Week 11 Flashcards
What are microeconomics?
Microeconomics focuses on issues at the level of the individual—the individual consumer, the individual firm or public sector organization, the individual market, and so on.
What are macroeconomics?
Macroeconomics is concerned with the behaviour and performance of the economy as a whole.
What are Macroeconomic policy?
Macroeconomic policy is concerned with the attempts of policymakers to influence broad economic conditions in order to improve the performance of the whole economy.
What is economic growth?
Economic growth describes an increase in the
quantity and quality of the economic goods and
services that a society produces and consumes
(Rosser, 2013)
Growth is often measured as an increase in household
income or inflation-adjusted GDP, but it is important to
keep in mind that this is not the definition of it.
What are Gross Domestic Product
Gross domestic product tracks the health of a country’s economy.
Represents the value of all goods and services produced over a specific time period within a country’s borders.
Economists can use GDP to determine whether an economy is growing or experiencing a recession.
Investors can use GDP to make investments decisions—a bad economy means lower earnings and lower stock prices.
What is Nominal vs Real GDP?
Nominal GDP takes current market prices into account
without factoring in inflation or deflation.
Nominal GDP looks at the natural movement of prices and tracks the gradual increase of an economy’s value over time.
Real GDP factors in inflation. meaning it accounts for the overall rise in price levels.
What is Income approach?
The income approach, which is sometimes referred to as GDP(I), is calculated by adding up total compensation to employees, gross profits for incorporated and non-incorporated firms, and taxes less any subsidies.
What is Production approach?
GDP can equivalently be measured based on the value of goods or services produced in an economy over the course of the year.
What is expenditure approach?
The expenditure method is the more common
approach and is calculated by adding private
consumption and investment, government
spending, and net exports.
A growing economy: what does it mean for businesses? (Part 1)
Businesses seek locations where economic growth will help them to prosper as enterprises. One attraction is rising incomes leading to rising consumer sales.
Rising levels of educational achievement – This would
provide new investors with a pool of local people able to take on challenging jobs in FDI projects.
A growing economy: what does it mean for businesses? (Part 2)
Programmes of infrastructure improvement – Projects such as power generation, transport and communications networks are all necessary to attract new investors.
Levels of technology – Where the prospects for technological innovation are good, new investors are likely to find local enterprises that can supply skills and expertise.
What are limitations of GDP?
It is faulty even on its own terms: It misses lots of economic activity (unpaid household work, for example) and, as a single-number representation of vast, complex systems, is inevitably skewed.
It fails to account for economic and environmental
sustainability.
What is unemployment?
Unemployment refers to the state where individuals who are capable and willing to work are unable to find jobs despite actively searching for employment. It is a key indicator of the health of an economy.
Equation for Unemployment rate?
Unemployment rate = (number of unemployed/number economically active) × 100
Equation for employment rate?
Employment rate = (number of people employed/working age population) x 100
Why unemployment matters?
Unemployment as an economic problem—a waste of rare resources
Unemployment as a social problem
What are Types of unemployment?
Frictional unemployment
Structural unemployment
What are Factors affecting unemployment?
Globalization, by which low-skill jobs move
from high-cost countries to low-cost countries
Changing technology, such as automation
44% of workers with low education at
risk of automation by mid-2030s (PWC
2020). University of Oxford
researchers have predicted that 35%
of UK jobs are at risk of automation
over the next two decades.
What are Implications of unemployment on businesses?
Unemployment can have a significant impact on a range of business stakeholders.
Shareholders
Employees
Suppliers
The government
Local community
What is inflation?
Inflation refers to the general increase in
the prices of goods and services over time,
resulting in a decrease in the purchasing
power of money. As prices rise, each unit
of currency buys fewer goods and services.
Inflation is a key indicator of economic
health, and central banks aim to maintain
a stable rate of inflation.
What are demand-pull inflation?
It occurs when demand for goods and services outstrips supply, driving prices up. It’s often linked to strong economic growth, where people have more money to spend, creating higher demand. E.g., When the economy is booming and consumers have more disposable income, they spend more, leading to higher demand and prices rising as a result.
What are cost-push inflation?
This occurs when the cost of producing goods
and services increases, causing prices to increase. For example, if the price of crude oil increases, fuel prices will also increase
What is consumer price index?
CPI measures the average change over time in the prices paid by consumers for a basket of goods
and services. It’s the most common measure of inflation and includes items like food, housing, clothing, and healthcare.
E.g., A 2% increase in the CPI means that, on average, prices for the basket of goods have increased by 2% over a specified period, reducing purchasing power.
What is Producer Price Index?
It measures the average change in prices received by domestic producers for their output. It tracks the prices of goods like raw materials and finished goods from the producer’s perspective.
E.g., A rise in the PPI indicates that the costs for producers are increasing, which might later
translate into higher prices for consumers.
What are implications for business
Higher Production Costs: When inflation is high, businesses face increased costs for materials and labour. Low profit margins unless the company can pass these costs on to consumers.
Higher Wage Demands: Workers may demand higher wages to keep up with rising prices, increasing labour costs for businesses.
Opportunities in Low-Inflation Economies: Firms operating in countries with low inflation may have competitive advantages globally. Lower inflation helps them maintain more stable production costs, making it easier to export goods at competitive prices.
