Module 13 Macroeconomics and Government Policy Flashcards
Four macroeconomic objectives
- Economic growth
- Low unemployment
- Low inflation
- Avodance of balance of payments deficits and exchange rate problems
Aggreate demand and supply curves
Gross Domestic Product
The sum of the market values of all the goods and services produced in an economy during a period.
Circular Flow of Income Assumtion
- Economy consists of only two sectors, firms and households.
4 factors of production
- Land - natrual resources
- Labour - workers who provide their skill
- Capital - man made inputs such as plant and machinary
- Enterprise - organisiton of the other three factors
Saving and investments
- Withdrawal of fund from the economy
- Injection of fund into the economy
Imports and exports effect on the economy
- Imports are withdrawals from the circular flow
- Exports are injections.
Effect of goverment spending e.g healthcare and tax such as VAT on the circular flow
- Government spending is an injection
- Taxes are withdrawals from the cirular flow
Trade surplus
Exports > Imports
Trade deficit
Exports < Imports
Budget deficit
Government spending > Taxation
Budget Surplus
Government spending < Taxation
Aggregate demand
Aggregate Demand = Consumer spending + Investment + Government spending + Exports - Imports
Consumption function
C = a + bY
- C is the amount consumed for any level of income
- a is autonomous consumption, the amount that a person will consume if their income is zero
- b is the marginal propensity to consume
- Y is income (Income = Savings + Consumption)
Marginal propensity to save
MPS = 1 - MPC
- MPC is the marginal propensity to consume or ‘b’
The muliplier effect
Increase in natioal income = Injection x 1/MPS
- 1/MPS is the ‘multiplier’
Frictional unemployment
- Unemployment that exists because of a person switching jobs, due to the time it
takes to match prospective employees with jobs
Seasonal unemployment
Unemployment at certain times of the year in industry sectors where the demand for
labour is seasonal, for example, agriculture or tourism
Structural unemployment
Where the supply of labour in one industry outstrips the demand and people’s skills
are too inflexible to be transferred easily to other industries
Common issues of inflation
- Uncertainty
- Redistribution of income - Savers would see decrease in real value of savings, borrowers may benifit and capped pay rises would fall
- Balance of payments - Cause a trade deficit
Expansionary fiscal policy
Increase government spending or cut taxes
Contractionary fiscal policy
- Cutting government spending or rasing taxation
Monetary policy
High vs low intrest rates
- High intrest rate - slow down the demand for goods and services
- Low intrest rates - stimulate demand for goods and services
Who sets intrest rates?
- Bank of England
- Monetary Policy Committee (9 members)
Nationally determined contribution under the Paris agreement
- UK commits to reducing greenhouse emissions by at least 68% by 2030
