Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

IB HL Economics > Macroeconomics flashcards > Flashcards

Macroeconomics flashcards

1
Q

Give an example of injections to an economy.

A

Government spending, consumption, investment and exports.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Give an example of leakages from an economy.

A

Taxes, savings and imports.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is GDP?

A

It is a measure of everything produced within a country in a specific time period (usually a year).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the formula for GDP?

A

The formula for GDP is GDP = C + I + G + (X-M), in which:

C = consumption spending on goods/services.

I = investment spending by business in order to grow. Money is spent on the factors of production (land, labour, capital, enterprise).

G = Government spending.

X-M = Net exports, money gained by exports - money spent on imports.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is real GDP?

A

Real GDP is the GDP of a country at any given point after having been being adjusted for inflation.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the formula for real GDP?

A

Real GDP =

(Nominal GDP / Price deflator) x 100

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is GDP per capita?

A

GDP per capita shows the average economic output per person in a country.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is the formula of GDP per capita?

A

GDP per capita =
Real GDP/ Population of a country.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is GNI?

A

GNI is the total money made by a country’s people and businesses, including money made abroad, minus money made by foreigners in the country.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the formula for GNI?

A

GNI =

GPD + incomes flowing from other countries - incomes flowing out to other countries.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is real GNI and what is the formula?

A

Real GNI is the GNI of a country at any given point after being adjusted for inflation.

The formula for real GNI is: Real GNI = (Nominal GNI/Price Deflator) x 100.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the formula for GNI per capita?

A

GNI per capita = Real GNI/ Population of a country.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Name 2 advantages of using GDP as a measure of national income accounting.

A

GDP allows comparison with other countries, since it is an international measurement.

Economic growth is a primary target for many governments, and thus GDP gives a relative idea of where countries stand and where they can grow.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Name 2 disadvantages of using GDP as a method of national income accounting.

A

GDP overestimates quality of life in a specific country, as money spent on projects such as cleaning up pollution is also counted into GDP, even if it is just restoring damage.

GDP does not factor in income inequality.

GDP relies on government agencies to collect data, and that data can be flawed or rigged for various reasons.

Companies are always attempting to improve their products/services but prices don’t change dramatically, which is something GDP does not calculate (quality of output).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is the business cycle?

A

The Business Cycle is a model that shows the fluctuations in an economy over time.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Name the four phases of the business cycle.

A

Growth (expansion)

Boom (peak)

Recession (contraction)

Slump (trough).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Explain the phases of the business cycle.

A

During the growth phase, GDP is increasing and so is inflation and interest rates.

During the peak phase, economic activity, inflation and interest rates are at their highest.

During the recession phase, economic activity is decreasing, as are inflation and interest rates.

During the trough phase, economic activity, interest rates and inflation are at their lowest.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What factors alter the business cycle?

A

Business cycles are affected by factors such as changes in climate, natural disasters, wage levels and inflation.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is the difference between a decrease in GDP and a decrease in GDP growth

A

A decrease in GDP is a fall in economic output, or a recession if occurring for longer than 2 quarters.

A decrease in GDP growth rate is just when the GDP growth rate decreases.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Name 3 alternate measures of well-being.

A

The World Hapiness Report/ The Cantril Ladder.

OECD Better Life Index.

Gross National Hapiness Indicator.

Happy Planet Index.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is the aggregate demand and what is the formula for AD?

A

Aggregate demand refers to the total output that all buyers in a country are willing and able to buy at any given price and time.

The formula for aggregate demand is the same as the formula for GDP.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What causes a movement along/shift in the AD curve?

A

Changes in the prices of goods lead to a movement along the AD curve.

A shift in any of the AD components (C, I, G, (X-M)) will cause the curve to shift inwards/outwards.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Name 5 determinants of AD and what component of AD they correspond to.

A

Confidence - Consumption.

Employment - Consumption.

Interest rates - Consumption.

Wealth - Consumption.

Personal taxes - Consumption.

