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Theme 2 Flashcards

(136 cards)

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1
Q

What are the 7 macroeconomic objectives

A 
Employment
Growth
Sustainability
Debt
Balance of payments
Inflation
Inequality
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2
Q

How to calculate AD

A

C + I + G + (x-m)

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3
Q

What is consumption

A

Total spending by households

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4
Q

What are durable goods

A

Goods that are consumed over a long period of time

Eg car

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5
Q

What are non-durable goods

A

Goods that are consumed instantly

Eg ice cream

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6
Q

What is meant by the average propensity to consume

A

Proportion of total income spent by households

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7
Q

How to work out average propensity to consume

A

C / Y

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8
Q

What is meant by the marginal propensity to consume

A

The proportion of a change in income which is spent

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9
Q

How to calculate marginal propensity to consume

A

Change in C / Change in Y

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10
Q

What is meant by the consumption function

A

Refers to the relationship between consumption and the factors that determine it
Eg increase in Y, increase in C

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11
Q

What is saving

A

The part of income that is not spent

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12
Q

What is meant by the average propensity to save

A

The proportion of total income saved

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13
Q

How to work out the average propensity to save

A

S / Y

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14
Q

What is meant by the marginal propensity to save

A

The proportion of a change in income that is saved

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15
Q

How to work out marginal propensity to save

A

Change in S / change in Y

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16
Q

What is meant by the saving function

A

The relationship between saving and the factors that effect it eg interest rates

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17
Q

What is meant by the wealth effect

A

When there is a change in consumption following a change in wealth

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18
Q

What is meant by investment

A

Firms spending on capital stock eg factories

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19
Q

What is gross investment

A

Total value of investment

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20
Q

What is net investment

A

Investment - depreciation of capital stock

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21
Q

What is meant by the accelerator theory

A

That investment is linked to change in output/income

Eg if economic growth is rapid, firms have to invest, causing further growth

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22
Q

What is meant by the capital output ratio?

A

H

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23
Q

What is the accelerator coefficient?

