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macroeconomics Flashcards

1
Q

Paradox of thrift

A

when savings create the opposite goal from what the consumer thinks - lower wages. savings are a leakage to the economy

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2
Q

if economy is in equilibrium

A

G + X + I = t + M + S

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3
Q

GDP

A

value of economic activity generated by factors of production from within the country’s domain

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4
Q

GDP represents

A

total market value of all goods and services

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5
Q

real GDP

A

year in year comparison at the base year’s prices

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6
Q

GDP at factor cost

A

refers to the value of firms output prior to any government interference

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7
Q

GDP at market prices

A

GDP takes into account subsidies and taxes

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8
Q

GDP expenditutre method

A

C + I (BY FIRMS IN CAPITAL GOODS) + G (excl transfer payments) + (x-M)

transfer payments: generate no output

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9
Q

GDP income method

A

employee compensation
proprietors income
rents
corporate profits
interest income
indirect business taxes
depreciation
net income of foreigners (income of foreigners in UK - income earned by UK’s abroad)

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10
Q

GNP

A

GDP + net property income from abroad

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11
Q

net property income from abroad

A

> add in output of UK firms based overseas
deduct output of foreign firms based in the UK

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12
Q

net national product NNP

A

GNP - capital consumption (adjustment for depreciation if capital stock)

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13
Q

AD in a simple closed economy

A

AD = C + I
C + I = C + S

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14
Q

keynesian equilibrium

A

AD = GDP

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15
Q

consumption function

A

C =a + bY

a - autonomous consumption (necessary consumption)
b - marginal propensity to consume
Y - disposable income (Y -t)

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16
Q

transmission machanism

A

effect of interest rates on consumption function

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17
Q

budget deficit

A

G>t
> helps incr AD
> expansionary policy

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18
Q

budget surplus

A

G < t
> reduce AD
> contracitonary or restrcitive policy

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19
Q

crowding out

A

expansionary policy leads to requirement to raise fiannce. issue more gilts with high yields but too expensive for other companies

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20
Q

Monetarist

A

supply and demand will find equilibrium. spending by government can lead to overcrowding

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21
Q

Austrian

A

utility
> diminishing marginal utility

22
Q

keynesian multiplier

A

> increase in income leads to a larger proportional increase in consumption

23
Q

MULTIPLIER

A

1/(1-MPC)
> ignores taxes
1/(1-(MPC(1-t))
> with taxes
1/(1-(MPC(1-t) + MPM)
> FULL MULTIPLIES
> TAES AND IMPORTS

24
Q

soft landing

A

economic growth but at slower rate

25
economic recovery is led by a bull market
from trough to peak : transportation and energy credit cyclicals and technology consumer growth and cyclicals capital goods financials
26
helicopter money
bank increases money supply through printing more money money released into: > payment to government > buying interest free debt from gvmnt > payment to population
27
negative interest rates used to
> increase investment and decrease saving > mattress money
28
Basel I
banks required to hold capital to an amount of 8% of arisk-adjusted value of their assets
29
Fisher equation
MV = PT > M total amount of money in economy > V velocity of circulation of money > P avg price of each transaction made in the economy > T totl numbr of transactions made over a period of time
30
Real money supply
(M/P) = (T/V)
31
Costs of inflation
> menu costs > shoe leather costs ( money left as deposits until needed. thus cash floats not left overnight thus retrieve cash every day from banks )
32
demand pull
inflation cause by excess aggragate demand
33
cost push
inflation caused by an incrase in prices of cots and wages
34
unemployment rate
number of people registered as available to work in UK / total UK labour force
35
types of unemployment
> frictional - people who an in between jobs and are unemployed or have disabilities > structural - decrease in demand within industry or localised area > Keynesian - drop in aggregate demand because of lack of flexibility with wages and prices (outside the control of workers or trade unions) > classical - when wages are priced too high resulting in fewer people being hired to complete the required tasks
36
Narrow money
> M0 and M1 > measures includes notes and coins in circulation and cash equivalents > monetary base
37
Broad money
> accessibility to money has become less immediate > M2 adds short-term deposits to M1 > M3 add longer-term deposits and money market funds > M4 = M3 + securities with maturities of <5yrs held by non-bank private sector (asset mngrs and insurance ) > M4ex = M4 - deposits of international offshore financial centres
38
CENTRAL BANKS
do not set inter-bank rates but can manage
39
open market operations
> buying and selling securities on the open market > way that BoE controls short-term interest rates
40
coincident indicators
occur at the same time as the economic activity, such as payroll or personal income less transfer payments and overall change in GDP
41
Leading indicators
economic indicators which tend to change before the general economic activity, and so may sometimes be used as a predictor > Stock market returns, consumer expectation, building permits and money supply.
42
Lagging indicators
trail behind the general economic activity and include saving bank deposit levels and consumer debt levels, unemployment rate
43
UK has an open economy
few barriers to trade
44
UK balance of payments
Current account > visible > invisible Capital account UK investments in and outside UK
45
sterilisation
pegged currency budget deficit => buy back gvmnt securities in open market operations when bank adjusts money supply to compensate balance of payments
46
money supply
monetary base * money multiplier money multiplier = 1/(reserve requirement)
47
households and firms
provide factors of production and national income national expenditure and national output
48
when economy is in equilibrium
O = E = Y
49
classical and keynesian economics
prices and wages are fully flexible fixed
50
economic recovery
real national output picks up
51
monetary base
quantity of notes and coins in private hands and held by the banking sector
52
Basel 2
> 2010 > set up risk and capital requirements to ensure bank has adequate capital to cover risks when lending and investing > riskier banks more capital reserves

Investment Practice (17 decks)

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