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Economics SL (Year 1) - IB > Unit 4 - Macroeconomics > Flashcards

Unit 4 - Macroeconomics Flashcards

1
Q

Principles of the Sharing Economy

A
  • Allow individuals to monetize underused assets
  • Involves peer to peer exchange
  • Often uses online platforms
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2
Q

Sharing v. Conventional Economy

A
  • Allows direct interaction between buyer and seller
  • Involves short-term commitments for one-time jobs
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3
Q

Economic Efficiency of Shared Economy

A
  • Utilizes idle assets, reducing waste
  • Offers flexibility in work schedules.
  • Users find help quickly.
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4
Q

Shared Economy: Innovation and Entrepreneurship

A
  • Shared economy supports emergence of new businesses.
  • Offer low-risk environments for testing new ideas.
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5
Q

Sharing Economy: Regulatory and Legal Challenges

A
  • Struggle with adherence to labor regulations.
  • Complications in taxation and insurance coverage create uncertainties.
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6
Q

Sharing Economy: Labor Concerns

A
  • No benefits like health insurance
  • Low wages and inconsistent work schedules.
  • Platforms control conditions of work.
  • Workers have little bargaining power
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7
Q

Sharing Economy: Market Saturation and Competition

A

Market saturation makes it hard for new entrants to compete.

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8
Q

Inflation

A
  • Decrease in purchasing power of currency
  • Cause: consumers able to buy more goods than available at current price
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9
Q

Demand-Pull Inflation

A
  • Increase in aggregate demand outweighs aggregate supply
  • Most common inflation
  • Can result in increase in output of goods and services
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10
Q

Demand-Pull Inflation: Increased Govt Spending

A

Acts as consumer in market, results in less goods/services

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11
Q

Demand-Pull Inflation: Increased investments from firms

A
  • Increases incomes of factors of production; aggregate demand increased
  • Contributes least to inflation
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12
Q

Demand-Pull Inflation: Increased spending from households

A
  • Higher incomes
  • Larger population
  • Money printed
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13
Q

Increased exports by country

A
  • Increased exports increase size of market
  • Goods and services consumed outside of the country, resulting in less supply
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14
Q

Inflationary Spiral

A

As aggregate demand increases, businesses and firms hire more workers, which increases aggregate demand

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15
Q

Cost-Push Inflation

A
  • Aggregate supply decreases relative to aggregate demand
  • More concerning, as economic output decreases
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16
Q

Cost-Push Inflation: Increase in cost of raw materials

A
  • Formation of monopolies, allowing higher prices for consumer capital goods
  • Natural disasters affecting supply of raw materials
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17
Q

Cost-Push Inflation: Increased production costs

A
  • Increase in wages
  • Regulations making production more expensive
  • Least common as it decreases demand
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18
Q

Contradictory Monetary Policy

A
  • Reduce money supply in economy by increasing interest rates
  • Reduces consumer and business spending
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19
Q

Government Fiscal Policy

A
  • Increase in taxes
  • Reduces spending by removing money from economy
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20
Q

Price Controls - Less Effective

A

Bottom Text

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21
Q

Inflation: Impact on the Economy

A
  • Loss of purchasing power
  • Increased cost of living
  • Increased Input Costs
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22
Q

Inflation: Impact on Companies

A
  • Raise product prices to offset input costs, balance price hikes to avoid suppressing demand.
  • Wages increase to keep pace with inflation, higher labor costs.
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23
Q

Monetary Policy

A

Central bank controls money supply/interest rates to achieve macroeconomic goals

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24
Q

Monetary Policy Tools

A
  • Open market operations
  • Interest rates
  • Adjusting reserve requirements
  • Discount rate
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25
Q

Actions to Curb Inflation

A
  • Raise interest rates
  • Sell government securities (withdraw money from economy)
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26
Q

Consumer Price Index (CPI)

A

Examines average price change over time for consumer products

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27
Q

CPI Formula

A

CPI = (cost of basket in year)/(cost of basket in base year) x 100

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28
Q

Basket Categories

A
  • Goods are categorized in baskets, reflecting what consumer purchases within each category
  • Ex: housing, clothing basket
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29
Q

Unweighted CPI

A
  • Calculates simple average of price indices of baskets.
  • Treats each basket equally, regardless of importance in consumer expenditure
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30
Q

Weighted CPI

A

Each basket is assigned weight based on how much of total expenditure is spent on that category.

