Module 13 Flashcards
What are the four macroeconomic objectives of the govt?
- low inflation
- high employment
- economic growth
- avoidance of BOP deficits and exchange rate problems
What is aggregate demand and supply?
total demand supply from individual companies
What is GDP?
sum of the market values of all goods and services produced in a period
What are the factors of production?
- capital
- enterprise
- land
- labour
What are the payment/rewards of the factors of production?
- rent
- salaries
- profit
- interest
What are withdrawals from the circular flow?
- savings
- imports
- taxes
What are injections to the circular flow?
- exports
- govt spending
- investments
What is a balance of payments?
different between imports and exports
What is a trade surplus?
exports>imports
What is a trade deficit?
imports>exports
What is a budget deficit?
govt spending> taxes
What is a budget surplus?
taxes>govt spending
What is the public sector net cash requirement?
the total amount the govt requires to borrow
What is the formula fro aggregate demand?
AD=exports + govt spending+ consumer spending + investment - imports
What is the formula for income?
income = consumption + savings
What is the consumption function?
C = a + bY
C - consumption
a -autonomous consumption
b- MPC
What is the marginal propensity to save?
MPS= 1- MPC
What is the formula for increase in national income due to an injection?
=injection * 1/MPS
What is frictional unemployment?
because of switching jobs and the time it takes to match employees with jobs
What us seasonal unemployment?
certain times of the year
think farming or tourism
What is structural unemployment?
where the supply of labour in one industry outstrips demand and poles kills are too inflexible to change industry, can lead to regional unemployment
What is classical unemployment?
sometimes called real wage unemployment
when the number of workers companies are willing to employ at certain rate is less than demand.
can be due to things that keep wage artificially high i.e. minimum wage or trade unions
What id demand deficient unemployment?
-often called cyclical or Keynesian
due to low growth or recession and demand curve shifts left
What can the govt do to tackle unemployment?
use interest rates
geographical subsidies
change minimum or living wage
How often is inflation measured?
monthly
What is the difference between consumer price index and retail price index?
CPI doesn’t include council tax or mortgages
What are the issues associated with inflation?
- uncertainty
- savers would be worse off
- BOP - county’s exports will become more expensive and imports will seem cheaper
What is demand pull inflation?
When demand increases and firms respond by increasing prices
What is cost push inflation?
as production costs get more expensive, firms supply fewer goods and prices are raised. this can lead to wage price spiral where workers demand higher wages which then further increase the firms prices.
Who sets the inflation target in the UK?
UK government sets a target for the Bank of England.
What id demand side policy?
seek to change the level of spending in the economy
What is supply side policy?
encouraging firms to produce more
What is expansionary fiscal policy?
tax cuts and govt spending
What is contractionary govt policy?
cuts in spending and increasing taxes
What are the advantages of fiscal policies?
- resdribute wealth
- alter behaviour
What are the diadvantages of fiscal policies?
-time lag
-households might not react as anticipated
may increase inflation
Who sets interest rates?
Bank of England and Monetary Policy committee (members from boe and external experts)
What is quantitive easing?
BoE creates digital money and buys things like govt bonds which
- lowers the bond yield, hence interest rates
- frees up investors
