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OCR economics > Macroeconomics key terms > Flashcards

Macroeconomics key terms Flashcards

1
Q

Nominal Value

A

based on current prices taking no account of changing prices through time (not adjusted to inflation)

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2
Q

Real Value

A

Value of an economic variable taking account of changing prices through time (adjusted for inflation)

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3
Q

Index Number

A

A device for comparing the value of a variable in one period or location with a base observation (e.g. measuring the average level of prices relative to a base period)

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4
Q

Consumer Price Index (CPI)

A

A measure of the general price level in the UK adopted as the UK’s inflation target since December 2003

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5
Q

Inflation

A

A sustained rise in the general price level

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6
Q

Costs of Inflation

A

Reduced standard of living
Risk of hyperinflation
Menu Costs
Shoeleather Costs
Uncertainty

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7
Q

Retail Price Index (RPI)

A

A measure of the average level of prices in the UK. Measure the average level of prices relative to a previous (base) year

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8
Q

Cost-Push Inflation

A

Cost-push inflation occurs when overall prices increase (inflation) due to increases in the cost of wages and raw materials.

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9
Q

Demand Pull Inflation

A

Inflation initiated by an increase in AD

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10
Q

Aggregate Demand

A

Total spending in an economy over a given period of time

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11
Q

Deflation

A

A sustained fall in the general price level

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12
Q

CPI

A

Measure of inflation. Used both in the UK and in other countries, useful for international comparisons. Seen as better at measuring the effectiveness of macroeconomic policy.

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13
Q

Menu costs

A

The cost of having to constantly having to reprint and change prices

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14
Q

Shoe Leather Costs

A

Shoe-leather cost is the time and effort you spend to minimize the effect inflation has on your finances.

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15
Q

Economically Inactive

A

Those people of working age who are not looking for work, for a variety of reasons (e.g students/elderly)

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16
Q

Discouraged Workers

A

People who have been unable to find employment and who are no longer looking for work, seen as economically inactive.

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17
Q

Workforce

A

People who are economically active- either in employment or unemployed

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18
Q

Unemployed

A

People who are willing and able to work but do not have a job.

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19
Q

Full Employment

A

When people who are economically active are able to find work

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20
Q

Claimant Count

A

Number of people claiming job seekers allowance each month

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21
Q

The labour force survey (ILO)

A

Percentage of workforce who are available for work (willing and able) but are without jobs

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22
Q

Problems of Measuring the Claimant Count

A

Only finds those who are eligible for JSA. so excludes people with a valid excuse e.g. people returning from raising children or those on Government training schemes etc

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23
Q

Problems of Measuring Labour force survey

A

Based on sample evidence therefore not completely accurate doesn’t show people who would be willing to work at their desired wage

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24
Q

Frictional Unemployment

A

Unemployment associated with the job search; people between jobs

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25
Q

Structural Unemployment

A

Unemployment arising because of the changes in the pattern of economic activity within an economy. unemployment due the loss/decline of entire industries e.g. coal mining

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26
Q

Cyclical Unemployment

A

Unemployment that arises from a lack of AD (for example, during the down turn of a economic cycle such as a recession)

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27
Q

Demand Deficient Unemployment

A

occurs when there is not enough demand for goods and services in the economy, leading to a reduction in production and a corresponding reduction in employment.

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28
Q

Seasonal Unemployment

A

Unemployment that arises in seasons of the year when demand of the good/service is relatively low

29
Q

Voluntary Unemployment

A

A situation that arises when a individual decides not to accept a job at the going wage rate

30
Q

Involuntary Unemployment

A

Situation arising when an individual who would like to accept a job at the going wage rate cannot find employment- rely on social security payments

31
Q

Long Run Economic Growth

A

An increase in the productive potential of an economy/increasing the quantity or quality of the factors of production

32
Q

Short Run Economic Growth

A

An increase in real GDP/actual output/AD

33
Q

Labour Productivity

A

Output per worker per period of time

34
Q

Capital Productivity

A

Output per unit of capital per time period

35
Q

Total Factor Productivity

A

The average productivity of all factors, measured as the total output divided by the total amount of inputs used

36
Q

Investment

A

The addition to the capital stock of the economy through expenditure by firms

37
Q

Capacity Output

A

When all factors of production are fully and efficiently optimised

38
Q

Human Capital

A

The stock of skills and expertise that contribute to a workers productivity; can be increased through education and training

39
Q

Economic Growth on PPC Curve

A

outward shift indicates economic growth in long run (increase in productive capacity curve). Short run economic indicated through a movement toward full capacity but not in the productive capacity curve itself.

