Session 11 - Macroeconomic Flashcards
Define economics
Study of how society allocates its scarce resources which have alternative uses between competing ends
-study of wealth creation
Define microeconomics
study of economic behaviour of individual consumers, firms, industries
Define macroeconomics
.aggregate behaviour
.sum of individual economic decisions
.performance of the economy as a whole
what is total ss in an economy/ aggregate supply
national output
ability of the economy to produce g&s
What is national income
total Y earned by providers of FOP
-rent, wage, interest,profit
what is helicopter money
when a large sum of new money is printed and distributed among the public to stimulate the economy during a recession
What does macroeconomics study
total amt of g&s produced, total Y earned, level of employment of productive resources, general behaviour of prices
What is meant by a sustainable BOP
.remains the same/doesnt change drastically over a no of years
What is the multiplier effect
-circulation of income in the national economy
-any initial increase in expenditure will have a snowballing effect leading to further expenditure in the economy
define inflation
continuous rise in price level
How does inflation affect savings
- 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
What are the problems caused by inflation
- Trade deficit
2.Value of money and prices become uncertain - Lose confidence, Inv/FDI fall, EG decrease
4.gap between rich and poor increase
5.resource cost of changing prices
What is dd-pull inflation
-dd is growing faster than ability to ss these goods
-too much money chasing too few goods
what is cost-push inflation
COP^, output price^ as firms want to protect their profit margin
what is imported inflation
weaking of national currency will increase cost of import and lead to domestic inflation
What is monetary inflation
‘over’ expansion of money ss faster than ss of goods and services
need to reduce growth in money ss through higher ROI
What is the expectations effect
-if anticipated levels of inflation are built into wage negotiations and pricing decisions
-not root cause but contribute majorly to inflation spiral
How can the expectations effect be managed
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
What is retail price indices
measures the % change month by month in average price level of commodities
-base yr
-basket of goods
-weight{according to importance}
Define unemp and how is the rate of unemp calculated
willing and able to work but cannot find a job
no of unemployed/total workforce *100
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
1.out
2.in
3.in
4.in
5.out
6.out
7.in
8.in
define cyclical unemployment
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
define frictional unemployment
-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
Define structural and technological unemp
-caused by structural change in the economy
-lead to change in skills required and location where economic acctivity take place
Define seasonal unemp
.dd for some goods is highly seasonal
.if significant workforce in a given area is employed in seasonal industries-can cause regional economic problems
Define real wage unemp and how would monetarists act to reduce this
-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
How can you create job without reducing unemp
more people coming into the job mkt
5 govt employment policies
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
define economic growth
increase in real gnp per head of the population
actual EG
annual % increase in national output
potential EG
rate at which economy would grow if all resources were utilised
what are 2 factors needed for sustained economic growth
1.natural resouces- rate of extraction limits EG
prodn that uses natural resources is a form of disinvestment-depletes resources
- 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
what are the 4 main phases of business cycle
- 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
define equilibrium national income
dd for g&s =ss for g,s
firms are encouraged to produce at the level of output where resources are fully employed
define inflationary gap
when dd>resources
already full employed resources, increase in dd willl only increase prices
define deflationary gap
-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
what type of unemployment does EG create
structural
Which type of investment has a longer time scale
public sector inv
What is amt borrowed by govt to finance his budget deficit called
public sector net cash requirement
what is a budget deficit and why does govt go for a budget deficit
-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
define progressive and regressive tax
progressive - higher tax rate applied on higher income and regressive is lower tax rate on higher income
what is a direct tax and what are the 4 types of direct tax
tax paid to person in the revenue authority
1.income tax
2.corporation tax
3.capital gains tax
4. inheritance
what are the 2 types of indirect tax and define them
- specific- fixed sum per unit sold
2.ad valorem - fixed % on price of the good
how can a govt increase expenditure while reducing tax
higher public sector net cash requirement
how can monetary policy indirectly affect ROI
1.open market operations
2.setting reserve requirements for bank
3.trading in foreign exchange mkts
when may lowering exchange rate not work
1.if it result in competitive depreciation
2. rise in import price can trigger domestic inflation
