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macro-economics > paper 1 > Flashcards

paper 1 Flashcards

1
Q

total spending =

A

total income = total output

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2
Q

another phrase for total spending

A

aggregate demand

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3
Q

another phrase for total income

A

national income (NY)

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4
Q

what are the factors of production?

A

capital, enterprise, labour, land

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5
Q

what is land as a factor of production?

A

any natural resource
eg. wheat, sugar, gold

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6
Q

what is the reward for land as a factor of production?

A

rent

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7
Q

what is labour as a factor of production?

A

any human input
eg. teachers, MPs, police

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8
Q

what is the reward for labour as a factor of production?

A

wages

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9
Q

what is enterprise as a factor of production?

A

entrepreneur, organises the other factors and takes risks

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10
Q

what is the reward for enterprise as a factor of production?

A

profit

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11
Q

what is capital as a factor of production?

A

any human made element of the production process

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12
Q

what is the reward for capital as a factor of production?

A

interest

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13
Q

what are the three methods of measuring national income?

A

income method, expenditure method, output method

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14
Q

what are the different aspects of the income method?

A

wages,
rent,
interest,
profit/dividends

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15
Q

what are the different aspects of the expenditure method?

A

consumption (consumer) spending,
investment spending (businesses),
government spending,
net exports

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16
Q

what are different aspects of the output methods?

A

primary,
secondary,
tertiary,
quaternary

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17
Q

define GDP

A

the value of total output in a year

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18
Q

what is GDP per capita?

A

GDP divided by population

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19
Q

define economic growth

A

percentage increase in GDP from one year to the next

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20
Q

what is real economic growth?

A

nominal (money) economic growth minus inflation

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21
Q

what are the four stages of the economic cycle?

A

downturn,
boom / peak,
recession,
recovery

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22
Q

the demand for labour is..

A

derived from the demand for the goods and services that labour produces

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23
Q

what are the three injections into the circular flow of income?

A

government spending,
bank loans for investment,
exports

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24
Q

what are the three withdrawals from the circular flow of income?

A

taxation,
savings,
imports

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25
Q

what is the macroeconomic consumption function?

A

AD = C + I + G + (X - M)

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26
Q

what is (X - M) also known as?

A

balance of payments

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27
Q

what are the signs of an economic downturn?

A
  1. rising umeployment
  2. falling aggregate demand - interest rates may be changed
  3. reduced output - maybe not all sectors
  4. falling tax revenues - changes in tax rates
  5. increased government spending on benefits
  6. order books of firms get emptier (construction)
  7. stock market falls
  8. reduced consumer confidence and spending
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28
Q

what are the two poles of the economic spectrum?

A

communist and capitalist

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29
Q

define debt

A

the accumulation of all the deficits

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30
Q

what is the opposite of a deficit?

A

surplus

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31
Q

what is the governments budget deficit?

A

a document that presents the governments anticipated revenues and proposed spending for a fiscal year

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32
Q

how does the government raise cash to cope with a budget deficit?

A

-borrow money (issue bonds)
-print money
-use previous surplus
-sell government assets

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33
Q

what does ceteris paribus mean?

A

all other things remain equal

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34
Q

define interest rates

A

cost of borrowing reward for saving

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35
Q

what is a government issued bond called?

A

gilt

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36
Q

what is a bussines issued bond called?

A

debenture

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37
Q

what is hot money?

A

funds of money available to be lent to govt and business

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38
Q

define exchange rate

A

the value of one currency, in terms of another

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39
Q

what does SPICED stand for?

A

strong pound imports cheaper exports dearer

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40
Q

what does WPIDEC stand for?

A

weak pound imports dearer exports cheaper

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41
Q

its less important what the exchange rate is, whats more important is…

A

how the exchange rate changes

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42
Q

why does the short run aggregate supply curve slope upwards?

A

because higher prices for goods and services makes output more profitable and enables businesses to expand production by hiring less productive labour and other resources

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43
Q

what is quantitative easing?

A

when the central bank buys back bonds early in order to stimulate aggregate demand

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44
Q

define unemployment

A

anyone between 18 and 67 who is able, available, and actively seeking employment

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45
Q

how is unemployment measured?

