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Economics > Macroeconomics > Flashcards

Macroeconomics Flashcards

1
Q

What are the 4 main microeconomic indicators

A

Rate of economic growth
Rate of inflation
Level of unemployment
State of the balance of payments

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2
Q

GDP

A

Change in national output over a period of time

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3
Q

Purchasing Power Parity meaning

A

The real value of an amount of money in terms of what you can actually buy with it. Exchanging the rate f money to US dollars

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4
Q

When and why is PPP used

A

When using GDP to compare living standards in countries that use different currencies,the exchange rate may not reflect the true worth of the 2 currencies

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5
Q

Limitations with GDP

A

Hidden economies
Public spending may vary
Income inequality
Negative externalities ignored

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6
Q

What is nominal GDP

A

Value of national output at current prices with no adjustment for the effects of inflation

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7
Q

Real GDP

A

Value of output adjusted for inflation and measured at constant prices

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8
Q

Limitations with GDP/capita

A

Influence of foreign companies included but money is sent back to the country

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9
Q

2 meanings of inflation

A

The rise in average price of goods and services over a period of time
Fall in the value of money

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10
Q

What is retail price index

A

Measurement used for inflation
2 surveys carried out
1st survey sent to 6000 households called living costs and food survey
Used to find out what people spend their money on and proportion of income spent to work out the relative weighing
2nd survey based on prices - measures change in price of basket of good
Price changes multipiled by weighings from 1st survey

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11
Q

What is counsumer price index

A 
Same as RPI but : 
Mortgage intrest payments
Council tax
Larger sample of population used for the CPI
Mainly used
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12
Q

Limitations of RPI and CPI

A

excludes all households in the top 4% incomes
Information given by households in living costs and food survey may be inaccurate
Basket of goods only changes once a year - might miss short term changes in spending habit

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13
Q

why is RPI and CPI important for governments

A

Deciding on increases in state pension and other welfare benefits
Used to measure UKs international competition - higher CPI means UK goods become less price competitive

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14
Q

unemployment definition

A

people out of work as a percentage of labour force

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15
Q

What are the 2 ways to measure unemployment

A

The claimant court

The labour force survey

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16
Q

What is the claimant court

A

Number of people claiming unemployment-related benefits

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17
Q

Advantages of claimant court

A

Data easy to obtain

Updated monthly, always current

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18
Q

Disadvantages of claimant court

A

Excludes people who are looking for work but aren’t eligible to claim benefits

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19
Q

What is the labour force survey

A

ILO uses a sample of a population and asks them if they are actively seeking work.Used to produce ILO unemployment count

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20
Q

Advantages of labour force survey

A

International agreed measure for unemployment - easier comparison

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21
Q

Disadvantages of the labour force survey

A

Expensive to collect

May be unrepresentative of the population

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22
Q

Affects of unemployment to the economy

A

Leads to lower income
less spending
companies sell fewer goods or need to cut prices and make less profit
Unused labour in the economy so fewer goods produced

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23
Q

What is balance of paymets

A

Refers to international flow of money

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24
Q

What does the current account do

A

Records international exchange of goods and services

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25
Q

4 sections to the current account

A

Trade-in goods called ‘visible trades’
Trade-in services ‘invisible trades’
International flows of income earned as salaries, interest, profit and dividends
Transfers of money from one person or government to another

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26
Q

What is surplus

A

Money flowing in exceeds money flowing out

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27
Q

What is deficit

A

Money flowing out exceeds money flowing in

Shows a country as uncompetitive

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28
Q

Why is there deficeit in the current account

A

As consumer spending increases,so does our demand for imported goods
Exhange rate is too strong - makes our exports less competitive

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29
Q

What is balance of paymets

A

Refers to international flow of money

30
Q

What does the current account do

A

Records international exchange of goods and services

31
Q

3 sections to the balance of payments

A

The Current Account
The Financial Account
The Capital Account

32
Q

What is surplus

A

Money flowing in exceeds money flowing out

33
Q

What is deficit

A

Money flowing out exceeds money flowing in

Shows a country as uncompetitive

34
Q

Why is there deficeit in the current account

A

high propensity to consume imported goods,
Exhange rate is too strong - makes our exports less competitive
UK firms have become less competitive in the manufacture of goods.

35
Q

What do injections do

A

come in the form of investment and government spending going directly into the firm and exports.

