macrooverviews Flashcards

1
Q

describe the circular flow of income

A

entrepeneurs buy factors of production from households, so they can set up and run businesses to produce goods and services

then firms sell the goods and services to the households.

households use the income they earned by selling the factors of production to buy the goods and services that they need and want

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

why are firms dependent on households

A

firms rely on households for labour and money (factors of production)

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

why are households dependent on firms

A

households are dependent on firm for money and wages, and the goods and services they make

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

what is aggregate demand

A

the total planned demand for goods and services in the economy

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

how is aggregate demand calculated

A

Consumption + Investement + Government + (Exports - Imports)

C+I+G+(X-M)

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

how is aggregate demand affected by changed in the price level

A

when price level decreases, demand expands

when price level increases, demand contracts

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

what is aggregate supply

A

the total planned supply for goods and services in the economy

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

how is aggregate supply affected by changed in the price level ( and why)

A

as price level increases, supply also increases

1- for a firm to supply more, they must pay their workers overtime which means they need to increase the price level to pay the workers this extra rate

2- it becomes more profitable to produce goods and services

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

what is macroeconomic equilibrium

A

the price level where aggregate supply equals aggregate demand

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

what do we know at macroequilibrium

A

the GDP

the price level

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

what does macroeconomic equilibrium represent

A

-where ad and as meet

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

what is economic growth

A

when the GDP of a country rises from one period to another

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

state 3 benefits of economic growth

A

government taxes increase so they can increase public spending

living standards increase

employment increases

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

state 3 disadvantages of economic growth

A

increased pollution and congestion

it can increase inequality

it can increase inflation which leads to higher prices

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

what is full employment

A

when most people who are able to work are in employment

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

what is unemployment

A

when someone doesn’t have a job but they’re able to have one

17
Q

state 3 causes of unemployment

A

seasonal jobs

economic recession

automation

18
Q

define the rate of inflation

A

the rate at which prices increase

19
Q

define price stability

A

when inflation rate is around 2% a year

20
Q

why are stable prices important

A

it boosts consumer confidence as prices are more predictable

it also boosts business confidence, which makes the economy bigger

21
Q

define the balance of payments

A

a record of a country’s financial transactions with the rest of the world

22
Q

what are the three accounts that make up the balance of payments and what do they record

A

current account - imports and exports
financial account - foreign direct investement
capital account

23
Q

why is a trade deficit a problem

A

it suggests the economy has problems and relies on other contries for assets

24
Q

why do governments need accurate data

A

to be able to understand and influence the economy

25
what are 3 pieces of data the government use
GDP, CPI (consumer prices index), employment and unemployment
26
define fiscal policy
deliberate use of taxes and spending to influence the economy
27
define expansionary fiscal policy and when is it used
cuts taxes/increases spending used when the economy is in a slump
28
define contractionary fiscal policy and when is it used
increases taxes/cuts spending used when there is a high inflation rate
29
how does expansionary fiscal policy affect the economy
lower taxes mean more disposable income, and an increase in aggregate demand, so the economy grows and gets out of a slump
30
define monetary policy
deliberate use of the country's interest rate to influence the economy
31
define expansionary monetary policy and when is it used
cut in the base rate makes borrowing cheaper and saving less attractive used when the economy is in a slump
32
define contractionary monetary policy and when is it used
increase in the bank rate which makes borrowing more expensive and saving more attractive - so consumption and investement will reduce and aggregate demand decreases used when the economy is in a boom with high inflation
33
define supply side policy
long term policies that allow the economy to grow
34
describe a supply side policy including its positive effects
government spending on infrastructure like railways to make transporting goods more efficient, growing the economy
35
why do supply side policies increase aggregate supply
aggregate supply increases as firms invest more to take advantage of a growing economy
36