Household indebtness - Consumption.

Expectations of future price level - Consumption.

Interest rates - investment.

Business confidence - investment.

Technology - investment.

Business taxes - investment.

Corporate indebtness - investment.

Government priorities - government spending.

Income of trading partners - Net exports.

Exchange rates - Net exports.

Trade policies - Net exports.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is aggregate supply?

A

Aggregate supply refers to the total output that all firms in a country are willing and able to provide at a given price level.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
What is SRAS?
SRAS stands for short-run aggregate supply. SRAS refers to the positive relationship between Real GDP (Real Output) and the price level of goods/services.
26
Name 3 determinants of SRAS.
Changes in wages. Changes in the cost of raw materials. Changes in the price of imports. Changes in government taxes/subsidies.
27
What is LRAS?
LRAS stands for Long-Run Aggregate Supply. The LRAS curve represents the relationship between Real GDP and the price level of resources in an economy.
28
Why doesn't output level change in the long run?
Output level doesn't change in the LRAS curve because all factors of production are being used at maximum sustainable capacity. This means that an economy cannot produce any more output. The price of the goods may increase but the quantity will not increase.
29
Name the 3 determinants of LRAS?
Quality of the factors of production. Quantity of the factors of production. Levels of technology used to produce a majority of goods in a country.
30
Name the 2 principal macroeconomic perspectives.
The Keynesian Perspective. The New Classical Perspective.
31
What is the new classical economic perspective?
The New Classical, also known as the monetarist perspective, is an economic thought that differs SRAS and LRAS. New Classical economists believe that SRAS is determined by price level and LRAS is not.
32
Explain the three sections of the Keynesian aggregate supply curve.
Section I is the phase in which there is a perfectly horizontal aggregate supply (AS) curve. There is a lot of unused capacity of production, meaning that output can be increased without price increases. Section II is the phase in which the economy approaches its potential maximum output. Producers now compete for limited factors of production, leading to an increase in price level. Section III is the phase in which the economy is at its full capacity (Ymax), there is no more economic growth that can occur as all the factors of production are fully employed. This shows Aggregate Supply (AS) as a fully vertical curve. The third stage of AS for Keynesian Economists is the only stage for new classical economists. The first and second stages for Keynesian economics is SRAS for New Classical Economists.
33
What are the determinants of the Keynesian aggregate supply curve?
Increases in efficiency. Institutional changes. Reducations in the natural rate of unemployment.
34
What is short-run economic equilibrium?
Short-run equilibrium refers to a situation in which short-run aggregate supply intersects with aggregate demand.
35
Name and explain the three equilibrium positions.
Recessionary (Deflationary) gap: This type of equilibrium occurs when AD intersects AS below full employment level of output. This means that the demands of the economy are less than the potential output of the economy. In this situation, GDP is less than potential GDP, and unemployment levels are greater than natural unemployment levels. Inflationary gap: An inflationary gap is the opposite of a deflationary gap. Essentially, it means that the economy is ‘overheating’, and that the economy is not being sustainable because they are using more resources than they can use sustainably. GDP is greater than potential GDP, and unemployment is lower than natural unemployment rates. Full employment: This type of equilibrium occurs when the economy is being as productive as possible, and AD intersects with AS at Yp (Full employment).
36
What is economic growth?
Economic growth refers to an increase in real GDP over a period of time (typically a year).
37
What is the formula for economic growth?
Growth rate = Real GDP(2) - Real GDP (1) / Real GDP (1) x 100
38
Name 3 causes of short-term economic growth.
Changes in consumer/buisiness confidence Changes in interest rates Changes in government expenditure Changes in taxation Changes in exchange rates
39
Name 3 causes of long-term economic growth
An increase in the size of the labour force. An improvement in human capital. An increase in the stock of physical capital. An improvement in technological advances.
