Macroeconomics introduction(L1) Flashcards
What are the key players
Government Industry Consumers Central bank Civil society
Government
Sets the rules that economic agents must follow. Produces public goods and services
Industry
Businesses produce goods and services. Most businesses are SMEs (small and medium enterprises).
Majority of businesses tend to be focused on domestic market, larger companies are often multinationals
Consumers
Buyers of goods and services.
Some economies are more reliant than others, consumer confidence has a huge impact on the performance of the economy (e.g. the UK and US)
Central bank
Sets interest rates, acts as a banker to the banks.
First modern central bank was the Bank of England.
Civil society
Groups outside of government and business.
This includes: trade unions, NGOs, charities and academics.
Methods of financing a business
Retained profit
Borrowing
Issuing shares
Issuing bonds
Retained profit
Profit is the difference between revenue earned by a firm and its costs.
May be used to reward shareholders (dividends) or to fund investment.
Revenue
Income a firm receives from the sale of a good or service
Dividends
Sum of money payed regularly by a company to shareholders
Investment
Spending on capital goods
Borrowing
When firms lack money to pay business expenses (wages and materials) it results from delays between providing goods + services + receiving payments. Firms often borrow from financial institutions like banks or they’ll borrow to fund investment.
Shares
Financial asset that gives one part ownership in a company. The more shares one owns, the greater control over the company.
Why are shares attractive to investors
Capital gains can be made
Dividends an income stream
Provide a means of taking over a company
Issuing shares
Shares are traded in primary + secondary markets. Primary markets= they’re issued
Investors buy shares so that they can have more control over the company. When the business improves, the shares hold more value so investors buy them in hopes that they can earn more profit. Shares get given out so that businesses can get money but lose control of part of business.
PLCs (public companies) like Tesco can issue shares on stock exchanges, private ones can’t.
Issuing bonds
Company issues bonds
Investors purchase bonds
Up until maturity date of the bond, investors holding bonds receive regular interest payments
When bond natures, investors receive cash in full. Bonds can be traded so the person who receives the money may not be the investor who bought it
People who own bonds
Investors, creditors or debt holders
Maturity date
Bonds mature when the required amount of time has elapsed
Regular interest payments
Coupon rate
Key issues for the government and the economy (TIGERS)
Economic growth Employment Inflation Trade TIGERS (trade inflation growth employment redistribution of income stability)
Economic growths effect
Size of economy determine determines amount of goods and service available to citizens, we want it to be strong, sustainable
Employment issues
We need low unemployment. Full employment. Most people rely on jobs for income, unemployment causes social unrest
Inflation
Rate of growth of prices that we want to be low and stable. High inflation erodes living standards
Trade
Balance between value of exports and imports are needed. National economies are only capable of producing a limited range of goods and services due to natural resources + climate leaving some goods unavailable. Some countries can’t produce certain goods due to weak technological capabilities
