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Theme 2 macro economics Flashcards

1
Q

what is GDP

A

Gross domestic product is a monetary measure of market value of all final goods and services in a country - measures economic health

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2
Q

three methods of measuring GDP

A

income - wages, profits, rent
output - value of all goods and services
expenditure - all spending on goods and services - most common

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3
Q

injections into circular flow

A

investment
government spending
exports

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4
Q

withdrawals from circular flow

A

savings
imports
taxes

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5
Q

AD calculation

A

C+I+G+(X-M)

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6
Q

investment meaning

A

spending on capital goods

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7
Q

gross investment meaning

A

purchase of new machinery , or capital consumption (replacement of worn out capital)

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8
Q

Net investment

A

only measures new assets
net investment = gross investment - capital depreciation

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9
Q

factors impacting levels of investment (5)

A

interest rates. - high cost to borrow , less investment
business confidence - higher = more investment
gov intervention - tax cuts , subsidies encourage
inflation - higher inflation less confidence
credit availability. - limited supply not as much investment

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10
Q

Animal spirits meaning

A

idea of gut instincts in business people on future of prospects
made by keynes

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11
Q

what is the Accelerator effect

A

change in investment levels linked to a change in rate of GDP growth

  • given change in demand for good causes bigger %change in demand for capital
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12
Q

accelerator effect evaluation (4)

A

time lags
firms won’t respond to minor changes
investment has other influencing factors
depends on business confidence

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13
Q

Investment impact (+4)(-1)

A

positive multiplier effect
boosts demand in industries building capital
creates jobs - producing ,designing
increase output of firm

however
capital can takeover jobs

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14
Q

government spending meaning

A

money spent by government on public goods and services. - education health

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15
Q

what is a merit good

A

a good / service which is thought to be under consumed. payed by the government so C does not depend on the ability to pay

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16
Q

why do governments spend (3)

A

compensate for market failures. - e.g public goods such as street lighting
Ensure a minimum standard of living e.g welfare benefits
manipulate the macro economy through Fiscal Policy

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17
Q

Budget deficit

A

Government spending is larger than government revenue in a year

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18
Q

budget surplus

A

government spending less than government revenue in a year

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19
Q

National debt

A

accumulation of budgets across the years

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20
Q

what is Quantative Easing (QE)

A

When the Bank of England buys back its own bonds from firms

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21
Q

SPICED meaning (trade)

A

Strong
Pound
Imports
Cheaper
Exports
Dearer

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22
Q

Influences on net trade (4)

A

Relative inflation (to other countries)
Costs of Production
Non Price factors. - Quality , service ,brand
Degree of protectionism - taxing of imports etc

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23
Q

factors influencing LRAS (6)

C
R
T
E
G
D

A

technology advances
relative productivity changes
education and skills changes
government regulations
demographic and migration changes
competition policy

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24
Q

factors influencing SRAS (3)

A

cost of raw materials and energy
exchange rates
tax rates

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25
negative externalities of growth (5) R I I S E
environmental damage resource depletion inequality stress on transport systems - congestion inflation
26
Purchasing power parity (PPP)
comparing cost of typical basket goods on exchange rates
27
Draw trade cycle graph
real GDP. time straight line= trend growth curvy line across = actul growth
28
define output gap
difference between actual level of real GDP and estimated level
29
trade cycle phases
peak/boom downturn recession recovery / expansion
30
inflation definition
sustained increase in general price level reduction in the purchasing power of money. - buy less for same
31
benefits of stable inflation (5)
avoids deflation reduces uncertainty. - boosts confidence maintains profits reduces debt redistributes wealth from savers to borrowers
32
consumer price index (CPI)
price index x weighting sum of price /weights sum
33
CPI limitations (4)
basket doesn't represent all consumers inaccuracies can occur change of quality of good/serivce time lags
34
cost push causes of inflation. (3)
cost push = push of cost of production wage increase rise cost of import tax rise
35
demand pull causes of inflation. (4)
AD rise without As. - prices rising due to demand reduced interest rates increased investment increased gov spending global demand for UK exports
36
what can occur if inflation is too high (6)
income in real terms. - wage increase doesn't grow at rate of inflation Wage-Price spiral - higher wages = higher C = Higher prices International competitivness fall low business confidence Menu costs. - reprinting prices eat.
37
Deflation definition
General price level is falling
38
Macro objectives
low unemployment price stability economic growth current account surplus environment protection equal income distribution
39
Macro objectives (6)
low unemployment price stability economic growth current account surplus environment protection equal income distribution
40
what is the unemployed
people able, available and willing to work. Actively searching for work. must be able to start within 2weeks
41
Unemployment rate calculation
number of unemployed / labour force
42
Inactive definition
those not in work or unemployed
43
Underemployed definition
those working less hours/ or at a lower skill level than desired or able to
44
Types of Unemployment (5)
demand-deficient - not enough demand for all workforce cyclical - production within the business cycle structural - skills of workers and labour required frictional - transferring between jobs seasonal - fluctuations throughout the year e.g tourism
45
benefits of falling unemployment levels (3)
boosts living standards extra tax revenue reduce social costs of unemployed
46
negatives of falling unemployment (3)
extra spending on imports - current account deficit demand pull / cost push inflationary pressures less spare labour
47
what is the current account made up of
Balance of trade in goods + balance of trade in services + net primary income (inward flows of profits interest , dividends outward flows of foreign owned assets in Uk) +net secondary income (payments to UN, aid
48
current account deficit
Outflow of money greater than inflow - high imports low exports
49
S and D on a exchange rate graph meaning
Demand = other countries wanting to buy Uk goods and services Supply = Uk wanting to buy goods and services from rest of world
50
Why a current account deficit isnt always bad
importing raw materials importing capital
51
monetary policy meaning
influencing AD in the economy through interest rates and money supply (quantitative easing )
52
expansionary monetary policy
cutting interest rates or increasing money supply to boost economic activity
53
contractionary monetary policy
increasing interest rates or reducing money supply to reduce economic activity
54
evaluation of monetary policy interest rates (4)
Transmission mechanism - long complicated chain influencing inflation - IR ineffective , time lags , base rate not passed on credit crunch - banks have no confidence loans will be payed back cause of inflation - not as effective against cost push inflation Homeowners - outright home owners wont be as impacted
55
evaluation of monetary policy QE
inflation - causes demand pull inflation potential for financial crisis through increased borrowing increased inequality - banks not lending to firms and households
56
Fiscal policy
use of government spending , taxation and borrowing to influence AD
57
what is current spending and capital spending
current spending - providing public services capital spending - new public infrastructure
58
progressive tax
marginal rate of tax rises as income does e.g income tax
59
regressive tax
tax falls as income rises - average rate of tax is lower for higher incomes e.g alcaohol
60
Draw the laffer curve
tax rate tax revenue revenue maxamising
61
crowding in meaning
extra government spending leads to more private sector growth and spending through mulitplier effect
62
supply side policy meaning
policies which improve the supply side of the economy - gov policies which increase volume of supply
62
crowding out meaning
government borrowing and spending from private sector reduces the sectors growth and spending
63
CPI inflation rate
10.1%
64
Real GDP growth
0.4%
65
BofE base rate
4.25%
66
Uk unemployment rate
3.8%
67
UK national debt
100% of GDP , £2.2trn
68
Tax burden Uk
37%
69
Corporation tax Uk
25% Remains lowest in G7
70
Fiscal deficit
6%
71
Current account deficit
6%

economics (6 decks)

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