A
  • claimant count
  • labour force survey
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46
Q

what are the different types of unemployment?

A

-frictional
-cyclical (or demand deficiency)
-structural
-hidden
-real wage
-seasonal

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47
Q

what is frictional unemployment?

A

unemployment related to the process of changing jobs, which may involve a period out of work

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48
Q

what is cyclical (demand deficient) unemployment?

A

the category of unemployment whose number varies according to the economic cycle

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49
Q

what is structural unemployment?

A

a mis-match between the skills of those unemployed and the skills that the new jobs required

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50
Q

when does structural unemployment happen?

A

when there is a change in the structure of the economy eg. industry decline (eg shipbuilding)

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51
Q

structural unemployment is worsened by….

A

geographical and occupational immobility of labour

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52
Q

what is geographical immobility?

A

vacancies in another location - housing costs, family ties

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53
Q

what is occupational immobility?

A

you dont have the correct skills

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54
Q

what is hidden unemployment?

A
  • known to exist but is not included in the official government figures.
  • can also refer to a persons skills being unemployed rather than the person
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55
Q

when a national minimum wage was introduced it was..

A
  • above the equilibrium
  • leading some economists to conclude that this would lead to unemployment
  • this is because it is above the market clearing wage
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56
Q

what is says law?

A

supply creates its own demand

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57
Q

what is seasonal unemployment?

A

people who work in certain industries (eg tourism, beach resorts) may be out of work in winter months

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58
Q

what is real wage unemployment?

A

when a rise in real wages above a market clearing level causes a contraction in labour demand and lower employment

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59
Q

why does high unemployment matter?

A

economic costs:
-loss output = waste of resources
-lower GDP growth = reduced SoL
-loss of skill

fiscal costs:
-related to less tax
-higher welfare

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60
Q

what policies have been put in place to deal with unemployment?

A
  • targeted macro stimulus policies to boost growth
  • expansion of apprentice schemes
  • improving geographical mobility of labour
  • measures to stimulate business start ups
  • regional development policies
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61
Q

what are index numbers?

A
  • a system that measures changes in “a set of variables” that move in different directions by different amounts
  • the index gives us an idea of the average movement
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62
Q

what does excess demand mean?

A

too much money chasing too few goods

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63
Q

what are the main types of inflation?

A

demand pull and cost push

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64
Q

demand pull inflation occurs when…

A

there is excess aggregate demand, ie a positive output gap

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65
Q

describe demand pull inflation

A

businesses respond to high demand by raising prices to increase profit margins

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66
Q

what stage of the economic cycle is demand pull inflation associated with?

A

boom
(when SRAS becomes inelastic)

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67
Q

what are the main causes of demand pull inflation?

A
  • lower interest rates
  • lower income + corporation tax
  • increased consumer and business confidence
  • increased government spending
  • weaker exchange rate - increase net exports
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68
Q

what is the economic definition of inflation?

A

a fall in the value of money from one year to the next

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69
Q

what is the non economic definition of inflation?

A

a general increase in the average price level from one year to the next

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70
Q

what are the functions of price?

A
  • signal
  • incentive
  • ration
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71
Q

what are the main causes of demand pull inflation?
1.

A
  1. a depreciation of the exchange rate
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72
Q

what are the main causes of demand pull inflation?
1. a depreciation of the exchange rate increases the price of imports and reduces the foreign price of UK exports
2.

A

a reduction in direct or indirect taxation
- consumers will have more disposable income causing demand to rise

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73
Q

what are the main causes of demand pull inflation?
1. a depreciation of the exchange rate
2. a reduction in direct or indirect taxation
3.

A

rapid growth of the money supply as a consequence of increased bank and building society borrowing

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74
Q

what are the main causes of demand pull inflation?
1. a depreciation of the exchange rate
2. a reduction in direct or indirect taxation
3. rapid growth of the money supply as a consequence of increased bank and building society borrowing
4.

