macroeconomics Flashcards
What is supply ?
supply comes from businesses selling goods and services
What is demand?
demand comes from customers buying things
what are the three ways of measuring the total national income?
the expenditure method , the income method and the output method
how does the expenditure method work?
Total amount spent on goods and services
how does the income method work?
This is the total income received by people in the economy.
how does the output method work?
the total value of output produced by firms
What are the leakages of the circular flow of income
savings imports taxes
what are the injections of the circular flow of income
exports investments and government spending
what is aggregate demand?
a measure of the total value of every good and service demanded in an economy over a period of time
What is aggregate supply?
total value of goods and services produced in an economy
What is RDI?
real disposable income(money you can spend after tax deductions.
What is the formula for aggregate demand?
C+I+G+(X-M)
What does SRAS stand for?
short run aggregate supply
What does LRAS stand for?
Long run aggregate supply
What does Yfe stand for?
full employment level of national output
what is consumer confidence?
if consumers are confident their RDI will increase then they might be more likely to spend money
what does volatile mean?
changeable
What are the four factors of production?
land labour capital and enterprise
what is a physical flow and a monetary flow of the circular flow of income?
Physical flow is the actual flow of goods and services
Monetary flow is the flow of money responsible for the flow of the physical fow
how much of the UKs AD is C?
60-65%
How much of the UKs AD is I?
15-20%
How much of the UKs AD is G?
20-25%
What is the formula for AD?
C+I+G+(X-M)
why might LRAS shift?
changes in the quality and/or quantity of factors of production
What is the multiplier effect?
an initial change in aggregate demand has a greater final impact on the level of equilibrium national output
What is the accelerator?
an increase in real gdp will often lead to a proportionately higher increase in the private sector investment
What does propensity mean?
probability/likelihood
APC is?
average propensity to consume
APT is?
average propensity to tax
APS is?
average propensity to save
APM is?
average propensity to import
MPC and MPT and MPS and MPM are?
marginal propensity to consume,tax,import and save
MPC+MPT+MPS+MPM=?
1
How do you calculate MPC, MPT, MPS, MPM
change in(C/T/S/M) over change in Y
what are the 5 characteristics of a boom?
high animal spirits, high economic growth, demand pull inflation, low unemployment, improved budget
what are the 5 characteristics of a bust?
low animal spirits, negative economic growth, low inflation/deflation, high unemployment, worsened budget.
what is the main objective of most governments?
economic growth- it will cause an increase in standard of living
what are the 6 objectives of a government for an economy?
economic growth, stable prices, full employment, stable balance of payments, fairer distribution of income, control government finances.
why are stable prices an economic objective of a government?
high or volatile inflation can cause low investment because the households and firms will have low confidence
why is full employment an economic objective of a government?
get closer to market equilibrium of full employment in order to maximise output
why are stable balance of payments an economic objective of a government?
so the government doesn’t have a budget deficit
why is a fairer distribution of income an economic objective of a government?
depending on the politics of the government the households would vote for fairer way of distributing the income-reduce poverty
why is control over government finances an economic objective of a government?
reduce the government debt (if any) and therefore operate on a budget equilibrium.
how to write an AWESOME essay paragraph
Answer the question
Why is this the case
Example of this is
Show using a diagram
Outcome of the diagram
Meaning in the bigger picture
Exception, alternate argument
what does per capita mean?
per person
how do you calculate the rate of change in GDP?
change in GDP/original GDP X100
how do you calculate real GDP?
nominal GDP/price index X100
how do you calculate real GDP per capita?
RGDP/population
how do you calculate GNI?
GDP+net property income from abroad
what is a developed country?
a country that is dominated by the tertiary sector characterized by high levels of GDP per capita
what is an emerging country?
dominated by secondary sector, heavily industrialized. Real GDP per capita is often far lower than developed economies, they also experience high levels of inequality
what is a developing country?
a country that is poor and dominated by the primary sector , real GDP per capita is low and there is extreme poverty
what countries have a developed economy?
western Europe and north America
what countries have an emerging economy?
Asia, North Africa and South America
what countries have a developing economy?
sub-Saharan countries
what are the factors of HDI?
adult literacy rate, real GNI per capita, life expectancy at birth
what are the 4 reasons why growth doesn’t always lead to improvements to the standards of living
Inequality-may only benefit one group if there is no trickle down effect. Government failure- the government is corrupt and spends money on unnecessary things. Capital flight- money that is generated through FDI in a different country will extract resources. Growth may be driven by non-renewable resources- therefore only benefits short term.
what is the definition of sustainable growth
meets the demands of the present without compromising the ability for future generations to meet their needs
what is a SDG stand for
sustainable development goals
what does sustainable growth do for an economy.
creates more businesses, more jobs, increases the RDI of each household and increasing government tax revenues.
what are the 4 types of unemployment?
seasonal, frictional, cyclical and structural
what is frictional unemployment?
