week 1 Flashcards
macroeconomics
branch of economics concerned with the behaviour of the overall economy
what does macroeconomics encompass
markets
government
consumers/firms
modern macroeconomic theorist
John Maynard keynes
Paul romer
Nicholas kaldor
major macroeconomic issues
-economic growth and business cycle
-longer term economic growth
-unemployment
-inflation
-foreign trade and global economic relationships
-financial stability and well being
economic growth
dynamic change in the level of an economy’s output
business cycle
period fluctuations of national output. periods of rapid growth are followed by periods of low growth or even decline in national output
short run growth
long run growth
short run- understanding the determinants of the business cycle
long run- understanding a country’s capacity to produce. sustained LR growth requires the economy’s capacity to produce to increase
unemployment
defined by international labour organisation (ILO) as working age, without job, actively seeking work in the past four weeks and who are available to start work in the next two weeks
inflation
general rise in prices throughout the economy
uk inflation target is 2%
balance of payments account
A record of the country’s transactions with the rest of the world. it shows the country’s debits and credits to/from other countries
-sale of exports and other receipts earns foreign currency
-purchase of imports or other payments abroad requires foreign currency
financial stability and well being
balance of payments account
-financial markets, financial institutions, financial instruments
increasing importance of financial system to economic is known as financialisation
financialisation
associated with the level of debtedness of economic agents
-income account- various flows of income (credit) with amounts either spent or saved (debits)
-financial flows- determine the net acquisition of financial wealth by each sector (balance sheet)
-capital account- looks at flows and stocks of physical assets and liabilities
measuring national income
product method
income method
expenditure method
product method
y=[f(L,K)]productivity
k=factories
income method
wage x labour + rent x capital (K)
expenditure method
add all expenditure
when measuring national income take into account
-inflation (nominal vs real GDP)
-population (per capita)
purchasing power (PPP)
purchasing power parity
an exchange rate corrected to take into account the purchasing power of a currency
actual growth and potential growth
AG- the % increase in actual output
PG- the % increase in the economy’s capacity
phases of business cycle
upturn
expansion
peaking out
slowdown or recession
underground/ shadow economy
part of the economy not reported to government so is not subject to taxes, regulations