A

rising consumer confidence and an increase in the rate of growth of house prices

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75
Q

what are the main causes of demand pull inflation?
1. a depreciation of the exchange rate
2. a reduction in direct or indirect taxation
3. rapid growth of the money supply as a consequence of increased bank and building society borrowing
4. rising consumer confidence and an increase in the rate of growth of house prices
5.

A

faster rates of economic growth in other countries

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76
Q

what is the wealth effect?

A

for every owner of a house / asset, people have access to additional borrowing which shifts AD right

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77
Q

what is collateral security?

A

security on a loan

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78
Q

how does a depreciation in the exchange rate lead to an increase in AD? (imports dearer)

A
  • imports are dearer
  • british people switch to UK goods
  • AD increases
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79
Q

how does a depreciation in the exchange rate lead to an increase in AD? (exports cheaper)

A
  • exports are cheaper
  • more exports as overseas people switch to british goods
  • ( an increase in demand pull inflationary pressure)
  • AD increases
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80
Q

evaluate how a depreciation in the exchange rate leads to an increase in AD? (exports cheaper)

A
  • depends on the size of the exchange rate depreciation
  • this may not matter as the UK may be below its inflationary targets
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81
Q

evaluate how a depreciation in the exchange rate leads to an increase in AD? (imports dearer)

A
  • depends of the size of the exchange rate depreciation
  • depends on the price elasticity of demand for imports (maybe no UK substitute goods)
  • added advantage - more jobs created
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82
Q

how does an increase in the rate of growth of house prices lead to an increase in AD?

A
  • wealth effect : additional borrowing
  • increased AD
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83
Q

how does a boom overseas lead to a rise in AD?

A
  • increase employment overseas
  • increase in disposable income overseas
  • increase in consumption overseas
  • increase in imports overseas
  • increase in exports in the UK
  • rise in AD
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84
Q

when does cost push inflation occur?

A

when cost of production are increasing

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85
Q

what are the causes of cost push inflation?
1.

A
  1. external shocks (commodity price fluctuations)
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86
Q

what are the causes of cost push inflation?
1. external shocks (commodity price fluctuations)
2.

A

a depreciation in the exchange rate

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87
Q

what are the causes of cost push inflation?
1. external shocks (commodity price fluctuations)
2. a depreciation in the exchange rate
3.

A

acceleration in wages
(leads to an inward shift in SRAS curve)

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88
Q

what are the causes of cost push inflation?
1. external shocks (commodity price fluctuations)
2. a depreciation in the exchange rate
3. acceleration in wages
(leads to an inward shift in SRAS curve)
4.

A

firms raise prices to protect their profit margins

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89
Q

when are firms better able to raise prices to protect their profit margins?

A

when market demand is price inelastic

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90
Q

a rise in inflation can lead to a rise in…

A

inflationary expectations

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91
Q

complete the phrase : “wages often follow..”

A

prices

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92
Q

define productivity

A

a measure of efficiency of factors of production in the production process

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93
Q

what are the benefits of higher productivity?

A
  • produce goods and services at lower cost per unit
  • increase total output from our scarce resources
  • helps bring about economic growth for a country in the long term
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94
Q

how can labour productivity be measured?

A

by calculating output per worker or output per hour worked

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95
Q

what factors explain the productivity gap?

A
  • relatively low rates of capital investment
  • low rates of spending on research and development
  • skills of the labour force
  • good health care infrastructure
  • good transport infrastructure
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96
Q

whats another phrase for rules and regulation?

A

red tape

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97
Q

what are some strategies to raise productivity in the british economy?

A
  • making markets more competitive
  • extra investment in education and training
  • improvements in infrastructure
  • encouraging foreign investment
  • incentives for increased research and development spending
  • improvements in management and entrepreneurship
  • a rise in capital investment
  • less business regulation and red tape
  • incentives for small businesses
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98
Q

strategies to raise productivity in the british economy : extra investments in ..

A

education and training

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99
Q

strategies to raise productivity in the british economy : improvements in..

A
  • infrastructure
  • management and entrepreneurship
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100
Q

strategies to raise productivity in the british economy : encouraging..

A

foreign investment

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101
Q

strategies to raise productivity in the british economy : incentives for..

A
  • small businesses
  • increased research and development
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102
Q

strategies to raise productivity in the british economy : a rise in..

A

capital investment

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103
Q

strategies to raise productivity in the british economy : less..

A

business regulation and red tape

104
Q

strategies to raise productivity in the british economy : making markets..

A

more competitive

105
Q

monetary policy can also be referred to as what type of policy?

A

demand management policy

106
Q

monetary policy is simply..

A

too much money chasing too few goods

107
Q

complete the sentence : monetary policy involves changes in…

A

interest rates, exchange rates and the supply of money and credit
to influence the economy

108
Q

what type of areas does monetary policy involve?

A
  • market interest rates
  • bank lending
  • inflation targets
  • bank of england
  • quantitative easing
109
Q

what is the aim on expansionary monetary policy?

A

trying to get us to spend more

110
Q

what is the aim of contractionary (deflationary) monetary policy?

A

trying to get us to spend less

111
Q

what does expansionary monetary policy involve?

A
  • fall in nominal and real interest rates
  • measures to expand supply of credit
  • depreciation of the exchange rate
112
Q

what does contractionary (deflationary) monetary policy involve?

A
  • higher interest rates on loans and savings
  • tightening of credit supply (loads are harder to get)
  • appreciation of exchange rate
113
Q

what does the tightening of credit supply mean for loans?

A

loans are harder to get

114
Q

what is the saving ratio?

A

the percentage of our income that we save

115
Q

complete the flow chart :
- a rise in interest rates (reward for saving) leads to..

A
  • loans are more expensive to repay back
  • increased saving
  • fall in consumer spending
  • fall in aggregate demand
116
Q

complete the flow chart :
- an increase in the cost of borrowing leads to..

A
  • fall in borrowing
  • fall in consumer spending
  • fall in aggregate demand
117
Q

state investment plans

A

capital formation
capital accumulation

118
Q

how do cheaper imports result in a fall in inflationary pressure?

A
  • imports cheaper
  • increase demand for imports
  • fall in demand for domestic spending
  • fall in aggregate demand
  • fall in inflationary pressure
119
Q

how do dearer exports result in a fall in inflationary pressure?

A
  • exports dearer
  • increase foreign currency price of our exports
  • fall in aggregate demand
  • fall in inflationary pressure
120
Q

how could an increase in rate of interest in the UK lead to a rise in aggregate demand?

A
  • increase rate of interest in UK
  • increase reward for saving in UK
  • inflows of hot money into the UK
  • increase demand for sterling
  • forex graph - increase value of £
  • increase aggregate demand
121
Q

what could happen if the bank of england take some sterling?

A
  • sells in exchange for euros
  • increase supply for sterling (graph)
122
Q

what is the main aim of quantitative easing?

A

to support aggregate demand and avoid the risk of a recession becoming a deflationary depression

123
Q

what policy does quantitative easing fall under?

A

expansionary monetary policy

124
Q

what does the Bank of England use quantitative easing for?

A
  • to increase the supply of money in the banking system
  • encourage banks to lend at cheaper interest rates
  • especially to small and medium sized businesses
125
Q

when the Bank of England uses quantitative easing, do they print new money?

A

no, it uses money created by the central bank to buy govt bonds

126
Q

what are the doubts about the effectiveness of quantitative easing?

A

bank lending has struggled to recover since the end of the recession

127
Q

in the summer of 2015, what did quantitative easing total to?

A

£375 billion

128
Q

what is the short run?

A

where there is spare capacity

129
Q

what is the long run?

A

when there is no spare capacity

130
Q

what factors cause the SRAS curve to shift?

A

changes in :
- cost of production
- productivity
- taxes and subsidies

131
Q

on the Keynesian LRAS curve or a normal LRAS curve , what does the point Yfe represent?

A

the economy operating at full capactity

132
Q

what does the LRAS curve represent?

A
  • the full long run productive capacity of the economy
  • ie. when were producing just about as much as the factors of production will allow
133
Q

describe what is included in Q^2cell / productive efficiency?

A
  1. labour productivity increases
  2. investment
  3. infrastructure
  4. increase quality of labour
  5. competition
  6. new rare discoveries
134
Q

what is fiscal policy?

A
  • the use of government spending and taxation
  • to influence the pattern of economic activity
  • affect the level and growth of AD, output and employment
135
Q

what are the two types of fiscal policy?

A

expansionary
contractionary

136
Q

what is the aim of contractionary fiscal policy?

A

to reduce AD

137
Q

what is the aim of expansionary fiscal policy?

A

to increase AD

138
Q

when was council introduced?

A

1991

139
Q

what is council tax?

A

a tax that local residents pay to local authorities

140
Q

what is a duty?

A

a specific tax at a specific rate on a specific product

141
Q

give 2 examples of dutys

A

petrol duty
alchohol duty

142
Q

what were Adam Smiths ‘canons on taxation’?

A
  • equity
  • convenience
  • certain
  • economy
143
Q

what does equity mean in Adam Smiths ‘canons on taxation’?

A

the tax should be fair and based on the ability to pay

144
Q

what does convenience mean in Adam Smiths ‘canons on taxation’?

A

tax should be easy to pay

145
Q

what does certain mean in Adam Smiths ‘canons on taxation’?

A

the tax payer should be able to know exactly how much tax they must pay

146
Q

what does economy mean in Adam Smiths ‘canons on taxation’?

A

revenue raised must be greater than the cost of implementing the tax

147
Q

following Adam Smiths ‘canons on taxation’ what more recent canons have been added?

A
  1. flexible
  2. efficiency
148
Q

what does flexible refer to in relation to the more recent canons of taxation?

A

taxes should be easy to change when necessary

149
Q

what does efficiency refer to in relation to the more recent canons of taxation?

A

tax should achieve what its intended to achieve
eg. reduce consumption of demerit goods

150
Q

why do we have taxes?
1.
2.

A
  1. to raise money to finance public services eg. NHS
  2. to influence AD
151
Q

why do we have taxes?
1. to raise money to finance public services eg. NHS
2. to influence AD
3.
4.

A
  1. to influence patterns of spending
  2. to help redistribute income and wealth
152
Q

why do we have taxes?
1. to raise money to finance public services eg. NHS
2. to influence AD
3. to influence patterns of spending
4. to help redistribute income and wealth
5.

A
  1. to protect jobs in the country
    eg tariff on imports
153
Q

what is included in the government budget?

A
  • planned govt revenue
  • planned govt spending
  • budget balance
154
Q

in what way is a deficit financed?

A
  • government gilts
  • sell government assets
  • use previous surplus’
155
Q

define debt?

A

the accumulation of all the deficits

156
Q

what are the different types of taxes?

A
  • indirect tax
  • direct tax
  • progressive tax
  • proportional tax
157
Q

what are indirect taxes?

A

taxes on spending

158
Q

what are examples of indirect taxes?

A

VAT, petrol duty, tariffs on imports

159
Q

what are direct taxes?

A

taxes on income

160
Q

what are examples of direct tax?

A

income tax, corporation tax, national insurance, inheritance tax

161
Q

what is the role of His Majesty’s Revenue and Customs?

A

to collect tax

162
Q

what does HMRC stand for?

A

His Majesty’s Revenue and Customs

163
Q

what is the role of the chancellor of he exchequer?

A

set the tax as part of the governments fiscal policy

164
Q
A
165
Q

what is proportional tax?

A

proportional percentage rate of tax is constant
eg. if income tax was 25% across all income levels

166
Q

why does the multiplier effect come about?

A

because injections of new demands for goods and services into the circular flow of income stimulate further rounds of spending

167
Q

what does the multiplier effect lead to?

A
  • a bigger final effect on the level of national output
  • total employment in the labour market
168
Q

what is the equation for the multiplier?

A

multipler = 1 divided by the sum of propensity to save + tax + import

169
Q

what are the positive effects that stem from the multiplier effect?

A

when an initial increase in an injection (or a decrease in a withdrawal) leads to a greater final increase in real GDP

170
Q

what are the negative effects that stem from the multiplier effect?

A

when an initial decrease in an injection (or an increase in withdrawal) leads to a greater final decrease in real GDP

171
Q

what happens if extra incomes stay inside the circular flow of income and spending to the multiplier effect?

A
  • the multiplier effect is likely to be strong
  • and the resultant impact on GDP is quite large
172
Q

what does the value of the coefficient depend on?

A
  • the three withdrawals
  • and the rate at which money leaves the circular flow as extra income is generated
173
Q

complete the sentence…
at each stage extra money flowing around the circular flow…

A

gets smaller as money leaks out via savings, imports, and taxes

174
Q

describe the simple multiplier

A
  • assumes no tax or imports
  • only leakage is saving
175
Q

describe the more complex multiplier

A

takes into consideration the three leakages (savings, imports and taxation)

176
Q

what tends to happens to the multiplier when AS is elastic ?

A

the multiplier is likely to be high

177
Q

what happens to AS when its inelastic?

A

its harder for AS to expand and meet rising AD

178
Q

what is the multiplier process?

A

the final impact on national income (NY) of an injection will be greater than the size of the original injection

179
Q

what does the laffer curve show?

A

the relationship between tax rates and total tax revenue

180
Q

what can be observed about total revenue when tax rates are 100% ?

A

total tax revenue is most likely not maximised when tax rates are 100% as this disincentives workers from earning wages

181
Q

increases taxes will increase tax revenue up to a point. what is that point?

A

an efficient tax rate

182
Q

what would happen if taxes would be increased beyond the efficient tax rate?

A

will see a reduction in tax revenue for three reasons :
- disincentives to work - harder - less entrepreneurship
- emigration
- tax evasion / avoidance

183
Q

why would emigration as a result of increased tax rates, lead to a reduction in tax revenue?

A

pushing highest income earners, the most productive and the best entrepreneurs out of the county

184
Q

what is the accelerator process?

A

changes in investment can be directly linked to changes in the rate of GDP growth

185
Q

complete the sentence:
when the rate of GDP growth is high, firms are..

A

more likely to invest, so rate quickens

186
Q

what is the effect on the share price of an American steel company once govt announces a tariff?

A
  • more profit made
  • more dividends paid
  • higher demand for share
  • price of shares increases
187
Q

what is the effect on the share price in an American car company if the government places a tariff on steel?

A
  • profit falls
  • people sell their shares
  • demand for shares increases
  • price of shares fall
188
Q

what is short run economic growth?

A

an increase in GDP from one year to the next

189
Q

what is an aggregate supply curve?

A

illustrates the total amount of goods or services producers are willing to sell at different price levels

190
Q

why does an aggregate supply curve slope upwards and to the right?

A

at higher price levels, less efficient producers (those with higher costs) can enter the market and cover their higher costs, so making a profit

191
Q

what does the steepness of the slope of the AS curve depend on?

A
  • elasticity of supply and how easy it is for firms to respond by increasing output
  • if they cant respond because they’re at capacity supply will be inelastic
192
Q

complete the sentence:
stable prices and full employment…

A

trade off each other

193
Q

what is a budget deficit (full definition) ?

A
  • a statement of planned tax revenue for a year and planned government spending for the same year
  • the budget is in deficit because planned spending exceeded revenue from taxation
194
Q

a deficit is also a _______ attempt?

A

a deliberate attempt to stimulate aggregate demand and example of fiscal policy

195
Q

what does it mean to stimulate the economy?

A

to increase on encourage a process, to increase AD

196
Q

what are cyclical fluctuations (full definition) ?

A
  • to fluctuate is to increase and decrease
  • cyclical fluctuations show the economic cycle
  • recessions and booms being the highest and lowest points
197
Q

how many types of 25 markers are there?

A

2
type A and type B

198
Q

what is a type A 25 marker?

A

discuss how X (anything) affects Y (macro-objectives)

199
Q

how should you structure a 25 marker, type A ?

A

choose three arguments plus evaluations

200
Q

what is a type B 25 marker?

