week 2 Flashcards
circular flow of income
Withdrawals (w)/ Leakages
income of households of firms that are not passed on round the inner flow
e.g. money leaving circular flow
Injections (J)
expenditure on the production of domestic firms coming from outside the inner flow of income
e.g. money entering the circular economy
Withdrawal equation
W= S+T+M
withdrawals= net savings + net taxes+ import expenditure
injections equations
J=I+G+X
Injections = Investment + gov expenditures + expenditure on exports
aggregate demand equation
total expenditure on domestically produced goods and services
= domestic consumption +injections
= Cd + J(= I+G+X)
relationship between injections and withdrawals
equilibrium J=W
Growth J>W
negative growth J<W
Clockwise flow of income
business operational cycle of producing goods and paying wages to households
counter clockwise flow of income
the household supply of labour to business to receive income
claimant unemployment
those on unemployment benefits
statistics understate level of unemployment as many people ineligible to claim benefits
Standardised unemployment (ILO/OECD)
higher than claimant rate
Over the five-year period from 2015 to 2019: the average claimant count rate in the UK was 2.5% vs average standardised unemployment rate (16 +) was 4.4%.
composition of unemployment
by geographical region
by age
by gender
by ethnic group
inflows of unemployment (from jobs)
-redundant
-sacked
-temporarily laid off
-resigning
inflows of unemployment (outside labour force)
-school leavers
-people retuning to labour force (after raising children)
outflows of unemployment (to jobs)
-taking new jobs
-retuning to old jobs who temporarily laid off
outflows of unemployment (outside labour force)
-die
-imigrate
-retirement age
-temporarily withdraw (raise family)
-disheartened and give up
causes of unemployment
-real wage (classical) unemployment
-phases of business cycle and demand deficient (cyclical) unemployment
-frictional (search) unemployment
-seasonal unemployment
-structural unemployment
real wage unemployment
disequilibrium unemployment caused by real wage being driven up about market clearing level
wages real = nominal wage/price index
Keynesian unemployment
phases of business cycle and demand deficient (cyclical) unemployment. argue for use of fiscal and monetary policy to stabilise output, inflation and unemployment across business cycle
structural unemployment
-changing patterns of demand
-regional unemployment
-technological unemployment (labour saving technical progress)
inflation
annual percentage increase in price levels
-consumer price inflation (CPI)
-(RPI)
GDP deflator
rate at which prices of all domestically produced goods and services are changing
-includes only domestically produced goods
costs of inflation
redistribution
uncertainty
balance of payments
resources used to cope with inflation
costs when inflation is anticipated
shoe leather costs- costs of having to hold less cash to avoid loss of value in money
menu costs
cause of inflation
demand pull inflation
cost push inflation
interaction of demand pull and cost push inflation
expectations and inflation
demand pull inflation
demand for good exceed supply causing price to increase
cost push inflation
cost of production goes up causing prices to increase
relationship between unemployment and inflation
effects of increases in aggregate demand relative to potential output
objectives vary across business cycle
phillips curve
apparent policy implications
between wage inflation and unemployment
current account
trade in goods
exports (credits)
imports (debits)
trade in services
balance on trade in goods and services
income flows (primary income balance)
current transfers (secondary income balance
the financial account
-direct investment- significant and lasting interest in a business abroad
-portfolio investment- transactions in debt and equity securities with no influence on the operations of a particular business
-other investment and financial flows
-flows to and from reserves
