Macroeconomics Theory Flashcards
Define full emp.
What does it always accept?
✅ Emp. level at market clearing wage rate
✅ no. workers firms want to hire = no. workers wanting to work.
✅ ~ 3%
✅ Accepts that always some unemp., e.g. frictional unemp.
What 2 Δ affect Government Spending?
✅ Pol. priorities
✅ Econ. priorities
Define deflation
✅ Sustained decrease in APL in an econ.
What economist advocated more government intervention? What was his justification?
✅ Keynes
✅ Argued gov could stabilise business cycle + regulate econ. output, esp. during a recession
How do Δ interest rates affect consumption?
✅ ⬇️ int/r => ⬇️ cost of borrowing + reward for saving => inventivises consumers to spend.
How does high inflation expectations => cost-push inflation?
✅ ⬆️ inflation expectations => workers push for a wage ⬆️ to incorporate inflation so real wage doesn’t ⬇️ => $ of prod ⬆️ => reflect in prices
✅ Self-fulfilling prophecy
Define Seasonal unemp.
✅ Unemployment arising in different seasons of the year, caused by weather /holidays
✅ e.g. end of the Christmas shopping period
Problems with measuring inflation with CPI
✅ Only considers a 'typical' household - regional / seasonal / ethnic / different class variations not taken in account. ✅ Errors in data collection ✅ Changes in the goods in the basket make comparisons over time + int. ⬆️ difficult / less accurate ✅ Needs to be considered alongside many other measurements of the econ - e.g. commodity $.
How to shift LRAS rightward (general)?
✅ Improve an econ’s prod. potential (outwards shift of PPC)
✅ ⬆️ factors of prod
✅ Existing factors of prod. ⬆️ efficient.
✅ ⬆️ mobility of factors of prod.
How do Δ in income affect consumption?
Expectation?
✅ ⬆️ income = ⬆️ purchasing power => ⬆️ C.
✅ ⬆️ confidence to spend + still feel financially secure.
✅ Sometimes even expectation of ⬆️ income => ⬆️ consumption.
3 criteria for someone to be unemp.
✅ Willing + able to work
✅ Jobless
✅ Actively looking for work
How is inflation measured?
✅ CPI
✅ Representative ‘basket of goods’ + services , $ tracked over time.
✅ Basket of goods is what a typical household in that country consumes.
✅ Basket of goods vary from country to country
What is AS?
✅ Total amt. of g/s that all industries in an econ. will produce at a given $ level.
What assumptions does the circular flow of income make?
✅ Households own all the factors of production + the env: sometimes firms can own land/capital, and nobody owns the env.
✅ Firms provide all g/s. Unpaid labour + care not a factor, even though help make paid labour more efficient.
✅ National Income = National Output = National Expenditure: but businesses will hike up prices and consumers will save some of their income.
2 Benefits of unemp. to firms?
✅ ⬆️ productivity (as only best workers remain)
✅ ⬇️ pressure on wages
How does fall in exchange rate => cost-push inflation?
✅ ⬇️ in exchange rate (home currency has lower value compared to other currencies) => ⬆️ price of imports => because many factors of prod. are imported, $ of prod ⬆️ => firms ⬆️ $ to avoid ⬇️ profit margins
How do in ⬇️ Business taxes affect Investment?
✅ ⬇️ business taxes =>⬇️ costs of production + ⬆️ amt. left for investment.
What are the two types of govermental policy?
✅ Expansionary
✅ Contractionary
Define inflation
✅ Sustained ⬆️ in APL in an econ.
2 key reasons which prevent workers who are laid off from immediately filling job vacancies
✅ Geographical Immobility of Labour
✅ Occupational Immobility of Labour
2 Advantages of using GNI to measure econ. welfare?
✅ Easy to calculate, just from income tax paid
✅ Quite accurate, but only if a vast majority of the economy is formal => more suitable for more dev. econ.
Disadvantages of using Monetary Policy?
✅ Time lag: Up to 18 months for full effect of int/r change to be take place
✅ Blunt instrument: difficult to target certain groups. Change in int/r will affect every actor in the economy, so there will be unwanted effects
✅ Technical limitations: 0 or -ve int/r create new problems, e.g. there will be no one buying government bonds because buyers of the bonds will get less money than they bought it for.
How to measure short term econ. growth?
✅ Annual % change in real GDP.
✅ Mostly from AD
Example of regional unemp.?
✅ N. UK, 1980s, coal mines shut down => regional unemployment
✅ Currently, UK steel industry decline, because climaate change policies increase prod. $, China int. comp + strength of the £ => large-scale layoffs in industry in Wales + N. England