36
Q

what do withdrawals do

A

Come in the form of imports, savings and taxes made by households and firms and import

37
Q

What is aggregate demand

A

Total spending on goods and services

38
Q

AD formula

A

Consumption+ Investment + Government spending + (exports - import)

39
Q

What is consumption

A

Told amount spent by households on goods and services. Doesn’t include firms

40
Q

Factors of consumption

A 
Income
Intrest rates - higher,less consumption
Wealth effect
Tax
Unemployment
Consumer confidence - eg in a recession,ppl scared to lose their job
41
Q

What is investment

A

Money spent by firms on assets which they’ll use to produce goods and services

42
Q

Factors of investment

A

Risk eg economic instablitly ,less investment
Government incentives and regulation
Interest rate and access to credit
Buisness confidence and animal spirits

43
Q

What is government spending

A

Money spent by the government on public goods and services

44
Q

What is GNP

A

value of all goods and services produced by domestic businesses both at home and abroad, so it includes overseas assets

45
Q

What is GNI

A

the total level of income

46
Q

Causes of inflation

A

demand-pull - excessive demand
cost-push - firms respond to rising costs of production by increasing prices to protect profit margins
growth of the money supply - measure of the amount or
the stock of money in the economy

47
Q

Causes of demand-pull inflation

A

Reduced taxation
Lower interest rates
A weak exchange rate - boost export

48
Q

Causes of cost pull inflation

A

Wage increases
Higher raw material costs
Higher taxes

49
Q

Deflation meaning

A

the decrease in the general price level

50
Q

Disinflation meaning

A

when the inflation rate is positive but falling

51
Q

Causes of unemployment

A

structural unemployment
frictional unemployment - as workers move between jobs
seasonal unemployment
demand deficiency
cyclical unemployment
real wage inflexibility - real wage rates increase

52
Q

Effects of unemployment

A

Lower living standards
Social costs - increase in illness
De-Skilling

53
Q

Why is there a large surplus of trade in services in the UK

A

the shift towards tertiary sector employment, thus specialising in the provision of services
More competitive in services

54
Q

How can the current account of balanced

A

Controlling consumer spending will reduce the
demand for imports.
Investing in the supply-side

55
Q

AD equation

A

C + I + G + (X-M)

56
Q

Factors affecting consumption (6)

A 
interest rates
consumer confidence
wealth effects
Disposable income
Interest rates
Personal debts
57
Q

Marginal propensity to consume/save

A

how likely an individual is to consume or

save an extra £1 of income they receive

58
Q

Influences on investment

A

The rate of economic growth - faster, sooner capital equipment wears out
Keynes and ‘animal spirits’
Demand for exports - encourage firms to invest in capital assets
Access to credit

59
Q

Main influences on governemt expenditure

A

the trade cycle

fiscal policy

60
Q

Factors influencing LRAS (5)

A 
technological advances
changes in relative productivity
changes in education and skills - productivity inhanced
changes in government regulations
competition policy
61
Q

What is short run supply

A

all factors of production are fixed,
with the exception of labour which can be hired to
cover increases in aggregate demand

62
Q

Factors influencing SRAS

A

changes in costs of raw materials and energy
changes in exchange rates - makes purchasing raw materials cheaper
changes in tax rates

63
Q

What does a closed economy assume

A

No foreign trade
No government influence
Only households and firms

64
Q

Describe the circular flow of income

A

Firms provide households with goods and services
Households spend their income on the goods and services produced by firms
Households also provide firms with factors of production:
Land, Labour, Capital & Entrepreneurship
In order to pay for these factor services, firms pay households rent, wages, interest and profit

65
Q

What does a circular flow of income assume

A

Households spend all their income on goods and services
Firms spend all their income on factors of production
There is no government
There is no foreign trade

66
Q

How does increase in income impact wealth?

A

An increase in income will have a direct impact on wealth, providing finance for investment

Investing in the productive capacity of the economy will increase the stock of physical assets, therefore increasing wealth

This will lead to economic growth and higher income in the future

67
Q

Net transfer meaning

A

Sum of payments made and received with no good or service in exchange

68
Q

Problem with supply side policies

A

Time lag

Effectiveness of education depends on quality of education

69
Q

Net transfer meaning

A

Current transfers between residents and non residents

Not in exchange for anything

70
Q

What demand side policy did the government put during the financial crisis

A

VAT cut to 2.5%

71
Q

Gov debt connection to budget deficit

A

Government borrows to fund budget deficit

Borrowing leads to higher levels of government debt

Economics (6 decks)

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