Brainscape's Knowledge GenomeTM

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


See full index

A-level Economics Macro > Pack 1 Macro > Flashcards

Pack 1 Macro Flashcards

1
Q

What are the seven macroeconomic objectives?

A

Economic growth
Low unemployment
Low and stable inflation
Balanced government budget
Trade Balance
Great income equality
Protection of the environment

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

When does economic growth exist and why do the gov want it?

A
  • exists if there is a rise in economic activity as measured by the increase in real output (GDP) from one year to another
  • will hopefully boost living standards in the country as should be higher rates of employment and incomes for citizens
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Why is low unemployment a macroeconomic objective?

A
  • more people who have jobs the more
    efficiently the economy ‘s resources are being used
  • high unemployment causes unpopularity for the political party in power
  • causes hardship for unemployed, their families/communities and the gov
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Why is low and stable inflation a macroeconomic objective?

A
  • Provides a stable environment for the businesses to invest and grow and protects our international competitiveness of uk goods and services
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is a balanced government budget and why is it a macroeconomic objective?

A
  • means tax revenue equals gov spending in that year
  • avoids issues of budget deficit (which result in increased national debt)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is a balance of payments equilibrium on the current account?

A
  • if the inflows and outflows from trade are equal
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the fiscal policy?

A
  • use of government spending and taxation to influence the level of demand in the economy
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the monetary policy?

A
  • involves adjusting interest rates and using quantitative easing (increases the supply of money in the economy) to influence the level of demand in the economy
  • Bank of England responsible
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are supply side policies?

A
  • aimed to boost long-term growth of the economy
  • such as increasing government spending on the key policies of education, healthcare and infrastructure
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is income?

A
  • a flow of money which acts as a reward for the services of factors of production
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is wealth?

A
  • the stock of assets held by an individual or organisation, such as properties
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are the differences between income and wealth?

A

Income: flow concept - only be measured over a period of time
Wealth: stock concept - measured at a certain point

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

What are the links between income and Wealth?

A
  1. High levels of income can build wealth (by buying up shares)
  2. High levels of wealth can earn income (if someone owns shares they can earn dividends over time)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the circular flow of income?

A
  • Households own the wealth in the economy
  • These are the factors of production
  • Households supply their factors of production to firms and receive income as a reward
  • They receive rent for land, wages for labour, interest for capital, and profit for enterprise
  • With this income, they purchase goods/services from firms
  • Firms purchase factors of production from households
  • They use these resources to produce goods/services
  • They sell the goods/services to households and receive sales revenue
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are examples of injections?

A
  • add money into the circular flow and increase economic activity
    e.g:
  • Government spending (G)
  • Investment (I)
  • Exports (X)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are Withdrawals?

A
  • take money out of the circular flow of and decrease economic activity
    e.g:
  • Taxation (T)
  • Savings (S)
  • Imports (M)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is the multiplier effect?

A
  • the number of times a rise in income exceeds the rise in injections that caused it
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What can cause the multiplier effect (explain why)?

A
  1. Investment increases:
    - if firm successfully expands then more profit to distribute to shareholders/ more jobs, hours worked increases
    - increases income = increase spending, will generate more profits for firms to invest further
  2. Government spending: (e.g helping regenerate a run-down area):
    - more gov spending mean more jobs in public sector
    - money then spent by the workers, generating more profits for firms to invest
  3. Export increases (due to successful product launch abroad):
    - more profits
    - increases shareholder dividends and future jobs = higher incomes
    - income spent = profit for firms to expand
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is the negative multiplier effect?

A
  • when an initial withdrawal of spending leads to knock-on-effects and a bigger final fall in real GDP
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What causes negative multiplier effects?

A
  • decreased in injections (investment, exports and gov spending)
  • increase in withdrawals (taxation, imports and saving) and falling consumer spending
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is Marginal Propensity to consume? MPC
What is Marginal Propensity to Withdraw? MPW

A

MPC = proportion of additional income that is spent

MPW = proportion of additional income withdrawn from circular flow in tax, saving and imports

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

How do you work out MPW?

A

MPW = (1-MPC)
MPW = MPS+MPT+MPM
Marginal Propensity to Save (MPS)
Marginal Propensity to Tax (MPT)
Marginal Propensity to Import (MPI)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is the multiplier formula?

A

1/ (1-MPC) = 1/MPW = 1/(MPS+MPT+MPM)

multiplier greater:
- higher the value of MPC
- lower value of MPS, MPT, MPM

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is national income?

A
  • total value of a country’s final output of all new goods and services produced in one year
23
Q

How do you work out national income?

A

Expenditure method:
- adds up the value of all the expenditure in the economy
- includes consumption, government spending, investment by firms and net exports (exports - imports)

Income method:
- total money value of factor payments (wages,rent,interest) for the use of factors of production over the eyar

Output method:
- total value of goods and services produced by different sectors of the economy in a given year

24
Q

What is GNI?

A
  • value of goods and service produced in an economy over a year within national borders and net income from production abroad
25
Q

What is the difference between GNI and GDP?

A
  • GDP = national income within national borders only (cares about geographical location)
  • GNI= income from abroad (takes into account who owns the factory)
26
Q

What is the difference between nominal and real GDP?

A

Nominal = unadjusted for inflation
Real = adjusted for inflation

27
Q

What is the difference between Total and Capita GDP?

A

Total GDP = money value of the volume of output of goods and services in an economy over a year
GDP per capita = total GDP divided by the number of people in the population

28
Q

What is Purchasing Power Parity? (PPP)

A
  • an exchange rate of one currency for another which compares how much a typical basket of goods costs compared to that of another country
29
Q

How do you convert nominal GDP to Real GDP?