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31
Q

Inflation Rate Calculation

A

(index base+1 - index base) x 100/ index base

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32
Q

Deflation

A

Decline in prices for goods and services, increasing purchasing power

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33
Q

Causes of Deflation

A
  • Lower production costs
  • Increased aggregate supply OR decrease in aggregate demand
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34
Q

Good Deflation

A

Naturally occurs due to increases in economic output, increasing employment

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35
Q

Bad Deflation

A

Deflation from consumer side of the economy, leading to many problems

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36
Q

Effects of Deflation

A
  • Higher unemployment
  • Deferred consumption
  • Falling consumer confidence
  • Decreased investment
  • Difficulty repaying debt
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37
Q

Unemployment Definition

A

Portion of workforce actively searching for work but unable to find a job.

38
Q

Three groups of population

A
  • People aged < 15
  • Eligible to work but choose not to
  • Labor Force
39
Q

Labor Force Definition

A
  • People ages 15+ who supply labor for production of goods and services
  • Includes those currently working or looking for work
40
Q

Frictional Unemployment

A
  • Occurs from changing jobs voluntarily
  • Results from market processes taking time
  • Least problematic and short-lived
41
Q

Cyclical Unemployment

A
  • Results from reduction in demand for consumer products.
  • Rises during recessions and falls during periods of growth
42
Q

Cures to Cyclical Unemployment

A
  • Implementing fiscal policies to help influence consumer spending
  • Ex: Cutting taxes, increasing transfer payments
43
Q

Structural Unemployment

A
  • Occurs when skills or location of workers are no longer demanded in economy.
  • Displaced workers can be unemployed for long periods or leave labour force.
44
Q

Cures to Structural Unemployment

A
  • Provide training programs or help unemployed workers pursue higher education
  • Move workers to areas w/ demand
45
Q

Calculation of Unemployment Rate

A

(𝑈𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑/𝐿𝑎𝑏𝑜𝑢𝑟 𝐹𝑜𝑟𝑐𝑒) x 100

46
Q

Full unemployment

A
  • Forms of structural and frictional unemployment exists at all times.
  • During economic growth, workers feel confident about leaving positions
47
Q

Natural Rate of Unemployment

A

6-7%

48
Q

International Trade Definition

A

Exchange of goods and services across international borders

49
Q

Tariffs

A

Tax on good imposed by importing country

50
Q

Import Quotas

A

Sets maximum amount of good imported during time frame

51
Q

Licenses

A

Permits company to bring specific goods into country.

52
Q

Voluntary Export Restraints

A

Cap that exporting country sets for amount of a good it is permitted to export

53
Q

Local Content requirements

A

Mandate that specific proportion of good be produced domestically.

54
Q

Canada’s Major Trade Partners

A

USA, China, UK

55
Q

Crown Corporations’ Advantages

A
  • Ensure public interest hold high standards
  • Provides services that can’t be provided by private sector
  • Generates more jobs with good pay and benefits for economy
56
Q

More Crown Corporation Advantages

A
  • Government intervention addresses social problems
  • Prevent monopolies forming in market
  • Affordable prices
57
Q

Disadvantages of Crown Corporations

A
  • Distorts prices because they’re monopoly
  • End up in losses making taxpayers compensate
58
Q

More Disadvantages of Crown Corporations

A
  • Less efficient since not profit oriented
  • Decisions may be made on political benefits rather than economic factors
59
Q

Formal Economy Definition

A

Part of economy regulated by the government by contracts, taxation and labour law.

