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ES10002- Introduction to Macroeconomics > Topic 1 > Flashcards

Topic 1 Flashcards

1
Q

What is macroeconomics?

A

The study of the structure and performance of national economies and of the policies that governments use to try and affect economic performance.

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2
Q

What has happened to population growth in the US since 1869?

A

Hockey-stick growth.

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3
Q

What have been the main two causes of long-term growth of US? (2)

A

Rising population
The increase in the amount of output that can be produced by a given unit of labour (average labour productivity)

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4
Q

What are business cycles?

A

Short-run fluctuations of growth rates with a repeated pattern of expansion to decline to recovery

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5
Q

Are they recurrent or periodic?

A

Recurrent

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6
Q

Do business cycles occur in the SR of the LR?

A

SR

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7
Q

Outline the order of a business cycle.

A

…Expansion/Boom, Peak, Recession/Contraction, Trough, Recovery, …

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8
Q

What is a recession?

A

A slowing or decrease in economic growth

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9
Q

Why do recessions cause major political concerns?

A

Every politician wants to be re-elected, but the chances are better if the nation’s economy is expanding

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10
Q

What happens to employment in a recession?

A

Employment rates decrease

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11
Q

What is unemployment?

A

People who are available to work and are actively seeking work, but cannot find jobs

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12
Q

What are the three major issues in macroeconomics?

A

Growth, business cycles, and unemployment

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13
Q

What is the best known measure for unemployment?

A

The unemployment rate

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14
Q

How do you calculate the unemployment rate?

A

No. of unemployed / Labour force

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15
Q

What is inflation?

A

When prices of most goods and services are rising over time

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16
Q

What is the inflation rate?

A

The percentage change in the average price level over some period

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17
Q

What is the name for extreme levels of inflation?

A

Hyperinflation

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18
Q

What does inflation increasing mean for money?

A

The purchasing power of money decreases

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19
Q

What does rising inflation do to consumption?

A

Consumption increases because people want to spend rather than save and let their savings devalue

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20
Q

What type of economy is every major economy?

A

An open-economy

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21
Q

What are trade surpluses and trade deficits?

A

Trade surpluses: Value of exports exceed value of imports
Trade deficits: Value of imports exceed value of exports

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22
Q

What are the two types of macroeconomic policies? (2)

A

Fiscal policy
Monetary policy

23
Q

Briefly explain what Fiscal Policy is?

A

Government spending and taxation

24
Q

Briefly explain what Monetary Policy is

A

Controlling the rate of growth of the nation’s money supply

25
Q

Define aggregation in terms of economics

A

The process of summing individual economic variables to obtain economy-wide totals

26
Q

Why is macroeconomic forecasting hard?

A

The way the economy works in imperfect because it is impossible to take into account every variable

27
Q

What is an economic theory?

A

A set of ideas about the economy that has been organised in a logical framework

28
Q

What are most economic theories developed in terms of?

A

Economic models

29
Q

What are economic models?

A

A simplified description of some aspect of the economy, usually in a mathematical form

30
Q

What is the criteria that economists evaluate economic models or theories? (4)

A

Are the assumptions reasonable or realistic?

Is it understandable and manageable enough to be used in studying real problems?

Does it have implications that can be tested by empirical analysis? That is, can its implications be evaluated by comparing them with data obtained in the real world?

When the implications and the data are compared, are the implications of the theory consistent with the data?

31
Q

What is positive analysis?

A

Examining the economic consequences and facts of a policy, but not addressing the question of whether those consequences are desirable (factual)

32
Q

What is normative analysis?

A

Tries to determine whether a certain policy should be used (what should be/ judgement)

33
Q

What is the name of the variables used in economic principles?

A

Endogenous variables

34
Q

What are endogenous variables?

A

They are variables that are within the analysis of the economic model

35
Q

What are the variables not included in the model called?

A

Exogenous variables

36
Q

What is a common exam question on variables?

A

Being asked on an exogenous variable becoming an endogenous variable in a model and how it effects the model

37
Q

What two assumptions does an economic model make, and explain each?

A

Simplifying- assumption that makes the model simpler without affecting any of its important conclusions.

Critical- assumption by contrast that affects the conclusions of the model in important ways.

38
Q

Who came up with the classical approach to economics?

A

Adam Smith

39
Q

When and where did Adam Smith write about his classical theory?

A

1776, ‘The Wealth of Nations’

40
Q

What is Adam Smith’s concept known as the invisible hand?

A

The idea that if there are free markets and individuals conduct their economic affairs in their own best interests, the overall economy will work well

41
Q

In Classical school of thought, what are individuals led by and what do they aim to maximise?

A

Self-interested individuals are led by the invisible hand to maximise welfare

42
Q

What are two criticisms of the invisible hand?

A

The invisible hand does not rule out the effects of large exogenous shocks.

The invisible hand doesn’t rule out inequalities.

43
Q

What do Classicists say about wages and prices?

A

They adjust rapidly to equate supply and demand

44
Q

Do Classicists believe in government intervention?

A

No, they believe government intervention is ineffective and counterproductive.

45
Q

Who came up with the Keynesian school of thought?

A

John Maynard Keynes

46
Q

When and where did the Keynesian approach first be written about?

A

1936, ‘The General Theory of Employment, Interest, and Money’

47
Q

When did the invisible hand look ineffective?

A

in 1936 when the world was suffering through the Great Depression, as there was persistent high levels of unemployment, suggesting that the economy is not self-regulating

48
Q

What are wages and price said to be in the Keynesian school of thought?

A

Sticky and take time to adjust to meet equilibrium

49
Q

Did John Maynard Keynes believe government intervention is necessary?

A

Yes he did

50
Q

What did Keynes suggest the government should do to increase employment?

A

Increase their purchases of goods and services

51
Q

When did Keynesian economics dominate?

A

WWII to 1970 due to the Great Depression.

52
Q

What caused a classical comeback in the 1970s?

A

Stagflation- high inflation and economic stagnation

53
Q

What lacked evidence in Keynesian theory?

A

Not much evidence on why prices and wages adjust slowly

54
Q

What are the 4 characteristics used to entwine Classical and Keynesian Schools of Thought when creating an economic model?

A

1.Individuals, firms, and the government interact in goods markets, asset markets, and labour markets

  1. The model’s macroeconomic analysis is based on the analysis of individual optimizing behaviour
  2. Keynesians and Classicists both agree that in the long run prices and wages fully adjust to achieve equilibrium in the markets for goods, assets, and labour
  3. The basic model that we use may be used with either the classical assumption that wages and prices are flexible or the Keynesian assumption that wages and prices are slow to adjust

ES10002- Introduction to Macroeconomics (11 decks)

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