Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

BPP FIN > Module 11 > Flashcards

Module 11 Flashcards

1
Q

Increase in national income

A

Injection x 1/MPS

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

MPS=

A

1-MPC

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

Income (Y)=

A

Savings (S) + consumption (C)

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

Aggregate demand =

A 
Consumer spending (C)
\+ investment (I)
\+ government spending (G)
\+ exports (X)
- Imports (M)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

The consumption function is

A

C = a + bY

C is amount consumes

a is Autonomous consumption (amount will consume if income is zero)

b is the MPC, proportion of an increase in their income a person will spend consuming goods 0-1

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

Trade surplus

A

Exports > imports

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

Trade deficit

A

Exports < imports

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

Governments 4 key macroeconomic objectives?

A

Economic growth
Low unemployment
Low inflation
Avoidance of balance of payments deficits and exchange rate problems

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

GDP

A

sum of the market values of all goods and services produced in an economy during a period of time

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

Four types of unemployment

A

Frictional
Seasonal
Structural unemployment
Real wage

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

What is frictional unemployment

A

Time takes to switch jobs

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

Seasonal unemployment

A

Industry where demand for labour is seasonal

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

What is structural unemployment

A

Supply of labour in one industry outstrips demand and people’s skills are too inflexible to be transferred

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

What is real wage (classical) unemployment?

A

Demand curve : people firms are willing to employ at each wage rate

Supply curve: number of people willing to work at each wage rate

Crossing point is equilibrium so no unemployment

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

Why is inflation a problem?

A

Uncertainty
Redistribution of income
Balance of payments (exports more expensive to buyers, levels fall)

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

Macroeconomic schools of thought

A

Classical
New classical
Keynesianism
Monetarism

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Demand pull inflation?

A

Increase in prices caused by increase in demand

Increasing output and rocked
Shift to right demand curve

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Cost push inflation

A

Rising prices met with demands for higher wages

Increases production costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Demand side - Fiscal policy

A

Expansionary - increase gov spending, cut tax to increase agg demand

Contractionary - cut gov spending, raise tax to reduce agg demand

Can be unsustainable as increase budget deficits and add to national debt
Difficult to predict long term

20
Q

Macroeconomic policy may be

A

Demand side- change level of spending

Supply side - influence level of production

21
Q

Demand side - monetary policy

A

Expansionary - decrease interest rates, encourage to save less spend more

Contractionary- increase interest rates , save more spend less

22
Q

Supply side policies

A

Market orientated- remove regulation
Interventionist- increase aggregate supply

Disadvantages

  • time/cost
  • necessary increase in aggregate demand, must be high enough to absorb increase created
23
Q

Aggregate demand and supply graph

A

Aggregate demand \
Aggregate supply / becomes perfectly inelastic at the point where factors of production are used up, can’t supply any more

24
Q

Who owns the factors of production?

A

Households

Firms need them as inputs to product goods and service so pay for their use

25
Q

How do firms pay for the factors of production?

A

Land - Rent
Labour - Wages
Capital - Interest
Enterprise - Profit

Firms use factors to manufacture goods
Households will consume by spending income they receive for providing the factors

26
Q

Circular flow model savings and investment?

A

Savings are a withdrawal out of the economy

Investments are an injection in

27
Q

Circular flow imports and exports

A

Imports are withdrawals as money is paid to foreign supplier

Exports are injections as money flows in

28
Q

Governments in circular flow model?

A

Spend money on both households and firms
Injection into economy

Tax both households and firms
Withdrawal from

29
Q

When the economy is in equilibrium

A

Planned withdrawal = planned injections

Often out of balance

30
Q

Budget deficit

A

Gov spending > taxation

Must borrow money
Usually through gov bonds and loan stock

Public sector net cash requirement - total requires to borrow for a period

31
Q

What is aggregate demand?

A

The total demand for goods and services in an economy

32
Q

What is MPC?

A

Proportion of an increase in income a person will spend consuming goods

0-1

33
Q

What is MPS?

A

Proportion of an increase in come an individual would save

34
Q

MPS=

A

1-MPC

35
Q

What is the multiplier effect?

A

Effect whereby an injection into the economy leads to a greater increase in national income

36
Q

Increase in national income =

A

Injection x 1/MPS

1/MPS is the multiplier

37
Q

What is cyclical unemployment? Demand deficit

A

In times of very low economic growth or recession, aggregate demand falls

Shifts to left
Employ fewer workers
Wage rates not flexible so don’t fall to new equilibrium
Results in unemployment

38
Q

What is inflation?

A

Sustained increase in the price level in an economy

39
Q

How is inflation measured in the UK?

A

Monthly using the CPI and RPI

Consumer price index (doesn’t include council tax or mortgage interest)
Retail price index

40
Q

What are the macroeconomic schools of thought?

A

Classical
New classical
Keynesianism
Monetarism

41
Q

What is classical school of thought?

A

Works best when left alone
Minimum government intervention
Naturally always return to equilibrium level with full employment

1st school
Adam Smith 18th C economist

42
Q

What is new classical school?

A

Belief that individuals make rational decisions and firms act to maximise their profits

Leave market alone to work itself

43
Q

What is Keynesianism?

A

Interventionist approach
Influencing aggregate demand to achieve optimal economic performance

‘Demand side theory’
John Maynard Keynes 1930s

44
Q

What is monetarism?

A

Centres around amount of money in circulation

Inflation is caused by too much money chasing too few goods
Producers only option of increasing prices

Milton Friedman

45
Q

If aggregate demand is too high in comparison to aggregate supply?

A

Could lead to inflation and balance of payments deficits

AD too high- demand pull inflation and trade deficit
AD too low- recession and unemployment.

46
Q

What is demand side policy?

A

Seeking to change level of spending

47
Q

What is supply side policy?

A

Seeking to influence the level of production directly by encouraging to produce more

BPP FIN (14 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions