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Economics > Paper 2 Macro > Flashcards

Paper 2 Macro Flashcards

1
Q

Equation for Aggregate Demand?

A

C+ I+ G+ (X-M)

C = Consumer Expenditure
I = Investment 
G = Government Spending
X = Exports
M = Imports
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2
Q

What is Aggregate Demand?

A

Total Level of planned real spending on goods and services produced in the economy

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3
Q

How does a Change in Consumption affect aggregate demand?

A

Change in Personal Taxation –> Change in Disposable Income –> Change in Consumption

Change in Interest Rates –> Change in Levels of borrowing –> Change in Disposable income –> Change in Consumption

Decrease in Unemployment –> Increased Income –> Increased Consumption

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4
Q

How does a Change in Investment affect AD?

A

Change in business taxation –> Changes in retained profits –> Changes in investment

Changes in interest rates –> Change in levels of borrowing –> Change in retained profits –> Change in Investment

Increased Confidence –> Increased Borrowing –> Increased Investment

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5
Q

How does Government Spending affect AD?

A

Change in EG –> Change in Taxation Revenues –> Change in Spending on public and merit goods

Political Change –> Change in Government Spending due to differing political beliefs

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6
Q

How do Exports and Imports affect AD?

A 
Depends on
Relative Levels of inflation
Level of trade barriers
Exchange Rates
Economic Growth Overall
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7
Q

Economic Growth?

A

The Percentage increase in real GDP over a period of time

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8
Q

Economic Cycle?

A

Refers to periods of time where economic growth fluctuates.

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9
Q

GDP?

A

Total value of output (G and S) produced in an economy over a period of time

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10
Q

Real GDP?

A

The amount of goods and services produced by an economy each year having been adjusted for inflation

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11
Q

Real GDP Per Capita?

A

Total Value of output produced in an economy over a period of time which is adjusted for inflation and expressed per head of population

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12
Q

Nominal GDP?

A

The amount of goods and services produced by a country in a time period

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13
Q

Total Growth in GDP?

A

Is Represented by the percentage change in the value of x over a period time

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14
Q

Human Capital?

A

refers to the skill level and education of the workforce

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15
Q

National income

A

The value of all income in the economy added together and includes income from wages, profits, royalties, dividends, interest and other income earned from abroas

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16
Q

What does it mean by a recession?

A

Negative real GDP for Two Consecutive Quarters

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17
Q

What does it mean when an economy is in a depression?

A

If Real GDP declines for eight consecutive quarters

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18
Q

Benefits of EG?

A

Increase Employment

Increased SoL –> EG means people have an average of higher incomes

Reduced Poverty –> Increase in EG –> More Jobs –> More income

Improved Government Finances –>

Improved Production Possibilities –>

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19
Q

How does EG lead to Increased Employment?

A

EG is the result of more output being produced –> Businesses are producing more –> Derived Demand for labour increases

20
Q

How does EG lead to improved Government Finances?

A

Increased Profit for Firms –> Increased Tax Revenue –> Increased Government Budget

Less Expenditure on Unemployment Benefits

As Standards of Living Improve –. Gov dont have to invest as much on hospitals as people can afford them –> Increased Budget for Government

21
Q

Problems caused by Economic Growth?

A

Unsustainable Growth

Environmental Damage

Regional Differences in inequality

Inflation

22
Q

Inflation?

A

The Persistent rise in the general prices of goods and services over a period of time

23
Q

Deflation?

A

Is a period of time where average prices are falling. This can be caused by a falling aggregate demand

24
Q

Aggregate Demand?

A

The total demand of an economy, including the total demand from consumers, businesses, government expenditure and foreign buyers

25
Q

CPI?

A

A system used to measure general price levels

26
Q

RPI (Retail Price Index)?

A

A system used to measure the general price level which includes house prices and rates (council tax)

27
Q

Demand Pull Inflation?

A

Inflation caused by too much demand in the economy, as a result of a lack of supply

28
Q

Cost-Push Inflation?

A

Inflation caused by rising business costs

29
Q

Interest Rates?

A

The Cost of borrowing and the reward for saving

30
Q

Purchasing Power of Money?

A

The amount of G and S that can be bought with a fixed amount of income

31
Q

Menu Costs?

A

The Costs to firms of having to update their catalogue /price lists due to repeated price changes

32
Q

Shoe Leather Costs?

A

The Costs to firms and consumers when searching for new suppliers when prices are increasing due to inflation

33
Q

Hyperinflation?

A

Very High levels of inflation when prices get out of control

34
Q

Impacts of Inflation on the Balance of Payments?

A

If domestic inflation is higher than other countries –>

Domestic firms will find it harder to sell in overseas markets –>

The Price of exported G and S will be rising and therefore the demand for exports is likely to fall –>

The Balance of Payments will be Worse –>

A fall in demand for exports will cause a rising in unemployment and a fall in GDP

(Foreign Consumers wont buy domestic G and S)
Domestic Consumers will buy foreign goods and services because –> Current Account Deficit)

35
Q

How does Inflation affect Unemployment?

A

If Domestic prices for G and S are Rising faster than international competitors

Decrease in demand for domestic G and S because

-As Prices increase people consume less because they have less income

OR

Some people save during Inflation

Decrease in Demand will lead to Unemployment as firms will not need to produce as many G and S and therefore less workers are demanded

36
Q

Lay Off Workers?

A

Means to no longer employ someone because they are no longer needed and there is not enough work for them to do

37
Q

What is the ILO’s Definition of an Unemployed Person?

A

Willing and able to work, activity seeking work but unable to find a job in the last 4 weeks and can start within the next two weeks OR out of work, have found a job and waiting to start within the next two weeks

38
Q

Cyclical Unemployment?

A

Unemployment caused by falling demand as a result of a downturn in the economy

39
Q

Structural Unemployment?

A

Unemployment caused by a fall in demand for products in an industry

40
Q

Frictional Unemployment?

A

When workers are unemployed for a short period of time as they move from one job to another

41
Q

Seasonal Unemployment?

A

Unemployment caused when seasonal workers, such as those in the holiday industry are laid off becaise the season has ended

42
Q

Voluntary Unemployment?

A

Unemployment resulting from people choosing not to work

43
Q

Income Inequality?

A

Differences in income that exist between different groups of earners in society, that is, the gap between the rich and the poor

44
Q

Absolute Poverty?

A

Where People do not have enough resources to meet all of their basic human needs

45
Q

Relative Poverty?

A

Poverty when relative to existing living standards of the average individual.

It can also be when a person earns less than 50% or 60% of the median income of that economy

Economics (11 decks)

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