A

they choose one marco objective

201
Q

what is the balance of payments?

A

value of the exports of goods and services minus the value of the import of goods and services

202
Q

what are the three sections of the balance of payments?

A
  1. the current account
  2. the financial account
  3. the capital account
203
Q

what is the current account as a section of the balance of payments?

A
  • trade in goods
  • trade in services
  • net primary income flows
  • net secondary income flows
204
Q

what is the financial account as a section of the balance of payments?

A
  • transactions in financial assets
  • investment flows
  • government transactions
205
Q

what is the capital account as a section of the balance of payments?

A
  • transfer of assets by individuals
206
Q

what is Lloyds?

A

the biggest insurer of boats

207
Q

what is Marsh?

A

biggest insurers of satellites

208
Q

what is insurance?

A

covering the risk of something that may or may not happen

209
Q

what are trade in goods also known as?

A

visible trade

210
Q

what are trade in goods (visible trade)?

A
  • consumer durables,
  • capital goods/technology/software,
  • commodities,
  • components & basic raw materials,
  • foodstuff and beverages
211
Q

what are examples of consumer durables?

A

household goods, motor vehicles, computers

212
Q

what are some examples of commodities?

A

oil, gas and other fuels

213
Q

what are some examples of components & basic raw materials?

A

plastics, copper, tin, rubber, semi-conductors

214
Q

what are trade in services also known as?

A

invisible trade

215
Q

what are trade in services (invisible trade)?

A
  • tourism and travel,
  • insurance and business consultancy services,
  • booking and accountancy services,
  • data processing and info services,
  • music and entertainment,
  • shipping
216
Q

what is net primary income also known as?

A

investment income

217
Q

what is net primary income (investment income)?

A
  • income made from the factors of production
  • money coming in - money going out
  • factors of production over seas but owned by UK citizens
218
Q

what is net secondary income also known as?

A

net current transfers

219
Q

what is net secondary income (net current transfers)?

A

money paid by UK government to world/govt organisations:
eg. EU, IMF, World Bank, remittances

220
Q

what is the International Monetary Fund?

A
  • funded by every country
  • helps any country in financial difficulty
221
Q

what is the World Bank?

A

funded by every country
for development needs

222
Q

what signals an improvement in the balance of payments?

A
  • reduced deficit
  • increased surplus
  • a move from a deficit to surplus
223
Q

what signals an deterioration in the balance of payments?

A
  • increased deficit
  • decreased surplus
  • a move from a surplus to a deficit
224
Q

why dont we want high inflation?

A
  • loss of international competitiveness
  • people on fixed incomes lose out
  • businesses find is difficult to plan
  • lenders lose out (and savers)
  • menu costs
  • shoe leather costs
225
Q

what does loss of international competitiveness mean, when talking about high inflation?

A

rising prices in the UK makes our goods relatively less competitive

226
Q

evaluate loss of international competitiveness, when talking about high inflation

A
  • could lead to a devaluation of the currency so exports become cheaper again
  • the extent to which this is a problem depends on the inflation rate overseas
227
Q

what does the fact people on fixed incomes lose out mean, when talking about high inflation?

A

real value of an unemployed persons income will go down, so as prices rise they can afford fewer goods, so standard of living falls

228
Q

evaluate the fact people on fixed incomes lose out mean, when talking about high inflation

A

triple lock guarantee

229
Q

what are the governments macro-economic objectives?

A
  1. encouraging price stability (low inflation)
  2. full employment/minimise unemployment
  3. maintaining a favourable balance of payments
  4. promoting steady economic growth
  5. redistributing wealth more equitably
  6. reducing the government budget deficit and national debt
230
Q

what is the governments current target for inflation?

A

2%+-1%
(two percent plus or minus one percent)

231
Q

what are the economic costs of unemployment?

A
  • loss of income
  • unemployment in your 20s has effects on living standards of people in their 50s
  • increased health risk
  • loss of marketable skills (human capital)
232
Q

what are the negative economic consequences for businesses of unemployment?

