Pack 2: Macroeconomic objectives Flashcards
What is inflation?
Increase in general price level
What is disinflation?
Fall in rate of inflation
What is deflation?
Fall in general price level
What are the two measures of inflation?
~RPI
~CPI
What are the differences between CPI and RPI?
~CPI excludes housing related costs
~CPI - geometric mean, RPI - arithmetic
~RPI excludes top 4% and pensioners deriving at least 75% of income from state
What is CPI measuring?
How much on average a representative basket of goods and services costs in UK
What are the limitations of CPI?
~Only an average rate
~Weightings only changed annually
~Can’t indicate quality, only price
~Sampling issues
~Housing costs excluded
What is demand pull inflation?
Increase in general price level, caused by higher AD in economy
What are the causes of demand pull inflation?
~Rising consumption
~Rising investment
~Rising government spending
~Rising net exports
What is cost push inflation
Increase in general price level, caused by higher cots of production
What are the causes of cost push inflation?
~Up commodity prices
~Up labour costs
~Up indirect taxation
~Fall in exchange rate
What is the money supply?
Total amount of money in circulation or existence in a country
What is employment?
Total number of people with job, including with firms, other organisations and self-employed
What is unemployment?
People without a job but willing and able to work at current wage rates
What is economically inactive?
People of working age, not in employment or looking for work. e.g. students, early retirement, disabled, homemakers
What is underemployment?
Individual employed but not fully utilised in terms of skills or hours
What are the reasons for underemployment?
~Skills/job vacancies mismatch
~Changes in business cycle
~Technological change
What is the claimant count measure?
Number of people claiming unemployment related benefits
Limitations of the claimant count measure?
~Open to government manipulation
~Not internationally recognisable
~Data inaccuracies
What is the ILO measure?
Number of people aged 16-65 unemployed, based on labour force survey
What is structural unemployment?
Pattern of demand and production changes leaving workers unemployed . e.g. UK shipbuilding
What is frictional unemployment?
Workers unemployed for short amount of time. e.g. while searching for work
What is seasonal unemployment?
Workers unemployed at certain times of year. e.g. agricultural workers in winter
What is cyclical unemployment?
Insufficient demand in economy for workers who wish to work at current wage to get a job
What is real wage unemployment?
Real wages too high and inflexible downwards, insufficient demand from employers
What are the balance of payments?
Record of all transactions associated with imports and exports, together with all capital movements
What is international trade?
Exchange of goods and services across international borders
What is the current account?
Part of the balance of payments where payments for goods/services, investment income and transfers are recorded
What is a current account deficit?
Amount by which money from trade, investment income and transfers going out is more than coming in.
What is a current account surplus?
Amount by which money from trade, investment income and transfers going in is more than going out.
Causes of current account surpluses/deficits?
~Exchange rate
~International competitivness
~Growth and savings
~Investment income and transfers
How will a deficit affect the circular flow?
Will represent a net withdrawal
How will a surplus affect the circular flow?
Will represent a net injection
What are the effects of an increasing current account deficit?
~Reduced economic growth
~Reduced inflation
~Increased unemployment
