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ACCA- BT > Session 11 - Macroeconomic > Flashcards

Session 11 - Macroeconomic Flashcards

1
Q

Define economics

A

Study of how society allocates its scarce resources which have alternative uses between competing ends
-study of wealth creation

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2
Q

Define microeconomics

A

study of economic behaviour of individual consumers, firms, industries

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3
Q

Define macroeconomics

A

.aggregate behaviour
.sum of individual economic decisions
.performance of the economy as a whole

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4
Q

what is total ss in an economy/ aggregate supply

A

national output
ability of the economy to produce g&s

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5
Q

What is national income

A

total Y earned by providers of FOP
-rent, wage, interest,profit

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6
Q

what is helicopter money

A

when a large sum of new money is printed and distributed among the public to stimulate the economy during a recession

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7
Q

What does macroeconomics study

A

total amt of g&s produced, total Y earned, level of employment of productive resources, general behaviour of prices

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8
Q

What is meant by a sustainable BOP

A

.remains the same/doesnt change drastically over a no of years

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9
Q

What is the multiplier effect

A

-circulation of income in the national economy
-any initial increase in expenditure will have a snowballing effect leading to further expenditure in the economy

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10
Q

define inflation

A

continuous rise in price level

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11
Q

How does inflation affect savings

A
  1. DD for transactionary purpose(save to spend later) will fall since money is losing purchasing power

2.DD for precautionary will rise as inflation creates uncertainties

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12
Q

What are the problems caused by inflation

A
  1. Trade deficit
    2.Value of money and prices become uncertain
  2. Lose confidence, Inv/FDI fall, EG decrease
    4.gap between rich and poor increase
    5.resource cost of changing prices
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13
Q

What is dd-pull inflation

A

-dd is growing faster than ability to ss these goods
-too much money chasing too few goods

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14
Q

what is cost-push inflation

A

COP^, output price^ as firms want to protect their profit margin

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15
Q

what is imported inflation

A

weaking of national currency will increase cost of import and lead to domestic inflation

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16
Q

What is monetary inflation

A

‘over’ expansion of money ss faster than ss of goods and services

need to reduce growth in money ss through higher ROI

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17
Q

What is the expectations effect

A

-if anticipated levels of inflation are built into wage negotiations and pricing decisions
-not root cause but contribute majorly to inflation spiral

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18
Q

How can the expectations effect be managed

A

by a price and income policy

-manufactures agree to limit price rise if unions agree to limit wage claims
-or govt give assurance that price will not rise

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19
Q

What is retail price indices

A

measures the % change month by month in average price level of commodities

-base yr
-basket of goods
-weight{according to importance}

20
Q

Define unemp and how is the rate of unemp calculated

A

willing and able to work but cannot find a job

no of unemployed/total workforce *100

21
Q

Categorise as flows into or out unemployment

1.Unemployed people finding a job
2.Redundancies
3.Lay offs
4.Volutary quitting their job
5.laid of people being re-employed
6.unemployed people quitting search for job
7.school leavers without job
8.rejoining workforce but no job yet

A

1.out
2.in
3.in
4.in
5.out
6.out
7.in
8.in

22
Q

define cyclical unemployment

A

demand deficient,persistent,keynesian unemployment

Keynesians: consider it as deflationary gap and would seek to remove it by increasign ADD
Monetarists: reduce by adopting ss side policies and argue that cyclicall unemp doesnt really exist

23
Q

define frictional unemployment

A

-temporary, short term unemployed as they move from one job to another
-not a problem
-can be removed by better provision of info through job centres/ss side policies
-doesnt exist if system was perfect

24
Q

Define structural and technological unemp

A

-caused by structural change in the economy
-lead to change in skills required and location where economic acctivity take place

25
Q

Define seasonal unemp

A

.dd for some goods is highly seasonal
.if significant workforce in a given area is employed in seasonal industries-can cause regional economic problems

26
Q

Define real wage unemp and how would monetarists act to reduce this

A

-created artificially by industries who have strong Trade Unions who ask for higher wage-strike/closed shop

-employer give higher wage but lay off some worker due to higher cost

-monetarists see this as a case of mkt imperfection and would reduce TU power and abolish minimum wage

27
Q

How can you create job without reducing unemp

A

more people coming into the job mkt

28
Q

5 govt employment policies

A

1.spend money directly on jobs-new position
2.encourage growth in the private sector
3.encourage training in job skills
4.offer grant assistance to employers
5.encourage labour mobility

29
Q

define economic growth

A

increase in real gnp per head of the population

30
Q

actual EG

A

annual % increase in national output

31
Q

potential EG

A

rate at which economy would grow if all resources were utilised

32
Q

what are 2 factors needed for sustained economic growth

A

1.natural resouces- rate of extraction limits EG
prodn that uses natural resources is a form of disinvestment-depletes resources

  1. Technology progress
    1.capital saving- less capital,same labour
    2.labour saving-less labour,same capital
    3.neutral-same proportion of capital and labour but using less of each
33
Q

what are the 4 main phases of business cycle

A
  1. recession-slow down in growth
    2.depression- fall in NY-trough
    3.recovery
    4.boom-rapid growth in NY-peak

trend /sol is upward regardless of the business cycle

34
Q

define equilibrium national income

A

dd for g&s =ss for g,s
firms are encouraged to produce at the level of output where resources are fully employed

35
Q

define inflationary gap

A

when dd>resources
already full employed resources, increase in dd willl only increase prices

36
Q

define deflationary gap

A

-unemp of resources
-any change in dd will affect output
-prices are fairly constant
-actual NY< Full emp NY
-current equilibrium level of NY is too low to provide employment opportunities

37
Q

what type of unemployment does EG create

A

structural

38
Q

Which type of investment has a longer time scale

A

public sector inv

39
Q

What is amt borrowed by govt to finance his budget deficit called

A

public sector net cash requirement

40
Q

what is a budget deficit and why does govt go for a budget deficit

A

-govt expenditure > govt revenue
-expansionary policy used to close there is deflationary gap to boost ADD
-to promote EG and reduce unemp
-injecting more than is taking out

41
Q

define progressive and regressive tax

A

progressive - higher tax rate applied on higher income and regressive is lower tax rate on higher income

42
Q

what is a direct tax and what are the 4 types of direct tax

A

tax paid to person in the revenue authority
1.income tax
2.corporation tax
3.capital gains tax
4. inheritance

43
Q

what are the 2 types of indirect tax and define them

A
  1. specific- fixed sum per unit sold
    2.ad valorem - fixed % on price of the good
44
Q

how can a govt increase expenditure while reducing tax

A

higher public sector net cash requirement

45
Q

how can monetary policy indirectly affect ROI

A

1.open market operations
2.setting reserve requirements for bank
3.trading in foreign exchange mkts

46
Q

when may lowering exchange rate not work

A

1.if it result in competitive depreciation
2. rise in import price can trigger domestic inflation

ACCA- BT (6 decks)

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