the country where gov finances are under control -> good for SR and LR growth greater flexibility with fiscal policy -> e.g. budget deficit is low or budget surplus is being run, national debt is low -> governments can operate within their fiscal rules -> allowing them space for fiscal policy whenever its needed e.g. emergency funding of public services
126
what are the cons of a contractionary fiscal policy
can shock the economy into a deep recession -> by reducing AD -> lower growth and higher unemployment lower spending on infrastructure e.g. education, healthcare, public transport -> can harm living standards for people who rely on these things lower incentive for economically inactive people to join the workforce -> lower incentive to be entrepreneurial -> greater incentive for people to leave the country
127
what is a market based supply side policy and name the different ones
aim to reduce the role of government in the economy, take away government from the functioning of markets tax reform: Lower income tax -> incentive for more people to enter the labour force -> increases the quantity of labour and boosts LRAS lower corporation tax -> more retained profits => use the profits to invest -> increase the quantity and quality of capital labour market reform: reduction in benefits -> economically inactive labour incentivised to join the market to find work reduce min wages -> reduce costs for businesses -> increase productive efficiency reduce trade union power -> reduce costs for businesses -> increase productive efficiency competition policy: privatisation -> deregulation -> trade liberalisation -> reduction on tariffs
128
how to evaluate using output gaps
when AD shifts right -> level of growth increases -> unemployment will decrease as labour is derived demand -> rise in demand from inflation or worsening trade position as exports become more competitive however, https://www.youtube.com/watch?v=-es6BW0ytdg&list=PLWeicFreBUYDlaLppnRTZpwgBASflf4lU&index=32
129
what does liberalisation mean
removing barriers to entry or tariffs
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anticipated deflation
IT IS DANGEROUS deflationary spiral -> people don't want to spend as the good may be cheaper in future so hold off -> decreased revenue for firms -> decreased derived demand so reduction in employment + economic growth in LR positive real interest rates -> people prefer to save when there is anticipated deflation as the value of goods would decrease so over time their money will have more value if saved -> decreased revenue for firms -> decreased derived demand for labour -> increased unemployment increases real value of debt -> profits for business + incomes for workers will be falling at the same time -> as prices are falling firms making less revenue therefore less pay for workers aswell -> however the lower incomes may be fine as they match the lower prices in the economy