Macroeconomics Flashcards
What are the key objectives of a macroeconomic policy ?
Price stability
Growth of real GDP
Falling unemployment
Rising employment
Higher average standard of living
Stable balance of payments ( exports)
An equitable distribution of wealth
What are some additional objectives of the original aims of macroeconomic policy ?
Balancing the budgets and reducing national debt
Improve economic wellbeing
Better regional balance in the UK economy
Improved access to public services
Improved competitiveness
Environmental sustainability
What is a positive multiplier in macroeconomics ?
When an initial increase in an injection leads to a greater final increase in real GDP
What is a negative multiplier in macroeconomics ?
An initial decrease in an injection leads to greater final decrease in real GDP
What is the Marginal propensity to consume ( MSC ) ?
Change in consumption following a change in income
What is the Marginal propensity to save ( MPS ) ?
Change in savings following a change in income
What is the MSC equation ?
Change in total consumption / change in gross income
What is the MPS equation ?
Change in total savings / change in gross income
What is the equation for a multiplier ?
1 / 1 - MPC ( marginal propensity to consume )
1 / 1 - MPW ( marginal propensity to withdraw )
A high multiplier is introduced when … ?
The economy has plenty of spare capacity to meet higher demand
Marginal propensity to import + tax is low
High propensity to consume any extra income
A Low multiplier is introduced when … ?
Economy has came too close to its capacity limits
Propensity to import goods + services is high in extra demand
Higher interest rates caused by inflation when
What determines the size of a fiscal multiplier ?
GOVT capital investment , the new infrastructure results in a higher multiplier effect
What is national income ?
Measures the monetary value of the flow of output of goods and services produced in an economy over a period of time
What are some key uses of national income data ?
Measuring the level and rate of growth of national income
Important for keeping track of economic growth , living standards , distribution of wealth .
What is GDP ?
It is the measure of the total value of national output produced in a given period
What are the 3 ways of calculating GDP ?
National output
National expenditure ( aggregate demand )
National income
How can we measure GDP off our countries EXPENDITURE ?
Consumption
GOVT spending
Investment spending
Change in the value of stocks
Exports
Aggregate demand
How can we measure GDP off our countries FACTOR INCOMES ?
Income for people in jobs and self employment ( wage + salaries )
Profits of public and private sector businesses
Rental income from the ownership of land
How can we measure GDP off our countries VALUE OF OUTPUT ?
Value added from each of the main economic sectors
These sectors are ( construction , manufacturing , Tertiary , Quaternary )
What is the equation for Aggregate demand ?
Consumption + investment + GOVT spending + ( export - imports )
What is value added in macroeconomics ?
Is the increase in market value for goods / services as a result of the production process .
It excludes the cost incurred in the supplying the output of a good or service
Name a low value added industry ?
Textiles
Mass produced foods
Farming
Social care
Cleaning contract services
Name some High value added industries ?
Information technology
Renewable energy
Aerospace
Biotechnology
Precision engineering
What does Nominal mean in macroeconomics ?
Monetary values for data not adjusted for inflation , Data expressed at current prices
What does Real mean in macroeconomics ?
Adjusted to inflation , prices held at level of the chosen base year , expressed at constant prices
What does Purchasing Power Parity ? ( PPP)
Measures the units of one country’s currency are needed to buy exactly the same basket of goods with a given amount of another country’s currency .
What are economic indicators ?
Ways of expressing economic data
What is the base value number of economic indicators ?
Always have a base value of a 100
What is the equation used for economic indicators ?
Index number year Y = ( data value in year y / base year value ) x 100
What is the inflation ( consumer price index ) ?
Measure of the annual percentage change in consumers prices
A sustained increase in the cost of living of a general price level leading to a fall in the purchasing power of money
How is the rate of inflation calculated ?
A representative basket of goods / services are attached to each item
Every year , a family expenditure survey is carried out over a number of homes
What are some examples of macro conflicts ?
Unemployment and inflation
Economic growth and inflation
Economic growth and the balance of payments
Economic growth and inequality
What does the Phillips curve of unemployment and inflation show ?
As inflation falls - labour shortages create an increase in wage inflation and higher labour costs
When an economy is booming so does the price of components and raw materials leading to higher costs
Rising demand and falling unemployment leads to higher supplier costs to increase their margins
What are supply side policies to improve growth ?
Reforms to improve labour productivity
Incentives to boost research / development / innovation
Measures to increase investment in export sectors
What is exchange rate depreciation policy
When a depreciation in a currency makes exports more price competitive + imports more expensive
What is effective macroeconomic policies ?
Monetary policy to help keep inflation low , relative to inflation and competitors
Infrastructure investment to increase export competitiveness
What are the four parts of the circular flow model ?
Households - get income via wages / buy goods from firms
Businesses - hire land labour capital when making products . Firms get money from consumers
Govt -collect taxes to fund public services . State spending
External sector- the U.K. buys imports from other countries . Overseas buys our exports
What are some injections in macroeconomics ?
Investment
Exports of goods and services
Govt spending
What are some leakages in macroeconomics ?
Savings
Imports of goods and services
Taxation
What is Aggregate demand ?
Total level of planned real expenditure on the goods and services produced in a country
What are the components of Aggregate demand ?
(C) - Household spending
(I) - Capital investment spending
(G) - Govt consumption / public spending
(X) - Exports of goods and services
(M) - Imports of goods and services
What is the wealth affect ?
As price increases , the value of income falls / they have less purchasing power . Vice Versa
What is balance of trade ?
An increase of price in country X could make imports cheaper , fall in exports and rise in imports
What is the interest rate effect ?
As price increases , Causes inflation , an increase in demand for money causes an increase in loans interest rates
Name some examples of fall in Aggregate demand
Fall in exports
Cuts in GOVT spending
Decline in household wealth
Higher interest rates
Name some examples of increases in Aggregate demand
Depreciation in exchange rate
Cuts in direct taxes In
