Macroeconomics Flashcards
A lot of this is from a concise guide to macroeconomics by David Moss
A lot of this is from a concise guide to macroeconomics by David Moss
What is a simple way of defining a country’s output?
The total amount of goods and services that a country produces.
How can a country use more output than it produces?
By borrowing the rest from another country
Most widely accepted measure of national output?
GDP
What is the biggest challenge in measuring GDP?
Avoiding counting the same output more than once
How do they avoid over counting in calculation of GDP?
Focusing on the value-add at each point of production, i.e. the value something is sold for in excess of what it costs
Value added equals the sales price of a good or service minus the cost of all non labour inputs
Alternatively, you can just focus exclusively on final sales, which is called the expenditure method and is by far the most popular
What is the formula for output?
Output = C + I + G + X - M
Does the C + I + G + X - M formula avoid double counting?
Yep - C includes the money that firms receive from customers purchasing goods and services, but I exclusively focuses on things that businesses buy that will yield future payoff (i.e. capex)
Why would a country run a trade surplus today?
Expect to get back additional output from their trading partners in the future
What does the balance of payments show?
International transactions of a country
What are the 2 parts of the balance of payments?
Current account, financial account, capital account
On the balance of payments, what is the current account?
Current transactions such as exports and imports of goods and services
On the balance of payments, what is the financial account?
Includes sales of stocks and bonds to foreigners
On the balance of payments, how are deficits on the current account financed?
Using surplus on the financial account, i.e. capital inflows
What is the theory of comparative advantage?
Each person should specialise at what they do best, and then people should trade.
Output will be higher this way, and both people will be better off
What are the three sources of output growth that economists point to?
- Increases in labour,
- Increases in capital,
- Increases in efficiency in which both labour and capital are used
In economic growth theory, how does the input of labour rise?
People work longer hours or if the workforce is expanded through new entrants
In economic growth theory, how does capital stock rise?
Businesses enhance their productive capacity by adding more plans and equipment (through investment)
In economic growth theory, how does effiiciency between capital and labour rise?
Producers are able to get more output from the same amount of labour and capital - as a result of organisation innovation, for example
What do supply-side economists focus on to grow output?
- Growing labour
- Growing capital
- Increasing efficiency
Why do supply-sides economists like reducing tax rates?
Lower tax rates allows people to keep more of their earnings, so there are incentives to work harder (increasing labour) and to save and invest more of their income (increasing capital).
There is also incentives for innovation (increasing efficiency), given that you keep more of the rewards
In increasing economic growth using supply side economics, what is the alternative viewpoint to reducing taxes?
Increasing taxes to do more government led investment in public infrastructure, education, and R&D
Where did the concept of demand-side economics come from?
Borne out of the Great Depression, when productive potential remained, but the economy went into a depressed state because of a lack of demand
Why is there worries about pensions when baby boomers retire?
Each active worker paying into the national pension system will have to support an ever-larger number of retirees
