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Macro Year 1 > Year 1 > Flashcards

Year 1 Flashcards

1
Q

Aggregate Demand

A

The total amount of demand on all goods and services within an economy in a period of time

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2
Q

Aggregate supply

A

How much firms in an economy would be willing to supply in the short/long run at any given price level

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3
Q

Consumption

A

Total planned household spending on consumer products

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4
Q

Productivity

A

Output of a good or service per unit of a factor of production in a given time period

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5
Q

Macroeconomic equilibrium

A

where AD equals AS

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6
Q

Multiplier effect

A

The process by which a change in one component of Aggregate Demand results in a greater final change to Aggregate Demand

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7
Q

Disposable income

A

The income households have to devote to consumption/saving taking into account taxes

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8
Q

Investment

A

Spending on capital goods by firms to increase productivity

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9
Q

Government spending

A

Money spent by the public sector on the acquisition of goods and provision of services

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10
Q

Net investment formula

A

Gross investment - depreciation

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11
Q

Depreciation

A

The monetary value of a capital good decreases in value to to wear, tear and other obsolescence

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12
Q

Factors causing a shift in AD

A

1) Disposable Income
2) Benefits/pensions
3) Interest rates
4) consumer/business confidence
5) wealth effect
6) monetary and fiscal policy

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13
Q

Downward multiplier

A

An initial increase in withdrawals results in a greater final change

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14
Q

Inflation

A

A sustained increase in the general price level

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15
Q

Deflation

A

A sustained decrease in the general price level, the inflation rate is negative

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16
Q

Nominal vs real income

A

Nominal is the amount you actually earn and real income takes into account value in terms of goods you can purchase

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17
Q

Demand pull inflation

A

An increase in AD increases the general price level causing inflation

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18
Q

Cost-push inflation

A

Increased costs decreases SRAS, increasing the general price level causing inflation

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19
Q

Deflationary spiral

A

Deflation leads to general price level decreasing. Consumers notice decrease in price and decide to save to wait till prices drop further. Decreased consumption means AD decreases further/ firms lay off workers.

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20
Q

Wage price spiral

A

High inflation rate increases prices do cost of living increases. Workers negotiate higher wages and increase firms cost which shifts SRAS inwards and so prices increase further and may cause hyperinflation

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21
Q

Disinflation

A

Price level is increasing but at a decreasing rate

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22
Q

Hyperinflation

A

Inflation rises above 50%

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23
Q

Index number

A

(Current number ➗ base number)x100

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24
Q

Inflation rate

A

(New index - old index) ➗old index ✖️100

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25
Q

Finding inflation (4)

A

1) Ons survey 7000 households
2) basket of 650 G+S and % of total spending on each of these
3) price survey of 1000s of shops to find average price of most common G+S
4) Calculate weighted average of all prices to find price level

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26
Q

Problems with CPI (4)

A

1) Unusual spending habits
2) Changes in quality
3) Time lag
4) Does not include mortgage repayments

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27
Q

Benefits of high inflation (3)

A

1) Protects from deflationary spirals
2) Reduces real value of debt
3) Decreases real wages so lowers Cost of Production

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28
Q

Cons of high inflation (3)

A

1) Wage price spiral
2) reduces real value of wages and savings
3) decreased business confidence

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29
Q

Macroeconomic objectives (6)

A

1) low/stable inflation
2) strong sustained economic growth
3) satisfactory balance of payments
4) balanced budget
5) environmental sustainability
6) increase equality

30
Q

Active population (workforce)

A

People of working age who are able to and are actively seeking work or are actively working

31
Q

Inactive population

A

People of working age who are unable to work or aren’t actively seeking work
Eg. Rich people/university students

32
Q

Unemployment

A

When somebody is able to work and actively seeking work but is currently jobless

33
Q

Difference between unemployment rate and employment rate

A

Employment rate is working age population therefore includes economically inactive people as well

34
Q

Unemployment rate

A

unemployment level ➗Active population (x100)

35
Q

Employment rate

A

employment level ➗working age population (x100)

36
Q

Activity rate

A

Active population ➗ working age population (x100)

37
Q

ILO measure

A

Labour Force Survey of 80000 households every quarter and ask if they’re unemployed with definition: looking for work in last 4 weeks and are able to start in next 2 weeks.