A
  • fall in demand for goods and services
  • fall in demand for businesses further down the supply chain
  • consider negative multiplier effects from the closure of a major employer
233
Q

what are the positive economic consequences for businesses of unemployment?

A
  • bigger pool of surplus labour is available
  • less pressure to pay higher wages
  • less risk of industrial / strike action
234
Q

evaluate the fact that there is a bigger pool of surplus labour available as a positive economic consequences for businesses of unemployment?

A

its still a problem if there is plenty of structural unemployment

235
Q

what are the consequences for the government of unemployment?

A
  • increased spending on unemployment benefits and other income- related state welfare
  • fall in revenue from income tax and taxes on consumer spending
  • fall in profits (less corporation tax)
  • rise in government borrowing
236
Q

what are the macro-economic costs of unemployment?

A
  • loss output (real GDP) from people being out of work
  • unemployment is seen as an inefficient way of allocating resources
  • some of the long-term unemployed may leave the labour force permanently
  • increase in income inequality
237
Q

what factors cause shifts in short run aggregate supply (AS)?

A
  • input costs
  • business taxes, subsidies and imported costs
  • supply shocks
238
Q

what input costs may cause shifts in short run aggregate supply (AS)?

A
  • wage costs per unit of output
  • labour productivity (high efficiency lowers unit costs)
  • raw material and component prices
  • interest rates, business rents, fuel, energy costs
239
Q

what business taxes, subsidies and imported costs may cause shifts in short run aggregate supply (AS)?

A
  • VAT, environmental charges
  • scale and size of government subsidies to certain industries
  • business rates, costs of meeting business regulations
  • costs of imported components
240
Q

what are the costs of imported components affected by?

A

the exchange rate and fluctuations in world commodity prices

241
Q

what supply shocks may cause shifts in short run aggregate supply (AS)?

A

eg. hurricane, tsunami etc
or political crisis

242
Q

what external factors affect aggregate supply (AS)?

A
  • world oil and gas prices
  • energy prices / costs
  • other mineral / metal prices
  • foodstuff prices
  • import tariffs quotas
243
Q

what consumer factors affect the components of aggregate demand?

A
  • stage of economic cycle
  • interest rates
  • income tax rates
  • consumer confidence
244
Q

what government factors affect the components of aggregate demand?

A
  • level of government revenue
  • interest rates
  • government priorities
245
Q

what business factors affect the components of aggregate demand?

A
  • interest rates
  • business confidence
  • stage of the economic cycle
  • level of spare capacity in the economy
  • level of profits
246
Q

what export factors affect the components of aggregate demand?

A
  • stage of economic cycle overseas
  • exchange rates
  • international competitiveness
  • tariffs overseas
247
Q

what import factors affect the components of aggregate demand?

A
  • exchange rates
  • state of economic cycle here
  • tariffs here
  • international competitiveness
248
Q

net investment = ??

A

capital accumulation minus depreciation

249
Q

what factors affect the LRAS?
1.
2.

A
  1. an increase in the quantity and quality of capital equipment
  2. a more highly skilled work force
250
Q

what factors affect the LRAS?
1. an increase in the quantity and quality of capital equipment
2. a more highly skilled work force
3.
4.

A
  1. innovation and improvements in productive processes
  2. factor mobility
251
Q

what examples show innovation and improvements in productive processes?

A

better ways of producing goods and services, improved research and development,
improved production

252
Q

what factors affect the LRAS?
1. an increase in the quantity and quality of capital equipment
2. a more highly skilled work force
3. innovation and improvements in productive processes
4. factor mobility
5.
6.

A
  1. improved attitudes of entrepreneurship
  2. encourage more people to join the labour supply
253
Q

define disinflation

A

percentage increase of inflation was lower than in the previous year

254
Q

what are changes in real GDP used to measure?

A

economic growth

255
Q

what is factor mobility?

A

the extent to which factor inputs can easily switch between alternative uses with no loss of efficiency.

256
Q

ceteris parabus,
the LRAS curve of an economy is likely to shift right if theres an increase in…?

A

factor mobility

257
Q

when does spare capacity occur?

A

when a business is not making full use of its available capacity

macro-economics (1 decks)

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