The Macro economics environment - Economic Growth Flashcards
The four Key objectives of Macroeconomics
Economic Growth
Unemployment
Inflation
Balance of payments
What is macroeconomics
macroeconomics is the branch of economics that studies economic aggregates for ex: overall level of prices
What is the business cycle
Model of the level of national output over time
Describe the business cycle
Over time the ability of the economy to produce goods increases as things become more efficient with automization so full capacity output increases linearly.
The actual output of the economy goes through four stages:
Upturn
expansion
Peeking out
Slowdown
Cycle repeats frequently
Give some characteristics of an upturn stage in the business cycle
Low inflation, current account surplus, low output, unemployment high
Give some characteristics of an peeking out stage in the business cycle
high output, low unemployment, high inflation, CA deficit
What is an intermediate target and name five
Intermediate targets are economic and financial variables that central bankers try to influence by using monetary policy tools, but which are not in themselves the ultimate goal or target of a policy.
Interest rates Supply of money Taxes Government expenditure Exchange rates
Give some government objectives
High economic growth Stable economic growth Low unemployment Low inflation Avoid BoP deficits Avoid excessive FX fluctuations Avoid financially distressed sectors of the economy A stable financial system
What are the trade offs for economic growth vs equality and unemployment vs inflation
High economic growth vs greater equality ex: pandemic hit less developed areas harder
Low unemployment vs low inflation inverse relation
Explain the opportunity cost and trade offs government make from policy choices
Achieving more of one objective is at the cost of achieving less of another
Total injections in the circular flow of income are
Total injections here are : J=I+G+X
I=Investment
G=Government expenditure
X=Export expenditure
Total withdrawls in the circular flow of income are
Total withdrawals here are: W=S+T+M
S=Net Savings
T=Net Taxes
M=Important expenditure
Explain the standard aggregate demand and supply outlook
Level of national demand goes down as prices increase
There is a Balance effect- Pe is talking about overall level of prices in the economy
Interest rate effect on this demand and supply
Supply is upward sloping
Shortages and surpluses will not persist indefinitely - will come back to an equilibrium
What causes an increase in aggregate demand
Any increase in any component of demand (C+I+G+(X-M)) drives an increase in aggregate demand
How do you rise the aggregate supply level
Increase potential output in the economy by:
Increase quantity of factors of production available to you
Or you can try to make the factors of production individually more productive ex: Education
Name three methods of measuring output in an economy
Product method
Income method
Expenditure method
Explain the product method of measuring output
Looks at everything being produced across the economy industry by industry and add them all up
Add up the value of all goods and services produced, industry by industry
Gross value added (GVA) at basis prices
GDP=GVA+taxes-subsidies
Explain the income method of measuring output
Overall level of income being generated should equated to the GVA
Sum of all incomes generated(wages, salaries,rent, interest,profit)
Equates to GVA
Explain the expenditure method of measuring output
Amount spent on all the goods is the same amount we ultimately produce
Sum of all expenditure on final outputs
GDP=C+G+I+X-M
Explain depreciation
Decline in value of capital equipment due to age or wear and tear
Explain Net national income NNI, NNY
GNP minus depreciation
Why is difference between GDP and GNI so significant in ireland
Much of the profits form Irish based production come from firms that are not irish based - this occurs in GDP but not GNI
What is GNP formula
GDP minus income from irish based production accrued to foreign residents plus Income from foreign based production that accrues to irish residents
What is GNP
Income of domestic residents
What is GDP
Total income arising from the production of goods and services in Ireland
What is GNI
Adjusted income of domestic residents
What is the formula for GNI
GNP plus subsidies by domestic residents form EU minus Taxes paid by domestic residents to EU
What is GNI*
Is the GNI figure excluding:
Retained earnings of firms that have re-domiciled to Ireland
Depreciation of foreign owned intellectual property assets located in Ireland
Depreciation of aircraft owned by aircraft-leasing companies