40
What is human capital?
Human capital are the skills, knowledge, and experience possessed by an individual or population.
41
What is physical capital?
Physical capital refers to assets, such as building, machinery, and vehicles, which are owned and employed by an organisation.
42
Name and explain 2 consequences of economic growth.
Change in living standards. Impact on the entironment. Income distribution.
43
What is unemployment?
Unemployment refers to people of working age who are actively looking for a job but who are not employed.
44
What is the formula to calculate unemployment?
Unemployment rate = Number of unemployed/Labour force x 100 Labour force = # of employed people + # of unemployed people
45
Name and explain 2 difficulties in calculating the unemployment rate.
Discouraged workers: The unemployment rate overlooks discouraged workers, who have stopped looking for employment due to repeated failures in securing a job. Underemployed workers: It fails to account for underemployed workers, who are employed in jobs that do not utilise their skills or provide enough hours. Geographical disparities: The rate does not reflect geographical disparities, where employment opportunities vary significantly between different regions. Disparities: The rate does not account for disparities in employment that affect groups differently based on age, gender, ethnicity, and other demographic factors.
46
Name the types of unemployment.
Natural unemployment Cyclical (demand-defficient) unemployment Structural unemployment Frictional unemployment Seasonal unemployment
47
What is natural unemployment?
Natural unemployment is the employment rate in a country when the market is at long-term equilibrium (resources are fully employed).
48
What is cyclical unemployment?
Cyclical unemployment is unemployment that occurs during a recessionary gap, in the downturns of the business cycle.
49
What is structural unemployment?
Structural unemployment is a type of unemployment that occurs as a result of changes in demand for particular types of labour skills.
50
What is frictional unemployment?
Frictional unemployment occurs when workers are between jobs.
51
What is seasonal unemployment?
Seasonal unemployment occurs when the demand for labour in certain industries occurs on a seasonal basis.
52
Name 4 costs of unemployment.
A loss of real GDP. A loss of income. A loss of tax revenue for the government. Costs to the government of unemployment benefits. More unequal distribution of income. Increased indebtedness. Increased stress levels. Increased crime rates. Increased risks to health.
53
What is inflation?
The term “inflation” refers to a sustained increase in average price level over time.
54
What is the formula for calculating inflation?
Inflation Rate = CPI (2) - CPI (1) / CPI (1) x 100
55
What is the formula for CPI?
Cost of the basket in year / Cost of basket in the base year x 100.
56
What is CPI?
The CPI of a country refers to the consumer price index, which is a measure of the value of a typical basket of goods and services (what people would usually buy) for a year.
57
Name and explain 3 difficulties in measuring inflation.
Varying inflation for varying incomes: Inflation doesn't consider varying spending habits of different income groups, affecting accuracy in measuring costs for specific demographics. Differences in income distribution: Inflation hits lower-income individuals harder as they allocate more of their earnings to essential items, making it difficult to cover basic needs during price hikes. Changes in consumption patterns: Inflation calculations don't adapt to evolving consumer preferences driven by new products entering the market. Changes in quality over time: Inflation metrics often overlook how quality improvements in products
58
What are the three-types of inflation?
Demand-pull inflation. Cost-push inflation. Inflationary wage-price spiral.
59
What is inflationary wage-price spiral inflation?
When a rise in aggregate demand puts upward pressure on the price level of goods and services, workers will start to demand higher wages from their employers. Higher wages result in higher costs of production for firms, the result is a fall in short-run aggregate supply.
60
Name and explain 3 costs of inflation.
Greater uncertainty. Redustributive effects. Effects on savings. Damange to export competitivness. Impact on economic growth. Inefficient market allocation.
61
What is deflation? What is disinflation?
Deflation is the decrease of price level over time. Disinflation is the reduction of inflation rates over time, and is more common as it can be caused by either monetary or fiscal policy.
62
What is the cause of deflation?
