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ACCA: F1: A: The Business Organisation, Stakeholders and the External Environment > The Macro Economic Environment > Flashcards

The Macro Economic Environment Flashcards

1
Q

Withdrawals and injections:

A

Households —-> firms
Savings —> Financial Sector —> Investment spending
Taxation —> Government sector —> Government spending
Import demand —> Foreign sector —> Export demand

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2
Q

NB Point: Changes in behaviour of one of the components of the circular flow can lead to…

A

…significant changes in economic performance as a whole

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3
Q

Factors which influence the economy: (7)

A
  1. Investment levels
  2. Multiplier effect
  3. Inflation
  4. Savings
  5. Confidence
  6. Interest rates
  7. Exchange rates
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4
Q

Aggregate Demand (AD) is…

A

total planned or desired consumption demand in the economy for consumer goods and services and also for capital goods

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5
Q

4 main phases of the business cycle

A
  1. Recession
  2. Depression
  3. Recovery
  4. Boom
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6
Q

Inflation is…

A

…an increase in price levels generally; manifest in the decline in purchasing power

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7
Q

Causes of inflation: (5)

A
  1. Demand pull factors (Demand exceeds supply; low unemployment)
  2. Cost push factors (Wage increases)
  3. Import cost factors (Oil; fall in FOREX value)
  4. Expectations (Wage-price spiral: 8% annually!)
  5. Excessive growth in the money supply
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8
Q

Demand Pull Inflation is…

A

…inflation resulting from a persistent excess of aggregate demand over aggregate supply

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9
Q

Cost Push Inflation is…

A

an increase in the costs of production of goods and services (Raw material or wage increases)

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10
Q

Problems caused by unemployment: (5)

A
  1. Loss of output
  2. Loss of human capital
  3. Increasing inequalities in income distribution
  4. Social costs (Suffering, distress, theft, vandalism)
  5. Increased burden of welfare payments
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11
Q

Causes of unemployment: (6)

A
  1. Real wage unemployment (Unions)
  2. Frictional (Time to match workers to jobs)
  3. Seasonal
  4. Structural (A port or new sporting development)
  5. Technological (Typing vs voice recognition; robots)
  6. Cyclical or Demand-deficient (Business cycle!)
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12
Q

A government can create jobs or reduce unemployment by:

A
  1. Spending more on jobs directly (Civil servants)
  2. Encouraging growth
  3. Encouraging job skills training (Finance training schemes)
  4. Offering grant assistance to employers
  5. Encouraging labour mobility
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13
Q

‘GNP’ stands for…

A

Gross National Product

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14
Q

Economic growth is measured by…

A

increases in the real gross national product per head

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15
Q

Actual growth in the long run is determined by 2 factors:

A
  1. Growth in potential output (Amount of resources like land, labour & capital AND in their productivity (Technology & labour practices))
  2. Growth in aggregate demand
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16
Q

Technological progress can be divided into 3 types:

A
  1. Capital saving
  2. Neutral
  3. Labour saving
17
Q

Advantages of economic growth:

A
  1. Higher income per head –> higher levels of consumption –> Better standard of living
  2. Easier to provide welfare services without intolerable tax burdens
18
Q

Disadvantages of economic growth:

A
  1. Faster use of natural resources
  2. Pollution
  3. Structural unemployment
  4. Higher growth requires a cut in consumption (short-run)
19
Q

4 main objectives of economic policy:

A
  1. Economic growth
  2. Control price inflation
  3. Achieve full employment
  4. Achieve a balance between exports and imports
20
Q

Fiscal policy is…

A
  1. A method of managing aggregate demand in the economy

2. Government policy on taxation, public borrowing and public spending

21
Q

PSNCR or PSBR is…

A

Public Sector Net Cash Requirement or

Public Sector Borrowing Requirement

22
Q

A government can stimulate demand in the economy by:

A
  1. Lowering tax

2. Spending more

23
Q

Functions of taxation:

A
  1. Raise revenues for the government
  2. Price certain products to take into account their social costs
  3. Redistribute income and wealth
  4. Protect industries from foreign competition
24
Q

A direct tax is…

A 
paid direct by a person to the revenue authorities
Income tax
Corporation tax
CGT
Inheritance tax
PROGRESSIVE / PROPORTIONAL
25
Q

An indirect tax is…

A

collected by the revenue authority from an intermediary who then attempts to pass the tax on to consumers
CAN BE REGRESSIVE

26
Q

Indirect taxes are of 2 types:

A
  1. Specific - fixed sum per unit sold

2. Ad valorem - Fixed percentage of the price

27
Q

Monetary policy uses

A
  1. Money supply, interest rates or credit controls to influence aggregate demand
  2. Government policy on the money supply, monetary system, interest rates, exchange rates and the availability of credit
28
Q

Balance of payments: Current account transactions are divided into 4 parts:

A
  1. Trade in goods (Visible’s)
  2. Trade in services (Invisible’s)
  3. Income (Invisible’s)
  4. Transfers (Invisible’s)
29
Q

Balance of payments: Current Account: Income is divided into 2 parts

A
  1. Employment of UK residents overseas

2. Capital investments overseas

30
Q

Balance of payments: Current Account: Transfers are divided into 2 parts

A
  1. Interest payments to and from overseas bodies

2. Non-government sector payments to and from bodies such as the EU

31
Q

Capital Account: Made up of…

A

Public sector flows of capital into and out of the country (Government loans)

32
Q

Financial Account: Made up of…

A

Flows of capital to and from the non government sector (Direct investment in overseas facilities; Portfolio investment; Speculative flows of currency; Movements on government foreign currency reserves)

33
Q

‘Balance of payments’ vs. ‘Balance of trade’

A

B of P: Surplus or deficit on the current account

B of T: Surplus or deficit on the trade of goods ONLY!

34
Q

A government can rectify a current account deficit by:

A

Expenditure switching:

  1. Depreciate the currency = devaluation
  2. Restrict imports (Tariffs, import quotas or exchange controls)

Expenditure reducing:
3. Domestic deflation to reduce aggregate demand

ACCA: F1: A: The Business Organisation, Stakeholders and the External Environment (4 decks)

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