What is the Macroeconomy: Topic 2.1.1-2.1.4 Flashcards
What are the four main Macroeconomic objectives
Economic growth, low unemployment, low and stable rate of inflation and Balance of Payments equilibrium on the current account
Cost and Benefit of growth for Consumer/Worker
Cost - inflation
Benefit - higher wages, higher SOL, more employment opportunities
Cost and Benefit of growth for Firm
Cost - higher costs due to higher wages
Benefit - increased revenue and profits, increased consumer and business confidence leading to more investment
Cost and Benefit of growth for Government
Cost - Potential for higher levels of relative poverty, worsening trade balance (increased imports)
Benefit - higher tax revenues therefore improved budget balance
Cost and benefit of growth for Current and future living standards
Cost - more pollution, less consumer goods purchased today
Benefit - improved environment owing to more efficient and cleaner tech
Why might GDP might not be best measurement of growth
Doesn’t account for SoL and inequality
Unemployed definition
In population of working age, out of work and actively seeking employment
Economically inactive definition
Of working age, out of work but not seeking employment (carers, students, temporarily/long-term sick
Discouraged worker
Of working age, out of work but not seeking a job due to lack of success
Underemployed definition
Employed but not working amount of hours they want to
Cyclical (demand-deficient) unemployment
Occurs when there’s a negative output gap in the economy as AD is too low, caused by downturn in economic cycle
Structural unemployment
When structure of economy changes and decline in old industries leaves some workers unable to transition to new industries
Frictional unemployment
Exists when people are in between jobs (i.e. spending time either looking for or moving between jobs)
Seasonal unemployment
Results from regular fluctuations in weather conditions or demand (common in tourism, agriculture and construction industries)
Real wage (classical) unemployment
When wages are pushed up by unions or increased minimum wages causing firms to layoff workers
Inflation/deflation definition
A general and sustained rise/fall in the price level over time
Disinflation definition
Where inflation is falling but prices are still rising (e.g. 5%-3%)
Wage-price spiral
As workers expect inflation, they will argue for higher wages: this will push firm’s costs up and lead to them increasing prices and therefore more inflation
Deflationary spiral
Consumers offset purchasing goods if they expect prices will decrease more in the future
Two types of inflation
Cost-push inflation, demand-pull inflation
PPP Exchange Rate
Price in currency 1/Price in currency 2
Gross National Income (GNI) definition
Measures the total economic output of a country, including the value of all goods and services produced within the country (its GDP) plus income earned from abroad (such as dividends, interest, and remittances), minus income paid to foreign entities.
Gross Domestic Product (GDP) definition
Value of all goods and services produced within the country
Gross National Product (GNP) definition
It is a measure of the total economic output produced by the residents of a country, regardless of whether the production occurs domestically or abroad. GDP = GDP + net property income from abroad
Claimant Count - Measure of Unemployment
Measures no. of people claiming Job Seekers’ Allowance, eligible range is 18-State Pension Age. (People with too high a level of savings and spouse/partner earning too much aren’t eligible).
Labour Force Survey - measures of unemployment
Measures those actively looking for a job who have been out of work for 4 weeks. Covers ages 16-65, done by questionnaire and interview or phone survey, internationally recognised, surveys sample of the population so there will be a margin of error
Withdrawals
Imports (M), Savings (S), Taxes (T)
Injections
Exports (X), Investment (I), Government spending (G)
AD components and % of AD
Consumption (C) 60%, Investment (I) 15%, Government Spending (G) 25%, Net Exports (NX) 1%
National Debt Definition
Total money owed by a country to its creditors
Budget Deficit Definition
When the government’s spending is higher than government revenue
Wealth effect
Positive wealth effect - prices go down, so despite no income increases spending increases as perceived wealth has increased, vice versa applies
Higher level aspects that affect Investment
Gov. tax, availability of credit (context, 2008 recession led to banks being unwilling to loan credit), gov. regulations
Factors that affect LRAS
Changes in productivity, technological advances, investment in capital goods, R&D/innovation, changes in education, skills and training, changes in gov. regulations, reduced union power, demographic changes (population growth, immigration, more women in LF e.t.c.)
CPI and RPI
Collection of 700 goods and services from 150 locations each month, indices weighted to reflect importance of various items, RPI includes mortgage interest payments