38
Q

Limitation of ILO measure

A

Inaccurate as only surveying 80,000 households from 2.7 million in the UK

39
Q

Claimant count limitation as a measure

A

People may be unemployed but not claim benefits because of a stigma or if partner is high earner

40
Q

Underemployment

A

Workers are employed but are working fewer hours than they want to or underusing their skills and qualifications

41
Q

Unemployment types (5)

A 
Real Wage unemployment
Cyclical (demand deficit)
Structural 
Frictional
Seasonal
42
Q

Causes for structural unemployment (2)

A

Occupational and geographical immobility

43
Q

Short run vs long run

A

A period where at least one factor of production is fixed vs a period when all factors of production are variable

44
Q

Spare capacity

A

When the economy is operating at below its maximum potential output

45
Q

Full employment

A

When the economy is operating at its maximum potential output

46
Q

SRAS shift factors (5)

A 
Commodity prices
New resources
Wages 
Taxes
Inflation (wage price spiral)
47
Q

Difference between real and nominal GDP

A

Real values are values that have been adjusted to remove the effects of inflation.

Nominal values are measured in money terms, they are unadjusted and current.

48
Q

GNI

A

GDP plus net income paid into the country by other countries.

49
Q

PPP

A

These are values that express GDP in accordance with how much the currency will buy in the local economy.
This allows for more accurate international comparisons.

50
Q

Limitations of using GDP (6)

A 
The informal economy
Currency values
Income distribution
Consumer and capital spending - possible future growth
Quality of goods and services
Quality of life - e.g. pollution/stress
51
Q

Everything about happiness

A

Happiness rises with incomes, but only up to a certain point $70000. After this, marginal gains in happiness fall.
This means that maybe economic growth isn’t the most important aim.
Happiness index by ONS takes into consideration health, finances, crime etc

52
Q

Balance of payments

A

A record of all transactions between one country and the rest of the world

53
Q

Current account deficit

A

More money is leaving the UK than entering it. Total inflows less than outflows.

54
Q

Animal spirits

A

Increased business confidence. When there is a market boom entrepreneurs get too confident and take risks

55
Q

Consumer credit

A

Borrowing by consumers to fund the purchase of goods and services

56
Q

Potential growth

A

An increase in the productive potential of the economy

57
Q

Remittances

A

Money transferred back home from abroad from relatives working abroad

58
Q

Supply side policy

A

Policies that are designed to increase LRAS (productive capacity of the economy) by increasing quality or quantity of factors of production

59
Q

Supply side interventionist policy (3)

A

Infrastructure
Education
Healthcare

60
Q

Market based supply side policy (3)

A

Reduced corporation tax
Decrease min wage
Deregulation

61
Q

Benefits of supply side policy (4)

A

Achieve economic growth
Decrease inflation
Improve current account (BoP)
Decrease unemployment

62
Q

Components of current account (4)

A

Trade in goods
Trade in services
Investment abroad
Current transfers

63
Q

Investment income

A

Any rent or profit made on an investment abroad

64
Q

Exchange rate

A

The price of one currency in terms of another

65
Q

Current account

A

A component of BoP, and measures trade in goods, services, investment income and current transfers

66
Q

Capital and financial account

A

Part of the BoP and tracks investment into and out of the country

67
Q

Factors affecting current account (5)

A 
Exchange rates
Inflation
Costs
Quality 
Income
68
Q

Income

A

Measures the flow of money a person of economy receives each year

69
Q

Budget balance

A

The difference between government spending and tax receipts

70
Q

Consumption shifts to AD (4)

A

Disposable income
Interest rates
Consumer confidence
Wealth effect

71
Q

Investment shifts to AD (3)

A

Interest rates
Business confidence
Benefits payment

72
Q

National wellbeing

A

Measures how satisfied people are in their lives

Macro Year 1 (1 decks)

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