60
Q

Underground Economy Definition

A

Economic activity unreported to the government

61
Q

Examples of Underground Markets

A
  • Paying with cash
  • Tax evasion
  • Labour exploitation
62
Q

Reasons for Underground Markets

A
  • Illegal goods
  • Avoiding price controls, taxes, and regulations.
  • Supply not meeting demand.
  • Corruption facilitating growth.
63
Q

Impacts of Underground Markets

A
  • Reduction in government funding due to non-taxable transactions.
  • Unfair competition and unjust working conditions.
  • Can create jobs and boost economic growth.
64
Q

Limiting Underground Markets

A
  • Education on taxes and benefits
  • Reducing tax rates/regulations
65
Q

Other Ways to Limit Underground Markets

A
  • Legalizing products to bring activities to formal economy
  • Proper enforcement and inspections
66
Q

Exchange Rates

A

Price of one currency expressed in another currency.

67
Q

Factors Influencing Exchange Rates

A
  • Interest rates
  • Inflation
  • Economic Stability
68
Q

Foreign Exchange Market/Forex Market

A

Market where currencies are traded

69
Q

Floating Exchange Rate

A

Foreign exchange market determines a country’s currency price depending on demand and supply

70
Q

Advantages of Floating Exchange Rate

A
  • Stability in balance of payments
  • Domestic policy freedom
  • Increased efficiency
71
Q

Disadvantages of Floating Exchange Rate

A
  • Exposed volatility of exchange rate
  • Imported inflation.
72
Q

Fixed Exchange Rates

A

Exchange rate system set firmly by monetary authority concerning foreign currency

73
Q

Advantages of Fixed Exchange Rates

A
  • Price stability
  • Speculation protection
  • Inflation control
74
Q

Pros and Cons of Appreciation

A
  • Cheaper imports and helps control inflation
  • Hurts exports and slows down economic growth
74
Q

Appreciation

A

The increase in value of a currency

75
Q

Disadvantages of Fixed Exchange Rates

A
  • Less flexibility
  • Risk of speculation
  • Reserve dependency
75
Q

Supply-Demand of Exchange Rates

A
  • Exchange rate (ex: price of CAD in USD) on y-axis
  • Quantity (ex: of CAD) on y-axis
76
Q

Causes of Currency Appreciation (more of factors, more appreciation)

A
  • Interest
  • Speculation expectations
  • Foreign Investment from other countries
  • Incomes abroad
  • International competitiveness
77
Q

Causes of Currency Depreciation

A
  • Firms move away
  • Domestic Incomes
78
Q

Increase of Demand for Currency

A

Foreigners want currency and exchange local currency for it

79
Q

Increase in Supply for Currency

A

Currency is exchanged for another currency

80
Q

Pros of High Exchange Rates

A
  • Downward pressure on inflation
  • Cheaper imports
  • Improved efficiency to domestic producers
81
Q

Cons of High Exchange Rates

A
  • Damage to export industries
  • Damage to domestic industries
82
Q

Reciprocal Exchange Rate

A
  • 1/Current Exchange Rate
  • Ex: 1 CAD = 0.73 USD, 1.37 CAD = 1 USD
83
Q

Money Definition

A

Any medium of exchange symbolizing value and accepted for payment of goods

84
Q

Characteristics of money

A
  • Portable, recognizable and retains its value
  • Durable and divisible into unit
  • Hard to falsify and easy to use
85
Q

Commodity Money

A
  • Money whose value comes from commodity of which it’s made
  • Ex: Gold, silver
86
Q

Fiat Money

A
  • Currency made legal tender by government
  • Doesn’t require backing by commodity, important when economies expanding
  • Value set by supply/demand and perceived value
87
Q

Fiduciary Money

A
  • Written statement of debt in place of standard money
  • Value relies on trust between two parties of its use as actual money
  • Risk of more IOU’s than supply of money
88
Q

Commercial Bank Money

A

Money created through debt issued by commercial banks in an economy

Economics SL (Year 1) - IB (5 decks)

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