Macroeconomics Booklet 1 Flashcards
What is macroeconomics?
Looks at the economy as a whole, whether nationally or internationally.
Why do governments want to know how much output is being produced overall?
To avoid waste, tax revenue and regulation.
What are the 3 method of calculating economic activity?
The output method - add up the value of all goods and services produced by firms in an economy.
The expenditure method - add the value of everything that households in the economy buy.
The income method - the amount that firms pay households for the factors of production.
What is the equation for this in a closed economy?
O = E = Y
What does closed economy mean?
Means there is no international trade and no government intervention.
What is the difference between income and wealth?
Income is a flow variable, generated over time - salary. Wealth is a stock variable, value of assets at a given time.
What are the factors of production and the factor incomes from them?
Captial - Interest
Enterprise - Profit
Land - Rent
Labour - Wages
How do you draw the circular flow of income?
Households ————————- Firms
Households give household expenditure, and firms give goods and services in return.
Households give factors of production and firms give factors income.
What are leakages of the circular flow?
1) Tax
2) Saving
3) Imports
What are the injections of the circular flow?
1) Exports
2) Government spending
3) Investment
What is G.D.P?
G.D.P is the total value of goods and services produced in a country in a year.
2014, elements of the ‘hidden economy’ were added to the measure, what would this do to G.D.P?
‘Hidden economy’ - illegal drugs etc.
This would make G.D.P less reliable as it would only be an estimate.
Index numbers - How to work out percentage change?
Percentage change = change divided by original x100.
What are Nominal values?
The actual numerical values that are measured.
What are real values?
Real values are taken at constant prices - adjusted for inflation.
How do you calculate real G.D.P using indices?
Nominal G.D.P for Year 2 x100 divided by Price Index for Year 2.
What are the four main objectives of government macroeconomics policy?
1) Sustainable economic growth
2) Price stability- low inflation
3) Minimising unemployment
4) Stable balance of payments on current account
What are some other objectives?
1) Maintain a balanced budget
2) Achieve greater equality in the distribution of income
3) Protect the environment