A

H

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24
Q

What is government spending

A

Spending on an economy eg infrastructure

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25
What is the net trade balance
The difference between exports and imports | Exports - imports
26
What does aggregate supply show
The productive capacity of the economy
27
What is the short run aggregate supply curve
The aggregate supply curve that assumes wages are fixed
28
What can cause shifts in the short run aggregate supply curve
``` Wage rates Raw material prices Taxation Exchange rates Productivity ```
29
What is a supply-side shock
A large change in one of the factors causing a shift in aggregate supply curve
30
What is a long run aggregate supply curve
The aggregate supply curve assuming wage rates are variable
31
examples of factors that could cause a shift in the long run aggregate supply
Technological advances Improvements in education and skills Migration Etc.
32
What is meant by national income
Value of output/expenditure/income of an economy, over a period of time
33
What is meant by the value of national income
The monetary value
34
What is meant by volume of national income
National income is adjusted for inflation and expressed as an index number
35
What is the circular flow of income
Model of economy showing flow/movement of money
36
Draw the circular flow of income model
``` Withdrawals on left Income left of circle Firms at bottom, households at top Spending right of circle Injections on right ```
37
What does income include (in the circular flow of income model)
Rent, interest, wages, profit
38
What does spending include in the circular flow of income
Goods and services
39
What are injections
Spending not generated by households | Eg investment, gov spending, exports
40
What are withdrawals
Money leaving the circular flow of income | Eg saving, tax and imports
41
What is a closed economy
Has no foreign trade
42
What is an open economy
Includes trade with other countries
43
What is meant by the multiplier effect
Where an increase in investment or other injection leads to an even greater increase in income
44
What is meant by the multiplier
The figure used to multiply a change in an injection into the circular flow of income, to find the final change in output
45
How to calculate the multiplier
1 / 1-MPC 1 / (MPS + MPT + MPM) 1 / MPW
46
How to calculate MPC
Change in C/Change in Y
47
How to calculate MPS
Change in S/Change in Y
48
How to calculate MPT
Change in tax / change in Y
49
How to calculate MPM
Change in imports /change in Y
50
How to calculate MPW
Change in W/Change in Y
51
What is meant by GDP
Gross domestic product | Which is a measure of national income (output)
52
What is meant by GNI
Gross national income | Which is a measure of national income as well as overseas interest and dividend payments
53
What is meant by GNP
Gross national product | Measure of the value of goods and services
55
What is meant by standard of living
How well off an individual, household or economy is
56
What variables influence standard of living
``` Income Health Environment Happiness Political freedom Etc ```
57
What is meant by purchasing power parities
An exchange rate of one currency for another which compares how much a typical basket of goods costs in one country compared to another
58
What is meant by per capita
Per individual of a population
59
What is the trade/business/economic cycle
Shows regular fluctuations in the level of economic output
60
What are the 4 sections of the trade cycle
- Peak/boom - Downturn - Recession/depression/trough/slump - Recovery/expansion
61
Draw the tradition diagram of a trade cycle
``` Peak Downturn Slump Recovery Output y Time x ```
62
What is meant by a mild trade cycle graph
Shows small fluctuations around the long run GDP growth path
63
Draw the mild trade cycle
Trend level like supply Actual real GDP curving around it Label output gap
64
What is an output gap
The difference between the actual real GDP and the productive potential level of the economy
65
What can cause changes in the trade cycle
Demand-side shocks | Supply-side shocks
66
What are demand-side shocks
Changes that have a sudden and large impact on AD
67
What are supply-side shocks
Changes that have a sudden and large impact on AS
68
What is a negative output gap
When actual GDP is below the productive potential of the economy
69
What is spare capacity
Exists when not all resources are employed (negative output gap)
70
What is a positive output gap
Where actual GDP is higher than the productive potential of the economy
71
Draw a positive output gap on a graph
LRAS, equilibrium of SRAS and AD to the right
72
Draw a negative output graph
LRAS, equilibrium of SRAS and AD to the left
73
What is meant by hysteresis of the trade cycle
Where after a few fluctuations in the same direction, the long term trend changes in that direction also
74
What is meant by export-led growth
Growth due to increase in exports
75
What is meant by sustainable growth
Growth in the productive potential of the economy for today that does not lead to a fall in the productive potential for future generations
76
What is meant by inflation
Persistent general tendency for prices to rise
77
What is deflation
Persistent general tendency for prices to fall
78
What is disinflation
A fall in the rate of inflation
79
What is hyperinflation
High rate of inflation
80
How is inflation measured
Consumer price index | Retail price index
81
Explain the consumer price index
Looks at the change in prices of goods in a basket, and goods are weighted
82
What is the formula for measuring consumer price index
Cost of basket in current period/cost of basket in base period x 100
83
What is demand pull inflation
Caused by excess demand in economy
84
What is cost push inflation
Caused by increase in the costs of production in the economy
85
What is indexation
Adjusting the value of economic variables eg wage rates, interest and welfare payments in line with inflation
86
What is anticipated inflation
Was predicted
87
What is unanticipated inflation
Not predicted
88
What is underemployment
Includes those who would work more hours if available and those in jobs below their skill level
89
What’s meant by labour force/active population
All people in or available for work
90
What’s meant by population of working age
People between school leaving age and state retirement age
91
What is meant by inactivity (employment)
Not working and not seeking work
92
What is meant by unemployment
Without a job but seeking one
93
What is meant by short term unemployment
up to a year
94
What is meant by long term unemployment
More than a year
95
What is hidden unemployment
Includes underemployed people and people who want a job but are not seeking one
96
What is frictional unemployment
Those who lose their job but move into a new one quickly
97
What is seasonal unemployment
Unemployment at certain times of year
98
What is structural unemployment
Demand for labour is less than supply in a specific market
99
What is cyclical/demand-deficient unemployment
Lack of demand for labour in whole economy eg in a recession
100
What is real wage/classical unemployment
When real wages are too high so employment is lower
101
2 methods of measuring unemployment
Claimant count | LFS/ILO unemployment
102
How does the claimant count measure unemployment
Measures number of people claiming benefits
103
Why may claimant count be inaccurate
- People scared to claim - Wives don’t qualify if husband earns too much - May include people earning from black market
104
What do LFS and ILO stand for
Labour force statistics | International labour organisation
105
How is LFS/ILO measured
44000 households with over 100000 individuals are surveyed
106
Why may the methods of measuring unemployment show underestimations
- Don’t consider underemployed - Doesn’t include people on government training schemes - Some people would take a job but aren’t seeking one - Doesn’t include disability and sickness benefit claimants
107
Why may the methods of measuring unemployment show overestimations
Some people may be considered as unemployable for example if they are ex-criminals, mentally/physically disabled, or lack qualifications
108
What is the balance of payments account
Has record of all financial dealing over a period of time between one country and all others
109
What is a current account
Where payments for purchase and sale of goods and services are recorded
110
What are capital and financial accounts
Part of balance of payments account where flows of savings, investment and currency are recorded
111
How does inflows and outflows effect balance of payments
Inflows are positive, outflows are negative
112
What are visibles
Trade in goods
113
What are invisibles
Trade in services, transfers of income and other payments and receipts
114
What is meant by balance of trade
Value of visible exports - visible imports
115
What is meant by current balance
Difference between value of total exports - total imports
116
What is meant by trade deficit
Visible imports greater than visible exports
117
What is meant by trade surplus
Visible imports less than exports
118
What is meant by current account deficit
Total imports greater than exports
119
What is meant by current account surplus
Total exports greater than imports
120
What are the demand side policies
Monetary | Fiscal
121
What is monetary policy
Manipulating demand through use of interest rates, QE and credit availability
122
What is fiscal policy
Manipulation of demand through taxation and government spending
123
Explain the process of QE
BOE credits their own account, buys bonds from commercial banks, have more money for credit availability etc
124
What is expansionary and contractionary
Expansionary is increasing demand | Contractionary is decreasing demand
125
What is neutral fiscal policy
Changes in gov spending and tax doesn’t change overall budget deficit
126
What is meant by a liquidity trap
Where lowering interest rates has no effect on aggregate demand
127
What are supply side policies
Government policies designed to increase the productive capacity of an economy
128
What are interventionist policies
Gov supply side policies designed to correct market failure
129
What are the 2 types of supply side policies
Capital | Labour
130
What do capital policies include
``` Subsidies Business parks Research and development ICT Grants ```
131
What are examples of labour policies
``` Education Training schemes Minimum wage Benefits Immigration Healthcare ```
132
Wha is the poverty/earnings trap
When an individual is hardly better off or is worse off when gaining an increase in wages due to increase in tax and inflation
133
What is HDI
The human development index
134
What are the 3 elements of HDI
Health (lift expectancy at birth) Education (mean expected years of schooling) Income (GNI per capita)
135
How do interest rates impact strength of pound
Hot money flows
137
What is meant by the black market
Economic activity where trade takes place unreported to tax authorities and so national statistics
138
What is Philips curve
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Economics (5 decks)

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