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Economics > Macroeconomics > Flashcards

Macroeconomics Flashcards

1
Q

what is economic growth?

A

increase in real GDP. An increase in the real value of goods and services in an economy over a given period

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2
Q

what is GDP per capita?

A

takes into account population size

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3
Q

what is nominal GDP?

A

GDP at current prices

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4
Q

what is real GDP?

A

inflation adjusted

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5
Q

what is national income?

A

the total value of goods and services produced in an economy in a given period of time

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6
Q

why may national income not be a reliable measure?

A
  • sustainability
  • national happiness
  • working hours and leisure time
  • externalities
  • composition of GDP
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7
Q

what is inflation?

A

an increase in the GPL

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8
Q

why is the basket of goods changed once a year?

A
  • keep up with spending habits

- reflect changing consumer consumption behaviour

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9
Q

how is inflation measured in the UK?

A
  • collecting prices on a basket of around 700 goods and services
  • each item is weighted in the basket according to the % of household income spent on them
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10
Q

how do you calculate an index number?

A
  • choose a base number that everything else is compared to

- new value/ base year value x 100

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11
Q

what is cost push inflation?

A

is due to a rise in costs of production, causing the SRAS to shift up, and reducing profit margins of firms. This then prompts firms to increase the final price of goods/services

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12
Q

what are the impact of a currency depreciation?

A
  • export prices fall
  • import prices rise
  • less purchasing power
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13
Q

what are the causes of cost push inflation?

A
  • min wage increase
  • increase in world commodity prices eg. oil
  • external supply side shocks eg. bad harvest
  • rise in indirect taxes
  • rise in corporation tax
  • fall in productivity
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14
Q

what is demand push inflation?

A

caused by increases in AD outstripping AS. Economy close to full employment, and increases in AD lead to GPL rising as supply cannot keep up with demand

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15
Q

what are the causes of demand push inflation?

A
  • loose fiscal policy
  • loose monetary policy
  • exchange rate depreciation
  • excessive borrowing
  • increased confidence
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16
Q

what are the consequences of inflation on consumers?

A
  • erodes the real value of money- purchasing power of income falls
  • inequality rise as higher skilled workers can get nominal wage increases
  • savers lose out
  • borrowers gain as interest rates fall
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17
Q

what are the consequences of inflation on firms?

A
  • business uncertainty

- falling intl competitiveness

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18
Q

what are the 2 main measures of unemployment?

A
  • claimant count- receiving job seekers allowance

- ILO- someone who has been seeking work

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19
Q

what is hysteresis?

A

when workers are employed for a time period and become deskilled and demotivated and are less able to get jobs

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20
Q

what is real wage unemployment/classical?

A

because wages are too high in a market and are above the equilibrium wage rate
known as classical unemployment

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21
Q

what is frictional unemployment?

A

when people are between jobs

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22
Q

what is structural unemployment?

A

when there is a mismatch between skills workers have and the skills firms are looking for

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23
Q

what is cyclical unemployment?

A

unemployment related to the business cycle. It is caused by the economy moving to recession

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24
Q

what is seasonal unemployment?

A

unemployment due to the seasons of the year

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25
Q

what are the consequences of unemployment?

A
  • fiscal issues
  • reduced output
  • social issues
  • living standards and inequality
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26
Q

what is the balance of payments?

A

shows a record of all the transactions that a country does with the rest of the world

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27
Q

what is the current account comprised of?

A
  • trade in goods and services (X-M)
  • net primary income- net factor income from abroad
  • net secondary income- net unilateral transfers eg. foreign aid
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28
Q

what are the causes of a deficit?

A
  • low productivity
  • inflation being higher domestically than abroad
  • a strong exchange rate
  • supply-side constraints
  • poor quality goods
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29
Q

what are the macroeconomic objectives?

A
  • economic growth
  • employment
  • price stability
  • balance of payments
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30
Q

how do you calculate GDP?

A

C+I+G+(X-M)

31
Q

how do you calculate AD?

A

consumption + investment + govt spending + X-M

32
Q

what are the types of investment?

A
  • expenditure that increases the capital stock of a country
  • investment on physical capital
  • investment on human capital on skills and workers
33
Q

which factors affect investment?

A
  • interest rates
  • future growth and demand
  • profitability
  • govt. policies
  • efficiency of financial system
34
Q

what affects no. of exports and imports?

A
  • the exchange rate
  • quality of goods affects intl competitiveness
  • spare capacity to supply
  • relative inflation rates
35
Q

what factors affect govt spending?

A
  • cost of borrowing
  • fiscal deficit or debt targets
  • levels of national debt
  • state of the economy
  • confidence in the economy
36
Q

what is disposable income?

A

amount of money people have left after paying their income tax

37
Q

what are the determinants of consumer spending?

A
  • interest rates
  • level of consumer confidence
  • level of income
  • inflation expectations
38
Q

what is investment?

A

any expenditure that increases the capital stock of a country

39
Q

what is investment influenced by?