workers are temporarily out of work due to changing personal circumstances or simply moving between jobs
what is cyclical unemployment?
also known as ‘demand deficit’ occurs as AD shifts left. unemployment will happen naturally when there is a downturn in the economic cycle(recession)
what is structural unemployment?
a lack of mobility in the workforce so that available jobs don’t match the available worker
what are the two types of structural unemployment?
occupational immobility and geographical immobility
what is geographical immobility regarding unemployment?
jobs exist in one place in the country but the unemployed live elsewhere
what is occupational immobility regarding unemployment?
unemployed workers have skills that employers no longer need but the available workers don’t have the skills to perform these jobs
what is the formula for the unemployment rate?
unemployed/economically active X100
what is the labour force survey?
a survey carried out every three months and a questionnaire is sent to 40,000 households across the country asking people about their employment circumstances.
what is a claimant count
measures people claiming job seekers allowance benefit payments however not many people bother claiming them
is a claimant count specific to the UK
yes
what are the 4 causes of unemployment?
changes in the economic cycle, developments in technology, globalisation and seasonal factors
how are changes in the economic cycle a cause of unemployment?
free market economies vary between periods of a boom and bust. a boom will have low unemployment whereas a bust will have high unemployment
how is developments in technology cause of unemployment?
this a major cause of structural unemployment as some industries become obsolete there fore peoples lack of skills will transfer to significant areas of growth
how is globalisation a cause of unemployment?
competition from developing and emerging economies lead to companies offshoring for cheaper labour
how are seasonal factors a cause of unemployment?
there is more availability in some parts of the year for jobs compared to others
what are the 4 consequences of unemployment
economy not achieving it potential, cost to the government, social problems, hysteresis
how is the economy not achieving its potential a consequence of unemployment?
there would be a negative output gap because the economy could be operating more efficiently
how is cost to the government a consequence of unemployment?
there are less people paying tax and more people claiming benefits so G is higher than otherwise.
how are social problems a consequence of unemployment?
being unemployed is stressful and can damage your health, and therefore increase demand for healthcare and could lead to higher crime
how is hysteresis a consequence of unemployment?
unemployment will breed unemployment, children who don’t have parents who work are unlikely to work themselves
what is the definition of inflation?
a sustained increase in the general price level
what is the definition of deflation?
inflation is negative (price level is falling)
what is the definition of disinflation?
the price level is increasing but at a lower rate than it was previously
what is the definition of hyperinflation?
increases in price level spirals out of control
what is an example of inflation?
UK 2022 inflation rate reached 10%
what is an example of disinflation?
USA 2022-2023 8.3%-4.9%
what is an example of deflation?
Japan 2016- -0>3%
what is an example of hyperinflation?
Argentina 2023 - 102.4%
what generally is the target inflation rate for most economies ?
2%
Is inflation good?
provided its under control 2% is normally the best rate
what is the cpi?
consumer price index
what is the rpi?
retail price index?
what is the difference between the CPI and the RPI?
the RPI is only used in the UK and it takes into account housing prices (rent and mortgage interest payments
how many goods and services are used in the CPI?
750
how do you calculate CP from the CPI?
the base year is always 100, your find the weight of a category and multiply it by the new price index(e.g.110), do this for each category and then add up the multiplications for the total new price index. inflation is a % so do percentage change calculation to work out the inflation rate
What is demand pull inflation?
a type of inflation where AD shifts right and the price level increases
what is cost push inflation?
a type of inflation where the SRAS shifts left and the price level increases
what are the causes of demand pull inflation?
increase in the money supply, lower interest rates, cuts in income tax increased business and consumer confidence and cheaper exports
What are the causes of cost push inflation?
increase in wages, increase in the cost of materials, more expensive imports, higher business taxes or a disruption in the supply chain
What is bad deflation?
AD shifting left will reduce real GDP and the PL will decrease
What is good inflation?
SRAS shifting right will increase Real GDP and decrease the PL (win win)
What is bad deflation usually caused by?
fall off in consumer confidence, fall of in business confidence, deflationary government policies raising income tax or cutting G, higher interest rates
What is good deflation caused by?
improvements in the productivity of the workforce, or new resources being discovered increasing the supply of goods and services.
why is inflation being above the target level bad for the economy?
creates uncertainty- which will decrease AD and probably AS, FDI is negatively affected as everything becomes too expensive - the government also finds it harder to borrow money as everyone else will charge higher interest rates, decrease international competitiveness, increased inequality - higher income people can cushion themselves from the effects of higher prices, industrial unrest- workers demand pay rise inline with inflation, inflationary spiral- people will expect more inflation.
why is inflation being above the target level good for some economic agents?
borrowers can gain overtime as the monthly repayments are worth less on a mortgage for example. companies could take advantage of a shortage of material e.g. oil companies could charge more in 2022 to make an even larger profit.
why would deflation be considered worse than slightly too high inflation?
deflation is associated with a recession everyone makes less profits,