Since deflation is the opposite of inflation, it is caused by either an increase in aggregate supply (opposite of cost-push inflation), or a decrease in aggregate demand (opposite of demand-pull inflation). Deflation will be caused by factors that decrease AD or increase AS.
63
Name 2 costs of deflation.
Business uncertainty. Deffered consumption. Increased cyclical unemployment. Bankruptcies will increase.
64
What is economic inequality>
Economic inequality means the differences in income levels across a population.
65
What is the lorenz curve and what does it measure>
The Lorenz curve is a graphical representation of the degree of income equality (or inequality) in an economy. It measures the percentage of total income that each quintile.
66
What is the gini coefficient?
The Gini coefficient (index) is a set of values that represent income equality in a country. The values range from 0-1, with higher values meaning more income inequality and lower values representing lower income inequalities.
67
What is poverty?
The term “poverty” refers to the inability of an individual/household to afford an adequate standard of living.
68
What are the two types of poverty? Define each.
Absolute poverty: Absolute poverty refers to a situation in which an individual/family does not have the income levels required to meet basic human needs (clean water, food, education, etc). Absolute poverty are individuals that live below the poverty line (1.90 USD/day). Relative poverty: Relative poverty refers to a comparison of an individual's/family's income to the median societal income.
69
Name 3 causes of economic inequality/poverty.
Inequality of opportunity. Different levels of human capital. Different levels of resource ownership. Discrimination. Government tax/benefit policies. Technological change.
70
Name 2 consequences of economic inequality/poverty.
Less economic growth. Lower living standards. Social and political instability.
71
What is VAT?
Value added tax (VAT) taxes refer to the taxes on the spending of goods/services. This can come in the form of specific taxes (fixed price of tax on all goods/services) or a percentage tax (based on the value of the good/service).
72
What are the three types of taxation?
Proportional taxation. Regressive taxation. Progressive taxation.
73
What is proportional taxation?
Proportional taxation is when the tax rate stays the same, irregardless of income earnt.W
74
What is regressive taxation?
Regressive taxation is when the tax rate decreases as income increases.
75
What is progressive taxation?
Progressive taxation is when the tax rate increases as income increases.
76
Name 3 solutions to solve economic inequality/poverty.
Progressive taxation. Investment in human capital. Transfer payments. Universal Basic Income (UBI).
77
What is monetary policy?
Monetary policy refers to the policy carried out by the central bank which aims to change interest rates and influence aggregate demand.
78
What are the four goals of monetary policy?
Low and stable inflation. Low unemployment. Control business cycle fluctuations. Promote long-term growth.
79
What is an interest rates?
An interest rate is defined as the cost of borrowing money.
80
How are interest rates adjusted?
Interest rates are controlled by adjusting the supply of money. As the supply of money increases interest rates decrease because there is more availability of money (easier to loan) and vice-versa.
81
What is the formula for real interest rates?
Nominal interest rate - rate of inflation.
82
Name 3 stregnths of expansionary monetary policy.
Stimulates economic growth. Reduces unemployment. Lowering interest rates. Combates deflation.
83
Name 2 weaknesses of expansionary monetary policy.
Increased inflation. Effectiveness may be limited by lack of confidence. Banks may not be willing to lend (confidence).
84
What is contractionary monetary policy and what is its goal?
‘Tight’ monetary policy refers to monetary policy that is pursued during an inflationary gap. The goal is to decrease investment and consumption spending. The central bank will choose to decrease money supply.
85
Name 2 strengths of contractionary monetary policy.
Controls inflation. Reduces price level.
86
Name 2 weaknesses of contractionary monetary policy.
Economic slowdown. Increased unemployment. Conflict with other macroeconomic objectives. Time lags.
87
What is fiscal policy?
Fiscal policy refers to manipulations by the government of its own expenditures and taxes to influence the level of aggregate demand.
88
Name 3 goals of fiscal policy.
Maintain a low and stable rate of inflation. Maintain unemployment at low rates. Reduce business cycle fluctuations. Promote a stable economic environment. Achieve an equitable distribution of income.
