Theme 2 Flashcards

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
Q

What is the net trade balance

A

The difference between exports and imports

Exports - imports

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26
Q

What does aggregate supply show

A

The productive capacity of the economy

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27
Q

What is the short run aggregate supply curve

A

The aggregate supply curve that assumes wages are fixed

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28
Q

What can cause shifts in the short run aggregate supply curve

A
Wage rates
Raw material prices
Taxation
Exchange rates
Productivity
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29
Q

What is a supply-side shock

A

A large change in one of the factors causing a shift in aggregate supply curve

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30
Q

What is a long run aggregate supply curve

A

The aggregate supply curve assuming wage rates are variable

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31
Q

examples of factors that could cause a shift in the long run aggregate supply

A

Technological advances
Improvements in education and skills
Migration
Etc.

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32
Q

What is meant by national income

A

Value of output/expenditure/income of an economy, over a period of time

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33
Q

What is meant by the value of national income

A

The monetary value

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34
Q

What is meant by volume of national income

A

National income is adjusted for inflation and expressed as an index number

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35
Q

What is the circular flow of income

A

Model of economy showing flow/movement of money

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36
Q

Draw the circular flow of income model

A
Withdrawals on left
Income left of circle
Firms at bottom, households at top
Spending right of circle
Injections on right
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37
Q

What does income include (in the circular flow of income model)

A

Rent, interest, wages, profit

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38
Q

What does spending include in the circular flow of income

A

Goods and services

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39
Q

What are injections

A

Spending not generated by households

Eg investment, gov spending, exports

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40
Q

What are withdrawals

A

Money leaving the circular flow of income

Eg saving, tax and imports

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41
Q

What is a closed economy

A

Has no foreign trade

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42
Q

What is an open economy

A

Includes trade with other countries

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43
Q

What is meant by the multiplier effect

A

Where an increase in investment or other injection leads to an even greater increase in income

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44
Q

What is meant by the multiplier

A

The figure used to multiply a change in an injection into the circular flow of income, to find the final change in output

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45
Q

How to calculate the multiplier

A

1 / 1-MPC
1 / (MPS + MPT + MPM)
1 / MPW

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46
Q

How to calculate MPC

A

Change in C/Change in Y

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47
Q

How to calculate MPS

A

Change in S/Change in Y

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48
Q

How to calculate MPT

A

Change in tax / change in Y

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49
Q

How to calculate MPM

A

Change in imports /change in Y

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50
Q

How to calculate MPW

A

Change in W/Change in Y

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51
Q

What is meant by GDP

A

Gross domestic product

Which is a measure of national income (output)

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52
Q

What is meant by GNI

A

Gross national income

Which is a measure of national income as well as overseas interest and dividend payments

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53
Q

What is meant by GNP

A

Gross national product

Measure of the value of goods and services

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55
Q

What is meant by standard of living

A

How well off an individual, household or economy is

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56
Q

What variables influence standard of living

A
Income
Health
Environment
Happiness
Political freedom
Etc
57
Q

What is meant by purchasing power parities

A

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
Q

What is meant by per capita

A

Per individual of a population

59
Q

What is the trade/business/economic cycle

A

Shows regular fluctuations in the level of economic output

60
Q

What are the 4 sections of the trade cycle

A
  • Peak/boom
  • Downturn
  • Recession/depression/trough/slump
  • Recovery/expansion
61
Q

Draw the tradition diagram of a trade cycle

A
Peak
Downturn
Slump
Recovery
Output y
Time x
62
Q

What is meant by a mild trade cycle graph

A

Shows small fluctuations around the long run GDP growth path

63
Q

Draw the mild trade cycle

A

Trend level like supply
Actual real GDP curving around it
Label output gap

64
Q

What is an output gap

A

The difference between the actual real GDP and the productive potential level of the economy

65
Q

What can cause changes in the trade cycle

A

Demand-side shocks

Supply-side shocks

66
Q

What are demand-side shocks

A

Changes that have a sudden and large impact on AD

67
Q

What are supply-side shocks

A

Changes that have a sudden and large impact on AS

68
Q

What is a negative output gap

A

When actual GDP is below the productive potential of the economy

69
Q

What is spare capacity

A

Exists when not all resources are employed (negative output gap)

70
Q

What is a positive output gap

A

Where actual GDP is higher than the productive potential of the economy

71
Q

Draw a positive output gap on a graph

A

LRAS, equilibrium of SRAS and AD to the right

72
Q

Draw a negative output graph

A

LRAS, equilibrium of SRAS and AD to the left

73
Q

What is meant by hysteresis of the trade cycle

A

Where after a few fluctuations in the same direction, the long term trend changes in that direction also

74
Q

What is meant by export-led growth

A

Growth due to increase in exports

75
Q

What is meant by sustainable growth

A

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
Q

What is meant by inflation

A

Persistent general tendency for prices to rise

77
Q

What is deflation

A

Persistent general tendency for prices to fall

78
Q

What is disinflation

A

A fall in the rate of inflation

79
Q

What is hyperinflation

A

High rate of inflation

80
Q

How is inflation measured

A

Consumer price index

Retail price index

81
Q

Explain the consumer price index

A

Looks at the change in prices of goods in a basket, and goods are weighted

82
Q

What is the formula for measuring consumer price index

A

Cost of basket in current period/cost of basket in base period x 100

83
Q

What is demand pull inflation

A

Caused by excess demand in economy

84
Q

What is cost push inflation

A

Caused by increase in the costs of production in the economy

85
Q

What is indexation

A

Adjusting the value of economic variables eg wage rates, interest and welfare payments in line with inflation

86
Q

What is anticipated inflation

A

Was predicted

87
Q

What is unanticipated inflation

A

Not predicted

88
Q

What is underemployment

A

Includes those who would work more hours if available and those in jobs below their skill level

89
Q

What’s meant by labour force/active population

A

All people in or available for work

90
Q

What’s meant by population of working age

A

People between school leaving age and state retirement age

91
Q

What is meant by inactivity (employment)

A

Not working and not seeking work

92
Q

What is meant by unemployment

A

Without a job but seeking one

93
Q

What is meant by short term unemployment

A

up to a year

94
Q

What is meant by long term unemployment

A

More than a year

95
Q

What is hidden unemployment

A

Includes underemployed people and people who want a job but are not seeking one

96
Q

What is frictional unemployment

A

Those who lose their job but move into a new one quickly

97
Q

What is seasonal unemployment

A

Unemployment at certain times of year

98
Q

What is structural unemployment

A

Demand for labour is less than supply in a specific market

99
Q

What is cyclical/demand-deficient unemployment

A

Lack of demand for labour in whole economy eg in a recession

100
Q

What is real wage/classical unemployment

A

When real wages are too high so employment is lower

101
Q

2 methods of measuring unemployment

A

Claimant count

LFS/ILO unemployment

102
Q

How does the claimant count measure unemployment

A

Measures number of people claiming benefits

103
Q

Why may claimant count be inaccurate

A
  • People scared to claim
  • Wives don’t qualify if husband earns too much
  • May include people earning from black market
104
Q

What do LFS and ILO stand for

A

Labour force statistics

International labour organisation

105
Q

How is LFS/ILO measured

A

44000 households with over 100000 individuals are surveyed

106
Q

Why may the methods of measuring unemployment show underestimations

A
  • 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
Q

Why may the methods of measuring unemployment show overestimations

A

Some people may be considered as unemployable for example if they are ex-criminals, mentally/physically disabled, or lack qualifications

108
Q

What is the balance of payments account

A

Has record of all financial dealing over a period of time between one country and all others

109
Q

What is a current account

A

Where payments for purchase and sale of goods and services are recorded

110
Q

What are capital and financial accounts

A

Part of balance of payments account where flows of savings, investment and currency are recorded

111
Q

How does inflows and outflows effect balance of payments

A

Inflows are positive, outflows are negative

112
Q

What are visibles

A

Trade in goods

113
Q

What are invisibles

A

Trade in services, transfers of income and other payments and receipts

114
Q

What is meant by balance of trade

A

Value of visible exports - visible imports

115
Q

What is meant by current balance

A

Difference between value of total exports - total imports

116
Q

What is meant by trade deficit

A

Visible imports greater than visible exports

117
Q

What is meant by trade surplus

A

Visible imports less than exports

118
Q

What is meant by current account deficit

A

Total imports greater than exports

119
Q

What is meant by current account surplus

A

Total exports greater than imports

120
Q

What are the demand side policies

A

Monetary

Fiscal

121
Q

What is monetary policy

A

Manipulating demand through use of interest rates, QE and credit availability

122
Q

What is fiscal policy

A

Manipulation of demand through taxation and government spending

123
Q

Explain the process of QE

A

BOE credits their own account, buys bonds from commercial banks, have more money for credit availability etc

124
Q

What is expansionary and contractionary

A

Expansionary is increasing demand

Contractionary is decreasing demand

125
Q

What is neutral fiscal policy

A

Changes in gov spending and tax doesn’t change overall budget deficit

126
Q

What is meant by a liquidity trap

A

Where lowering interest rates has no effect on aggregate demand

127
Q

What are supply side policies

A

Government policies designed to increase the productive capacity of an economy

128
Q

What are interventionist policies

A

Gov supply side policies designed to correct market failure

129
Q

What are the 2 types of supply side policies

A

Capital

Labour

130
Q

What do capital policies include

A
Subsidies
Business parks
Research and development
ICT
Grants
131
Q

What are examples of labour policies

A
Education
Training schemes
Minimum wage
Benefits
Immigration
Healthcare
132
Q

Wha is the poverty/earnings trap

A

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
Q

What is HDI

A

The human development index

134
Q

What are the 3 elements of HDI

A

Health (lift expectancy at birth)
Education (mean expected years of schooling)
Income (GNI per capita)

135
Q

How do interest rates impact strength of pound

A

Hot money flows

137
Q

What is meant by the black market

A

Economic activity where trade takes place unreported to tax authorities and so national statistics

138
Q

What is Philips curve

A

Research this