A
  • rate of economic growth
  • business expectations
  • confidence
  • interest rates
  • export demand
  • availability of credit
  • govt and regulation
40
Q

what is fiscal policy?

A

involves changing govt spending and taxation

41
Q

what is contractionary fiscal policy?

A

contractionary fiscal policy decreases (shifts left) the level of AD by decreasing:

  • consumption
  • investments
  • govt spending
42
Q

what are the injections of the circular flow of income?

A
  • investment
  • exports
  • govt spending
    if injections exceed withdrawals national income will rise
43
Q

what is the trade cycle?

A
  • displays a country’s economic growth
    the fluctuations account for different stages:
  • economic boom- building economic growth
  • peak- climax of economic growth and rates beginning to fall
  • economic downturn- economic growth rate falling
  • trough- the bottom of the cycle where growth rates begin to rise
44
Q

what is the difference between short run and long run AS?

A
  • in the short run at least one of the factors of production are fixed
  • in the long run all factors of production are variable
45
Q

what causes shifts in the SRAS?

A
  • business costs eg. labour and raw mats
  • exchange rates
  • taxes
46
Q

what causes shifts in the LRAS?

A
  • productive growth
  • technology
  • infrastructure
  • enterprise
  • cultural attitudes
  • economic incentives
  • factor mobility
47
Q

what is the classical LRAS?

A
  • vertical
  • in long run, when all of an economy’s factors of production are being used, the economy is operating on its PPF and
  • can be shifted by an increase in the amount or quality of factors of production
48
Q

what is the keynesian LRAS?

A
  • curve upwards
  • at low quantities of output, there is a lot of spare capacity. Increases in output use this spare capacity. Unemployed workers are hired and unused factors of production are are used
  • as output rises, supply starts to become a limiting factor. There could be labour shortages, capital shortages, raw mats shortage etc
  • eventually it is at full output
49
Q

what are the factors of production?

A
  • land
  • labour
  • capital
  • enterprise
50
Q

circular flow of income

A

pog online

51
Q

what are regressive taxation policies?

A

often increase the income and wealth gap

52
Q

what are progressive taxation policies?

A

reduce the income and wealth gap

53
Q

what are the withdrawals of the circular flow of income?

A
  • savings
  • taxes
  • imports
    if withdrawals exceed injections national income will fall
54
Q

what are the injections of the circular flow of income?

A
  • investment
  • exports
  • govt spending
    if injections exceed withdrawals national income will rise
55
Q

how is MPC calculated?

A

the change in consumption divided by income. Represents the amount of each extra pound that the consumer spends when given an extra pound in income

56
Q

how is MPS calculated?

A

change in savings divided by the change in income.

The amount of each extra pound the consumer saves when given an extra pound in income

57
Q

what is the multiplier?

A

an initial change in an injection or withdrawal that leads to a much greater final change in national income

58
Q

how do you calculate the multiplier?

A

multiplier= 1/(1-MPC)

59
Q

what is economic growth?

A

a rise in the real value of goods and services being produced in a given period of time

60
Q

what factors cause short run growth?

A
  • anything that increases AD
61
Q

what factors cause long run growth?

A

caused by factors that increase the LRAS:

  • increase quantity of factors of production
  • increase in capital from higher investment from firms
  • increase in quality of factors of production
62
Q

what is an output gap?

A

when there is a difference between the actual level of real GDP and the potential level of real GDP

63
Q

what is a positive output gap?

A

when the actual level of GDP is greater that the potential underlying level of real GDP. Means that an economy is temporarily producing above its productive potential. eg. workers paid overtime

64
Q

what is a negative output gap?

A

when the actual level of real GDP is less than the potential level of real GDP. There is spare capacity.

65
Q

what is a recession?

A

two or more consecutive quarters of negative economic growth

66
Q

what is the economic cycle?

A

the natural fluctuation of the economy between recovery and recession

67
Q

what are the characteristics of recovery?

A
  • investment increase, real GDP grows and unemployment falls
  • incomes rise and consumption rises
  • confidence rises
68
Q

what are the characteristics of a boom?

A
  • workers working over time and wages rising
  • inwards migration may rise due to work
  • demand for luxury goods high
  • demand for imports high
    eventually can’t keep up with demand
69
Q

what is stagnation?

A
  • once boom is in full flow is starts to become unsustainable
70
Q

what causes recession?

A
  • trading partners

- agricultural harvest

71
Q

what are the negatives of economic growth?

A
  • environmental concerns- growth gives rise to externalities
  • unsustainable- expense of future generations
  • wealth and income inequality
  • inflation
72
Q

what are the positives of economic growth?

A
  • rising incomes=better living standards
  • less unemployment- better job prospects
  • affordability of goods and services
  • better access to healthcare and education
  • higher tax revenue and intl competitiveness
73
Q

what are the impacts of a currency appreciation?

A
  • rise in external purchasing power
  • cheaper to import
  • more expensive for countries to buy your exports

Economics (6 decks)

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