Macroeconomics Igcse Flashcards
to cover all topics in macroeconomics
factors of economic growth( limpdu)
increase in life expectancy increase in infrastructure increase in productivity decrease in unemployment increase in migration.
what is economic growth
is the increase in the value of goods and services produced within an economy over a period of time
GDP?
gross domestic product measures the total no of goods and services produced with an economy over a period of time
problem of GDP
statistical errors and the hidden economy
inflation
is the avg increase in the price of goods and services being sold within an economy over a period of time
demand-pull inflation
demand rises for goods and services from consumers, firms, govs
firms will exploit the rising demand by increasing there prices for their goods and services, as a firm’s main objective is to maximize a profit
cost-push inflation
resources become expensive
cost of producing increases
thus the business will produce less and pass the rising cost to their consumers
intrest rates
The reward for saving and cost for borrowing
what is unemployment
people who are actively seeking for a job and are currently without a job
Types of unemployment
fssc
frictional/ sessonal/ structural/cyclical
cyclical unemployment
unemployment caused when there is a decline in the economic cycle such as a downturn or recession
frictional unemployment
short term unemployment caused when people are between jobs
structural unemployment
unemployment caused when theyre is a decline within an industry, such as robots replacing humans, (factor substitution)
seasonal unemployment
unemployment due to changes in seasonal demands for goods and services
Ex) such as agricultural goods
Balance of payments
A record of all transactions including international trade
Current accounts
section of the balance of payments where it records the amount of imports and exports for an individual country
Exports
when goods and services are sold overseas
imports
when goods and services are brought from overseas
current account surplus
exports > imports x>m good
current account deficit
imports > exports m
exchange rates
the price of one currency in terms of another
SPICEE bad
Stronger pound - imports cheaper - exports expensive
wpidec good
Weaker pound - imports decrease - exports cheaper
Ways businesses damage the environment
Water pollution
visual pollution
Air pollution
noise pollution
Gov intervention (Mm strips)
Maximum pricing - A maximum price occurs when a government sets a limit on the prices of a good or service – with the aim of reducing prices (the government sets a maximum price to allow consumers to purchase these day to day products such as water, rice, etc)
Minimum pricing - A minimum price is set so that firms cannot sell below a certain price. (this is done to prevent people from buying dermit goods)
Subsidies - money that is given by the gov to lower
prices, reduce the cost of producing goods
and therefore increase the supply of goods
and services
Taxation - taxing products increasing prices and
lowering demand
Regulation - fines/ rules
Information - info (advertisement to prevent bad habits)
Pollution permits - to reduce pollution via permits
State provision - free gov services like parks, schools.
Absolute poverty
is someone who cannot afford the basic needs
relative poverty
is someone who can afford the basic needs but can be
classified as poor compared to his surroundings
Income inequality
Is the difference that exits within the people’s income that determines whether they’re rich or poor
Government interventions to reduce poverty and income inequality, Stae the three ways (pri)
3 ways:
progressive taxation: the more you earn/ make, the more you pay
redistribution through benefits of payments: the government collects taxes through progressive taxation to redistribute it equally amongst its people, as the government main objective is to maximize standards for their citizens
invest in healthcare and education: to provide basic needs to everyone and prevent absolute poverty
how do governments redistribute income amongst its citizens
by spending it on unemployment, housing, disability allowance, and welfare benefits, as the government main objective is to maximize living standards for its
citizens
government policies that affect demand
Fiscal policy
Monetary policy
what is fiscal policy to do with?
government spending and taxations
Budget surplus
when taxation is greater than government spending
Budget deficit
when government spending is greater than taxation
negatives of a budget deficit
Cost increases:
increasing in borrowing
increase in national debt
pay interest
opp.cost
( Ziad, bishr, haram, opp cost)
2 types of taxes
Direct and indirect tax
What is direct tax
Direct tax, are taxes imposed on firms and individuals
depending on their income, profit levels and wealth
2 types of direct tax
income tax - tax depending on a person’s income
co-operation tax - taxes depending on a firms profit they are usually charged a specific amount
indirect tax
indirect tax, any tax on spendings is called an indirect tax
VAT/GSC
business rates
Duities
council tax
why do governments impose taxes
discourage people from buying harmful goods
pay for public services
to protect the environment
2 types of fiscal policy (Expans and contract)
expansionary, (increasing the aggerate demand)
contractionary(reducing the aggerate demand)
what is Expansionary fiscal policy
Expansionary fiscal policy is related to Budget deficit, where goverment spending is more than taxation
expansionary effects on consumers and firms (ad increases, left )
A decrease in tax –> consumers have more disposable income –> ad rises
a decrease in cooperation tax –> firms have more money to spend on r&ds, better quality products –> ad rises
Increase in gov spending –> more spending on infrastructure (increase in productivity), subsidies –>
ad rises
Contractionary fiscal policy effects on consumers and frims( ad decreases, right)
An increase in tax –> consumers have less disposable income –> ad decreases
an increase in cooperation tax –> firms have less money to spend on their businesses, business cost increases–> ad decreases
a decrease in gov spending –> less spending on infrastructure (decrease in productivity), decreasing subsidies –> ad decreases
why goverments use Contractionary fiscal policy (ipm)
Budget surplus
to reduce inflation
to reduce pollution
to eliminate market failure
why goverments use Expansionary fiscal policy (eug)
budget deficit
to increase economic growth
to reduce unemployment
to increase GDP
what is Contractionary fiscal policy
Contractionary fiscal policy is related to budget surplus where taxation is greater than government spending
what does budget surplus relate to?
expansionary
contractionary
contractionary
what does budget deficit relate to?
expansionary
contractionary
expansionary
2 types of monetary policies
increasing the supply of money
changing interest rates to control inflation
monetary policy (changing interest rates to control inflation) green left
inflation increases above 2 %
central banks will increase interest rates
consumers will spend less and save more
demand for goods and services decreases
firms profit decrease
firms will have lower prices in response to the demand
Inflation falls back to 2 %
increasing the supply of money
Central banks will buy bonds from commercial banks
Commercial banks will receive money in exchange for the bonds
Commercial banks will have more money to spend on the consumers and firms
As a result consumers and firms have more money entering the economy
more money enters the economy improving, GDP, economic growth, reducing unemployment
why are supply-side policies used
policies that are used to increase aggregate supply within an economy
aggerate supply
the total no of good and services produced by all firms within an economy
how are supply-side policies used (increase)
supply-side policies are policies that increase the quantity or quality of the factors of production
factors of production (land, labor, capital, and
enterprise)
supply-side policies (pet-tax)
privatization ( increases the quality of workers)
Spend more on education and training ( increases supply of workers)
lower income tax to encourage workers (Quantity)
lower business tax to encourage employment (Quantity)
improving labor productivity (Wtfq)
improving flexibility- (new laws to weaken trade unions)
lowering taxes
increase workload- (raise the retirement age and encourage immigration)
improving labor quality
