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Economics ME :) > Macroeconomics > Flashcards

Macroeconomics Flashcards

1
Q

What are the key objectives of a macroeconomic policy ?

A

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

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2
Q

What are some additional objectives of the original aims of macroeconomic policy ?

A

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

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3
Q

What is a positive multiplier in macroeconomics ?

A

When an initial increase in an injection leads to a greater final increase in real GDP

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4
Q

What is a negative multiplier in macroeconomics ?

A

An initial decrease in an injection leads to greater final decrease in real GDP

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5
Q

What is the Marginal propensity to consume ( MSC ) ?

A

Change in consumption following a change in income

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6
Q

What is the Marginal propensity to save ( MPS ) ?

A

Change in savings following a change in income

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7
Q

What is the MSC equation ?

A

Change in total consumption / change in gross income

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8
Q

What is the MPS equation ?

A

Change in total savings / change in gross income

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9
Q

What is the equation for a multiplier ?

A

1 / 1 - MPC ( marginal propensity to consume )

1 / 1 - MPW ( marginal propensity to withdraw )

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10
Q

A high multiplier is introduced when … ?

A

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

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11
Q

A Low multiplier is introduced when … ?

A

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

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12
Q

What determines the size of a fiscal multiplier ?

A

GOVT capital investment , the new infrastructure results in a higher multiplier effect

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13
Q

What is national income ?

A

Measures the monetary value of the flow of output of goods and services produced in an economy over a period of time

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14
Q

What are some key uses of national income data ?

A

Measuring the level and rate of growth of national income

Important for keeping track of economic growth , living standards , distribution of wealth .

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15
Q

What is GDP ?

A

It is the measure of the total value of national output produced in a given period

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16
Q

What are the 3 ways of calculating GDP ?

A

National output
National expenditure ( aggregate demand )
National income

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17
Q

How can we measure GDP off our countries EXPENDITURE ?

A

Consumption
GOVT spending
Investment spending
Change in the value of stocks
Exports
Aggregate demand

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18
Q

How can we measure GDP off our countries FACTOR INCOMES ?

A

Income for people in jobs and self employment ( wage + salaries )
Profits of public and private sector businesses
Rental income from the ownership of land

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19
Q

How can we measure GDP off our countries VALUE OF OUTPUT ?

A

Value added from each of the main economic sectors

These sectors are ( construction , manufacturing , Tertiary , Quaternary )

20
Q

What is the equation for Aggregate demand ?

A

Consumption + investment + GOVT spending + ( export - imports )

21
Q

What is value added in macroeconomics ?

A

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

22
Q

Name a low value added industry ?

A

Textiles
Mass produced foods
Farming
Social care
Cleaning contract services

23
Q

Name some High value added industries ?

A

Information technology
Renewable energy
Aerospace
Biotechnology
Precision engineering

24
Q

What does Nominal mean in macroeconomics ?

A

Monetary values for data not adjusted for inflation , Data expressed at current prices

25
Q

What does Real mean in macroeconomics ?

A

Adjusted to inflation , prices held at level of the chosen base year , expressed at constant prices

26
Q

What does Purchasing Power Parity ? ( PPP)

A

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 .

27
Q

What are economic indicators ?

A

Ways of expressing economic data

28
Q

What is the base value number of economic indicators ?

A

Always have a base value of a 100

29
Q

What is the equation used for economic indicators ?

A

Index number year Y = ( data value in year y / base year value ) x 100

30
Q

What is the inflation ( consumer price index ) ?

A

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

31
Q

How is the rate of inflation calculated ?

A

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

32
Q

What are some examples of macro conflicts ?

A

Unemployment and inflation
Economic growth and inflation
Economic growth and the balance of payments
Economic growth and inequality

33
Q

What does the Phillips curve of unemployment and inflation show ?

A

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

34
Q

What are supply side policies to improve growth ?

A

Reforms to improve labour productivity
Incentives to boost research / development / innovation
Measures to increase investment in export sectors

35
Q

What is exchange rate depreciation policy

A

When a depreciation in a currency makes exports more price competitive + imports more expensive

36
Q

What is effective macroeconomic policies ?

A

Monetary policy to help keep inflation low , relative to inflation and competitors

Infrastructure investment to increase export competitiveness

37
Q

What are the four parts of the circular flow model ?

A

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

38
Q

What are some injections in macroeconomics ?

A

Investment

Exports of goods and services

Govt spending

39
Q

What are some leakages in macroeconomics ?

A

Savings

Imports of goods and services

Taxation

40
Q

What is Aggregate demand ?

A

Total level of planned real expenditure on the goods and services produced in a country

41
Q

What are the components of Aggregate demand ?

A

(C) - Household spending
(I) - Capital investment spending
(G) - Govt consumption / public spending
(X) - Exports of goods and services
(M) - Imports of goods and services

42
Q

What is the wealth affect ?

A

As price increases , the value of income falls / they have less purchasing power . Vice Versa

43
Q

What is balance of trade ?

A

An increase of price in country X could make imports cheaper , fall in exports and rise in imports

44
Q

What is the interest rate effect ?

A

As price increases , Causes inflation , an increase in demand for money causes an increase in loans interest rates

45
Q

Name some examples of fall in Aggregate demand

A

Fall in exports
Cuts in GOVT spending
Decline in household wealth
Higher interest rates

46
Q

Name some examples of increases in Aggregate demand

A

Depreciation in exchange rate
Cuts in direct taxes In

Economics ME :) (6 decks)

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