A

Real GDP = (Nominal GDP / Price Index) x 100

30
Q

What are the advantages of using GDP to compare living standards?

A
  • internationally recognisable
31
Q

What are statistical issues of GDP?

A

Statistical issues:
- assuming its calculated accurately when it may not be:
statistical errors
hidden economy (not accounted for)
home produced goods (not included)
public sector
quality issues (e.g falling prices make GDP decreased but consumers better off)

32
Q

What are the limitations of using GDP to compare living standards? (3)

A
  • statistical issues
  • issue of inequality
  • no measure of quality of life
33
Q

Why is there an issue of inequality when using GDP?

A
  • GDP per capita is an average income of economy
  • does not reflect distribution of income
  • few large rich elite may affect GDP per capital
34
Q

Why is there an issue with no measure of quality of life when using GDP?

A
  • GDP figures ignore:
  • levels of pollution
  • war/conflict
  • access to clean water
  • education standards
  • healthcare quality
35
Q

What is economic growth?

A

increase in real GDP over time

36
Q

Why do economists need to be careful when comparing economic growth figures?

A

Economic growth is the rate of change of GDP:
- when economic growth is slowing down, GDP is just rising at slower rate

Economic growth rate will disguise the level of GDP in a country:

The accuracy of growth figures depends on validity of GDP statistics

37
Q

What is actual growth?

A

an increase in real GDP in the economy over time

38
Q

What is potential growth?

A

increase in the productive potential of the economy over time

39
Q

What are the causes of actual growth?

A

caused by an increase in income circulating the economy

higher consumption: more income flowing around economy
lower costs of production
increase in injections/fall in withdrawals:
- increase in business investment
- reduction in savings
- increase in budget deficit
- decrease in trade deficit

40
Q

What are causes of potential growth?

A

any factors that cause an outward shift in the PPF:
- investment in capital goods
- advancements in technology
- improvements in education/healthcare
- markets become more competitive
- higher productivity

41
Q

What is the output gap?

A

difference between actual level of GDP and productive potential of the economy

42
Q

What is a positive/negative output gap?

A

Positive: actual level of GDP is above the productive potential of the economy

Negative: actual level of GDP is below the productive potential of the economy

43
Q

What is an economic boom?

A

when actual GDP is well above the productive potential

44
Q

What is a recession?

A

when GDP falls for two or more consecutive quarters

45
Q

What happens in an economic boom?

A
  • high rates of economic growth
  • low rates of unemployment and higher real wages
  • low levels of spare capacity
  • high rates of inflation (companies raise prices)
  • high consumer consumption
  • high demand for imports
46
Q

What happens during a recession?

A
  • negative rates of economic growth
  • high rates of unemployment
  • lower real wages
  • low rates of inflation (companies put down prices)
  • higher levels of saving
  • deteriorating gov budget balance ( tax revenue falls and gov expenditure on benefits rise)
  • lower demand for imports (less money to buy them)
47
Q

What are the costs/benefits of growth for consumers?

A

pros:
- higher employment opportunities and incomes (businesses more likely to expand)
- reduced absolute poverty
- higher consumer confidence (less worry of losing job)

cons:
- higher inflation (demand increases)
- higher relative poverty and income inequality
- living standards may not rise (due to inc stress/environmental issues)

48
Q

What are the benefits/costs of economic growth on firms?

A

Benefits:
- higher profits
- higher business confidence and investment

Costs:
- rising costs as inflation and wages rise
- reduced international competitiveness (due to inc prices as result of inflation)

49
Q

What are the benefits/costs of economic growth on the government?

A

Benefits:
- higher tax revenue (higher income)
- reduced need for gov spending (less benefits as more people employed)
- improvements in gov budget (tax revenue rising)

Costs:
- conflict of growth with other macroeconomic objectives:
rising inflation
higher environmental damage

50
Q

What are the benefits/costs of economic growth on current and future living standards?

A

Benefits:
- current living standards may rise (higher income)
- future living standards may rise (investing in renewable energy)

Costs:
-current living standards may fall (due to opportunity cost some goods may be sacrificed to increase production of others)
- future living standards may fall (damage to environment*)

51
Q

What makes economic growth desirable?

A

Magnitude of growth:
- as pace increases leads to higher inflation

Use of renewable energy:
- sustainable
- improved living standards in the future

Actual vs Potential growth:
- long-term potential growth is more sustainable

Government policy:
-if gov uses tax revenue and redistributes should help minimise costs

52
Q

What is subjective happiness and how can it be measured?

A

-feelings of wellness and satisfaction that cannot be objectively measured
determined by:
financial situation
job satisfaction
friends, family and community
health
personal freedom
personal values

53
Q

What is Easterlin paradox?

A
  • initially as real incomes rise, there will be an increase in subjective happiness
  • however as real incomes rise further, subjective happiness is unlikely to rise any further
54
Q

Why as real incomes rise further, subjective happiness does not also rise further?

A
  • increased importance of non-financial factors as incomes rise
  • importance of relative incomes
  • importance of habit
55
Q

What is UK National Wellbeing?

A
  • economic measure of quality of life conducted in an attempt to look beyond GDP figures by looking at factors such as health, environment and personal well-being
56
Q

What are the pros/cons of UK National Wellbeing?

A

Pros:
- gives more inclusive measure of wellbeing
- provides a guide to policymakers on areas to focus on

Cons:
- harder to measure subjective indicators accurately
- difficult to compare over time and between indicators
- measure is not aggregated (no single measure)

57
Q

What is purchasing power parity?

A

the rate at which the currency of one country would have to be converted into that of another country to buy the same amount of goods and services in each country

A-level Economics Macro (7 decks)

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