week 13 Flashcards
what are the 6 major macroeconomic issues
economic growth and living standards
productivity
recessions and expansions
unemployment
inflation
international trade
what is standard of living
the degree to which people have access to goods and services that make their lives easier, healthier, safer and more enjoyable
what is economic growth
a process of steady increase in the quantity and quality of the goods and services the economy can produce
determines the behaviour of the economy in the long run
what is the long term goal of macroeconomics
economic growth: determinants of increases in national income like development, inequality, productivity and education
what is the short term goal of macroeconomics
business cycles: causes and consequences of economic fluctuations like crises, unemployment, stabilisation and monetary and fiscal policy
how do you find average labour productivity
total output/number people employed = output per employed worker
what are business cycles
short term fluctuations in GDP and other variables
what is an expansion
a period in which the economy is growing above normal
what is a recession
a period in which the economy is growing at a rate below normal, even if it is not negative
what is a depression
an extreme recession
draw a graph for short and long term growth
what is unemployment rate
percent of the labour force who wish to be employed but cannot find work
key indicator of the labour market
rises in recessions and falls in expansions
what is inflation rate
the annual percentage change in the general level of prices
imposes costs on people with fixed income eg pensions
loss of purchasing power
why has inflation been high recently
surge in consumer demand due to pandemic/Ukraine war
increase in supply of services falls behind demand, shortage
surge on spending on goods puts upwards pressure on prices as suppliers cannot keep up with demand
what are exports
goods and services sold to other countries
what are imports
goods and services purchased from other countries
what is a trade deficit
when exports are less than imports
what is a trade surplus
when exports are greater than imports
what is monetary policy
determination of countries money supply and interest rates by a central bank
what is fiscal policy
decisions that determine the governments budget, including the amount and composition of gov expenditure and revenue
how does fiscal policy effect decisions
influences balance between gov spending and taxes
deficit - gov spending greater than taxes
surplus - gov spending less than taxes
how are fiscal and monetary policies used
used as short term stabilisation tools
what is structural policy
gov policy to change the underlying structure of the economy
how is structural policy used
aimed to target long term goals rather than short term business cycles
what are examples of structural policies
tax reforms, deregulations, sound financial sector, privitisation, social saftety net, minimum wage
what are examples of structural policies
tax reforms, deregulations, sound financial sector, privatisation, social safety net, minimum wage
how may structural policies help
enhance effectiveness of stabilisation measures, promoting competition, can lead to lower prices and lower inflation
what is positive analysis
addresses economic consequences of a particular event or policy, not if those consequences are desirable
can be tested to be correct or incorrect
what is normative analysis
addresses the question of whether a policy should be used
normative analysis just involves values, opinions and ethics of person analysing
value judgements
what is aggregation
adding up of individual economic variables to obtain economy wide totals
can be used to gain a birds eye view of the economy
allows comparison of broad categories like imports and exports
what are the disadvantages of aggregation
obscures fine details of an economic situation
what caused the great depression
1920s was a period of consumerism, citizens invested heavily in stocks
by late 20s there was significant overproduction of goods and uneven distribution of wealth causing a recession
also a great increase in credit purchases, built up debt that needed to be paid back
what policies caused the great depression to be prolonged
contraction in money supply
increases in tariffs
huge tax increases to balance budget
price controls
what were the results of the great depression
worldwide economic collapse
illness
homelessness and unemployment
savings wiped due to bankruptcy
what lessons were learnt from the great depression
importance of gov in the economy
raising taxes increases pressures
policy makers should carefully study economy to avoid economic downturn
