T2: LS1 - Intro To Macro-economics Flashcards
Macro-economics definition
- referring to the branch of economics concerned with large-scale or general economic factors. Often refers to national or global scale economics.
Economic agents definition
Refers to different stakeholders or groups that engage in economic activity and are impacted by changes to the economy.
Who are the key players in the macro-economy?
C - consumers
G - government
P - producers
B - banks
S - society (civil)
What role does the government have in an economy?
- set the rules and control legislation
- design regulation to protect citizens and promote positive economic actions
- produce public G&S
- Solve market failure
What is the role of industry to an economy? (SME & TNC)
- produce G&S
- profit motive
- SME’s control and mainly operate within a domestic economy
- TNC’s often operate internationally
What is an SME?
Small and medium enterprises
- made up of 50-250 employees
- Turnover of less than £50 million
- Balance total of less than £43 million
What is the role of consumers in an economy?
- To maximise their utility by buying G&S
- to provide a demand for G&S helping to generate revenue for firms
What is the role of the central bank?
- To control monetary policy
- Responsible for managing and ensuring the currency and money supply remains sufficient.
- Inflation and Interest rates
What is the role of civil society
- refers to groups outside of the government and individual consumers that are stakeholders in the economy
- trade unions, NGO’s, charities and academics
What are the methods for financing business?
Organic:
- Retained profit: using previous profit to reinvest back into a business to finance costs.
Inorganic:
- Borrowing: temporarily using bank or loan money for costs and then paying it back
- Shares: issuing a financial asset where a person pays for partial ownership of a company.
- Bonds: works through buying debt with the promise of a return on bonds.
How do shares work and their benefits?
- refers to a financial asset giving an investor part ownership of a company.
- more shares = more power in a company
Benefits of shares for investors:
- Capital gains can be made
- Dividends can be an income stream over time
- Provides power and control in a firm
Capital gains meaning
- Refers to the appreciation in the value of an asset which is then obtained when the asset is sold.
Primary and secondary markets definition
Primary markets: where shares are issued paying directly to the firm (IPO).
Secondary markets: when shares are traded between investors.
How does issuing a bond work?
- a company issues bonds to raise their finances
- investors purchase the bonds and hold them up until a maturity date where they are paid annually for holding them
- When the maturity date is reached the bond matures and full cash is received
Coupon rate definition
- annual payment rate on a bond that is paid to a creditor or debt holder (a person who holds a bond)
Issues for macro-economic objectives
T - trade balance —> balance of payments is in deficit or unsustainable surplus
I - Inflation - not between 1 and 3%.
G - economic growth —> low GDP growth (2.5% target for HIC)
G - government budget —> government deficit
E - employment —> unemployment above 5% and high economic inactivity
R - redistribution of income —> income inequality
S - Sustainability —> unsustainable production for environment