40
Q

Productivity

A

Output per input over a period of time

41
Q

Economic Growth through Labour

A

Another key driver of Growth is the skilled labour needed to operate the high-tech equipment. Can increase supply of labour through immigration policies. Investment in Labour will also increase the productivity of the economy, education + training are merit goods.

42
Q

GDP

A

measurement of economic output in an economy over a period of time. Not seen as a good assessment of standard of living in a country.
Expenditure = Output = Income

43
Q

Advantages of measuring GDP

A

Straightforward/understood
Internationally used so comparable with other nations
However different countries have different sized populations which isn’t taken into account

44
Q

Importance of Economic Growth

A

Expanding the availability of resources (economic growth) in an economy enables the standard of living to increase. For any society economic growth is a fundamental objective perhaps the most important. Other policies may also be seen as subsidiary to it e.g. inflation control or full employment.

45
Q

Economic Growth vs Basic needs provision

A

Growth objectives will eventually trickle down despite initial inequality of incomes and will tackle basic problems such as poverty. However people do still argue that basic needs should be catered for first, as people will gain human capital→can contribute to growth process.

46
Q

3 measures of circular flow of income

A

Expenditure method = Output method = Income method

47
Q

Average propensity to consume

A

calculated as C(household consumption)/Y(disposable income)

48
Q

Marginal Propensity to Consume

A

calculated as Change in consumption( ∆C)/ Change in disposable income(∆Y).

49
Q

The Multiplier

A

= 1/MPW(Marginal Propensity to Withdraw)
Or 1/MPS(Save)+MPT(Tax)+MPI(Import)

50
Q

Why the demand curve is downward sloping (ALL ASSUME CETERIS PARIBUS)

A

1) Real Income effect
2) Wealth effect: if the price level is low then peoples assets will be worth more meaning they have more wealth→more willing to spend
3) Interest rates: prices low→interest rates low→discourages saving→more consumption and investment

51
Q

Factors affecting the Position of the AS curve

A

1) Technology = Advances means firms can produce more with the same available resources.
2) Productivity = If workers become more skilled and thus productive, the capacity level of the economy will rise.
3) Factor mobility = I.e. how willing workers are to move around the country to fill job vacancies/retrain themselves for job mobility in other industries. It can overall increase output.
4) Enterprise = Encouraging people to become entrepreneurs and set up businesses will increase the capacity of an economy.
5) Economic incentives and attitudes = Government policy can affect LRAS; E.G. incentives in taxes and benefits, as well as legislation can affect the willingness of people to work and their motivation. (supply-side policies)

52
Q

Comparative Static Analysis

A

When something is changed to examine its effects on the equilibrium

53
Q

Different shapes of LRAS

A

Position of AD/AS equilibrium determines whether the economy is in full employment→ classical view that economy will always return to full employment. Keynesian→possible for equilibrium to settle below full employment in a long-run recession

54
Q

Disadvantages of GDP

A

Income inequality distribution
Informal sector and accuracy of data
Social indicators

55
Q

Economic growth (diagrams)

A

Expressed in terms of an outward movement of PPC curve. Long run→ shift right in long run AS curve→may be because of an increase in quantity in the factors of production.
Short run growth→shift in AD curve

56
Q

Macroeconomic Objectives

A

Price Stability (low inflation), Full employment, Balance of payments, Economic growth, redistribution of income, environmental protection

57
Q

Price Stability (low inflation) example

A

Govt tries to control inflation→controlling money stock→rise in money stock→rise in AD→rise in price level

57
Q

Price Stability (low inflation) example

A

Govt tries to control inflation→controlling money stock→rise in money stock→rise in AD→rise in price level

58
Q

Full employment

A

Full employment refers to a situation where all available labour resources in an economy are being used, and there is no significant surplus of unemployed workers.

59
Q

Current Account Deficit (Issues)

A

ownership of UK assets sold to foreigners→long run effects on AS. Needs to be funded by a financial/capital account surplus to continue

60
Q

Economic growth (as a policy Objective)

A

Long term aim→ to increase countries productive capacity→ by shifting LRAS curve

61
Q

Monetary policy

A

Government policy that attempts to manage Ad by controlling monetary tools (interest rates/money supply or QE/exchange rates)

62
Q

Monetary policy committee

A

Body within the bank of England responsible for the conduct of the monetary policy

63
Q

Fiscal policy

A

Taxation and government spending to influence AD

64
Q

Direct tax

A

A tax levied directly on income

65
Q

Indirect tax (definition)

A

Tax on expenditure (for example, VAT)

66
Q

Indirect tax (examples)

A

VAT Customs duties levied on imports, excise duties on production, sales tax

67
Q

Education and training

A

Investment in human capital to improve productivity by teaching new skills.

OCR economics (25 decks)

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