89
What three positions can the government budget be in?
Balanced budget: When government expenditure is equal to government revenue. Budget deficit: When government expenditure is greater than government revenue. Budget surplus: When government expenditure is less than government revenue.
90
What is the Keynesian multiplier?
The Keynesian multiplier is a numerical value that describes the proportional amount by GDP increases as a result of expansionary fiscal policy.
91
What are the two formulas to calculate the Keynesian multiplier?
KM = 1/ (1-MPC) KM = 1 / (MPS +MPT + MPM)
92
What is MPS?
MPC (Marginal propensity to save): The MPC is the fraction of an extra dollar of income that an individual decides to save rather than spend.
93
What is MTP?
MPT (Marginal propensity to tax): The MPT is the portion of each additional dollar of income that is taken by taxes.
94
What is MPM?
MPM (Marginal propensity to import): It refers to the fraction of additional income that is spent on importing goods and services from abroad.
95
What formula is used to see how much the KM changes GDP?
Change in GDP = KM x autonomous expenditure.
96
What is autonomous expenditure?
Autonomous expenditure is spending that does not depend on the current level of income or output. This means it happens regardless of the economic situation, such as government spending on infrastructure or a household’s minimum spending on necessities.
97
What is expansionary fiscal policy?
Expansionary fiscal policy refers to the increase in government expenditure and/or a decrease in taxes.
98
Name 2 strengths of expansionary monetary policy.
Decreases unemployment. Directly influences AD. Assists low-income households.
99
Name 3 limitations of expansionary fiscal policy.
Conflict between macroeconomic objectives (demand-pull inflation). Political constraints. Time lags.
100
What is contractionary fiscal policy?
Contractionary fiscal policy refers to the decrease in government expenditure and/or an increase in taxes.
101
Name 2 strengths of contractionary monetary policy.
Controls inflation. Stabilizes the economy. Leads to a sustainable use of the factors of production.
102
Name 2 weaknesses of contractionary monetary policy.
Time lags. Conflict of macroeconomic objectives (unemployment and economic growth). Political constraints/unpopularity.
103
What are supply side policies?
Refer to policies aimed at stimulating the supply side of the economy.
104
Name 3 goals of supply side policies.
Promoting long-term growth via increasing the productive capacity of the economy. Improve competition and efficiency. Reduce costs of labour. Increase firm efficiency. Reducing inflation.
105
What are market-based supply-side policies?
Market-based supply-side policies refer to policies that focus on allowing markets to operate more freely with minimal government intervention.
106
Name 3 examples of market-based supply-side policies?
Lowering business taxes. Lowering personal-income taxes. Lowering taxes on capital gains (e.g. stocks, bonds and real estate). Weakening the power of labour unions. Abolishing minimum wage legislation. Reducing unemployment benefits. Privatisation. Deregulation.
107
What are the disadvantages of market-based supply side policies?
Possible negative impacts of equity. Generation of negative externalities. Time lags.
108
What are interventionist supply-side policies?
Interventionist supply-side policies refer to policies that focus on governments directly intervening in markets.
109
Name 3 examples of interventionist supply-side policies.
Training and education. Improved health care services. Increased R & D. The provision of infrastructure. The maintenance of infrastructure.
110
What are the constraints of interventionist supply-side policies?
Opportunity cost for the government. Time lags.
111
Name 2 ways that demand-side and supply-side policies overlap.
Increased investment: Both demand-side and supply-side policies can boost immediate economic activity and long-term growth by encouraging more investment in R&D, technology, and capital goods. Government expenditure: Government spending on infrastructure, education, and healthcare stimulates short-term demand and fosters long-term economic growth by enhancing labour skills and capital efficiency. Tax policies: Reductions in personal and corporate taxes under both policy approaches increase short-term spending and long-term economic potential by boosting disposable income and encouraging investment and innovation.
112
How is the overlap between supply and demand-side policies illustrated?
By a shift in both the AD and LRAS/AS curve.
113

IB HL Economics (4 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions