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Economics > Theme 2 Video > Flashcards

Theme 2 Video Flashcards

1
Q

Why are the macroeconomic objectives (TIGERS)?

A

Trade balanced
Inflation low and stable
Growth strong and sustained
Employment - low unemployment
Redistribution of income
Stability in the economy

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2
Q

What are the three leakages in an economy?

A

Savings (S)
Taxation (T)
Imports (I)

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3
Q

What are the three types of injections within an economy?

A

Government spending (G)
Investment (I)
Exports (X)

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4
Q

What are the three measurements of growth?

A

Output Method - Real GDP
Income Method
Expenditure Method - AD

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5
Q

What is GDP?

A

The value of all final goods produced in an economy in a year.

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6
Q

What does GDP measure?

A

Growth.
Living Standards.

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7
Q

What are the limitations of GDP?

A

Double counting.
Informal activity.
Errors given vast data collection.

Negative externalities.
Income inequality.
Output produced.
Other quality of life aspects.

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8
Q

What is the equation for GDP per capita?

A

GDP/population

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9
Q

What are some limitations of GDP per capita?

A

Factor income abroad - remittances
Influence of FDI.

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10
Q

What is the definition for GNI?

A

The total income generated by a countries factors of production, regardless of where they are located.

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11
Q

What is the equation of GNI?

A

GDP + net factor income

Net factor income = Income earned by domestic work - income earned by foreign work.

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12
Q

What is Green GDP?

A

Accounts for environmental costs of production.

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13
Q

How do you calculate Green GDP?

A

GDP - Environmental costs

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14
Q

What are limitations of Green GDP?

A

Monetary value on environmental costs are difficult.
GDP could all drastically - too politically sensitive.

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15
Q

What causes short term growth?

A

Increase in AD.

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16
Q

What causes Long term growth?

A

Increase in the quantity or quality of factors of production.

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17
Q

What is a negative output gap?

A

Where there is spare capacity, when actual growth is less than potential

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18
Q

What is a positive output gap?

A

When actual growth is more than potential growth.

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19
Q

How to measure inflation using CPI?

A

1) Family expenditure survey
2) Basket of 650 goods and services
3) Weight attached according to % of income spent.
4) Base year selected = 100
5) Index numbers generated
6) Monthly collection of data. Annual % change measured
7) Basket of goods and weights changed every year

20
Q

What are the limitations of CPI measure for inflation?

A

Basket may not be representative of all consumers.
Data may be inaccurate. Error in collection.
Other countries may use different measures.
Takes time for basket to change.
If baskets change - comparisons of past inflation become difficult.

21
Q

What is demand pull inflation?

A

Increase in AD.

22
Q

What is cost push inflation?

A

Short run increase in as.
Increase in costs of production.

23
Q

What is deflation?

A

When there is negative inflation.

24
Q

Why is demand side deflation bad?

A

Consumers delay consumption - as believe cheaper prices.
Reduces effect of interest rates.
Increases the real value of debt.

25
Q

What is the definition of unemployment?

A

Those registered as able , available and willing to work but cannot find work despite an active search.

26
Q

What are the two measures of unemployment?

A

Labour force survey

Claimant count

27
Q

What is cyclical (demand deficient) unemployment?

A

Less demand for labour.
Shift AD to left.

28
Q

What are limitations of unemployment measures?

A

Economically inactive
Under-employed

29
Q

What is structural unemployment?

A

Immobility of labour:
Occupational - lack skills
Geographical - not willing to move.

30
Q

What is frictional unemployment?

A

Unemployment when a person is in between jobs.

31
Q

What are types of protectionism?

A

Tariffs
Quotas
Embargos
Subsidies
Red tape
VER ( Voluntary exchange restraints)

32
Q

What are the benefits of trade?

A

Cheaper production
Increase sales
Technology growth
Greater consumer choice

33
Q

What is exchange rate?

A

The price of one currency in another currency.

34
Q

Why does exchange rate get stronger.

A

More foreign exchange.

35
Q

What causes a movement along AD?

A

Wealth effect
Trade effect
Interest Effect

36
Q

What affects SRAS?

A

Costs of production.

37
Q

What affects LRAS?

A

Quantity and Quality of factors of production.
Productive efficiency.

38
Q

What is fiscal policy?

A

Government decision on taxation.

39
Q

What is monetary policy?

A

Decides interest rates
Money supply
Exchange rate

40
Q

What are supply side policies?

A

Aim to increase productive potential of the economy by increasing quantity/quality of factors of production.
OR improve efficiency of markets, interventionist of free market promoting.

Efficiency Productivity Incentives Competition.

41
Q

What is the classical interpretation?

A

An economy will always be at the full employment level of output.

42
Q

What is the Keynesian interpretation?

A

Increase AD
Based on economic cycle.
No short term.

43
Q

What is the Phillips curve?

A

Relationship between inflation and unemployment.
Downward sloping curve

44
Q

What is the multiplier?

A

Changes of AD will lead to an even greater change in national output.
Creating income and spending for others.

45
Q

What is the equation for the multiplier?

A

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

46
Q

What is the accelerator effect?

A

Changes in investment can be directly linked to changes in the role of GDP growth.

Economics (4 decks)

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