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economics > Theme 2 macro economics > Flashcards

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
Q

negative externalities of growth (5)
R
I
I
S
E

A

environmental damage
resource depletion
inequality
stress on transport systems - congestion
inflation

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26
Q

Purchasing power parity (PPP)

A

comparing cost of typical basket goods on exchange rates

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27
Q

Draw trade cycle graph

A

real GDP. time
straight line= trend growth
curvy line across = actul growth

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28
Q

define output gap

A

difference between actual level of real GDP and estimated level

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29
Q

trade cycle phases

A

peak/boom
downturn
recession
recovery / expansion

30
Q

inflation definition

A

sustained increase in general price level

reduction in the purchasing power of money. - buy less for same

31
Q

benefits of stable inflation (5)

A

avoids deflation
reduces uncertainty. - boosts confidence
maintains profits
reduces debt
redistributes wealth from savers to borrowers

32
Q

consumer price index (CPI)

A

price index x weighting
sum of price /weights sum

33
Q

CPI limitations (4)

A

basket doesn’t represent all consumers
inaccuracies can occur
change of quality of good/serivce
time lags

34
Q

cost push causes of inflation. (3)

A

cost push = push of cost of production

wage increase
rise cost of import
tax rise

35
Q

demand pull causes of inflation. (4)

A

AD rise without As. - prices rising due to demand

reduced interest rates
increased investment
increased gov spending
global demand for UK exports

36
Q

what can occur if inflation is too high (6)

A

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
Q

Deflation definition

A

General price level is falling

38
Q

Macro objectives

A

low unemployment
price stability
economic growth
current account surplus
environment protection
equal income distribution

39
Q

Macro objectives (6)

A

low unemployment
price stability
economic growth
current account surplus
environment protection
equal income distribution

40
Q

what is the unemployed

A

people able, available and willing to work. Actively searching for work.
must be able to start within 2weeks

41
Q

Unemployment rate calculation

A

number of unemployed / labour force

42
Q

Inactive definition

A

those not in work or unemployed

43
Q

Underemployed definition

A

those working less hours/ or at a lower skill level than desired or able to

44
Q

Types of Unemployment (5)

A

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
Q

benefits of falling unemployment levels (3)

A

boosts living standards
extra tax revenue
reduce social costs of unemployed

46
Q

negatives of falling unemployment (3)

A

extra spending on imports - current account deficit
demand pull / cost push inflationary pressures
less spare labour

47
Q

what is the current account made up of

A

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
Q

current account deficit

A

Outflow of money greater than inflow - high imports low exports

49
Q

S and D on a exchange rate graph meaning

A

Demand = other countries wanting to buy Uk goods and services

Supply = Uk wanting to buy goods and services from rest of world

50
Q

Why a current account deficit isnt always bad

A

importing raw materials

importing capital

51
Q

monetary policy meaning

A

influencing AD in the economy through interest rates and money supply (quantitative easing )

52
Q

expansionary monetary policy

A

cutting interest rates or increasing money supply to boost economic activity

53
Q

contractionary monetary policy

A

increasing interest rates or reducing money supply to reduce economic activity

54
Q

evaluation of monetary policy interest rates (4)

A

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
Q

evaluation of monetary policy QE

A

inflation - causes demand pull inflation
potential for financial crisis through increased borrowing
increased inequality - banks not lending to firms and households

56
Q

Fiscal policy

A

use of government spending , taxation and borrowing to influence AD

57
Q

what is current spending and capital spending

A

current spending - providing public services

capital spending - new public infrastructure

58
Q

progressive tax

A

marginal rate of tax rises as income does e.g income tax

59
Q

regressive tax

A

tax falls as income rises - average rate of tax is lower for higher incomes e.g alcaohol

60
Q

Draw the laffer curve

A

tax rate tax revenue

revenue maxamising

61
Q

crowding in meaning

A

extra government spending leads to more private sector growth and spending through mulitplier effect

62
Q

supply side policy meaning

A

policies which improve the supply side of the economy - gov policies which increase volume of supply

62
Q

crowding out meaning

A

government borrowing and spending from private sector reduces the sectors growth and spending

63
Q

CPI inflation rate

A

10.1%

64
Q

Real GDP growth

A

0.4%

65
Q

BofE base rate

A

4.25%

66
Q

Uk unemployment rate

A

3.8%

67
Q

UK national debt

A

100% of GDP , £2.2trn

68
Q

Tax burden Uk

A

37%

69
Q

Corporation tax Uk

A

25%
Remains lowest in G7

70
Q

Fiscal deficit

A

6%

71
Q

Current account deficit

A

6%

economics (6 decks)

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