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A-Level Economics > Year 1 MacroEconomics C1 - 10 > Flashcards

Year 1 MacroEconomics C1 - 10 Flashcards

1
Q

Define Macroeconomics?

A

The aggregated analysis of many markets brought together into one economy.

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2
Q

What are the indicators of economic performance? (TIGER)

A

Economic Growth
Unemployment
Inflation
Trade / Balance of Payments
Distribution of Income

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3
Q

What are the objectives of economic growth?

A

To keep growth strong and sustainable

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4
Q

What are the objectives of unemployment?

A

Low unemployment
Full Employment

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5
Q

What are the objectives of Trade?

A

To keep balance between exports and imports

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6
Q

What are the objectives of Distribution of Income?

A

To keep it fair

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7
Q

What are the non-core macro objectives?

A

Sound Government Finances

Environmental sustainability

Productivity Growth

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8
Q

Define Balance of payments

A

A record of all financial transactions made between the consumers, businesses and government in one country with others

(The value of imports vs exports)

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9
Q

What are the key benefits of economic growth?

A

Job creation

Rising income

Improved standards of living

Improved confidence of: consumers to spend and businesses to invest

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10
Q

What are the key benefits of low unemployment?

A

Higher consumption and aggregate demand

Higher incomes and tax revenue

Improved standards of living

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11
Q

What are the 3 types of inflation?

A

Inflation
Deflation
Disinflation

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12
Q

Define disinflation

A

Where prices are still rising but at a lesser rate than before

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13
Q

Define Deflation

A

Where prices are falling

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14
Q

What’s policy conflict?

A

When 2 policy objectives cannot both be achieved at the same time.

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15
Q

What do firms or governments often do in response to policy conflict?

A

Find a trade-off

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16
Q

What do trade-offs provide?

A

A desirable overall balance between two objectives

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17
Q

What factors cause the importance of an objective to change?

A

Stage of development within the country

Global economic conditions

Political stability

Experience of other countries

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18
Q

What is considered a short run policy?

A

A policy that lasts up to 3 years

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19
Q

What is considered a long run policy?

A

A policy that’s longer than 10 years

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20
Q

What’s GDP?

A

Gross Domestic Product is a monetary measure of the market value of all the final goods and services produced in a period of time

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21
Q

What are the different forms of GDP?

A

Nominal GDP and Real GDP

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22
Q

What’s nominal GDP?

A

The total value of all goods and services produced in a given time period, usually quarterly or annually.

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23
Q

What’s real GDP?

A

An inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year

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24
Q

What are net exports?

A

Exports - Imports

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25
Q

What are the 4 expenditure methods?

A

Consumption
Investment
Government
Net Exports

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26
Q

How is inflation measured?

A

Using either the consumer price index (CPI) or the retail price index (RPI)

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27
Q

Why do we use index numbers?

A

To make numbers look more appealing to the eye

To allow for quick and easy data comparisons (percentage changes)

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28
Q

What’s the index value of your base year?

A

Base year (year 1) always has an index value of 100

29
Q

How do you calculate index values?

A

(Raw Number / Base year Raw Number) * 100

30
Q

What’s aggregate demand?

A

The total demand for a country’s goods/services at a given price level at a given time period

A measure of a country’s total expenditure on goods/services

31
Q

How aggregate demand measured?

A

Consumption + Investment + Government + (Net exports)

32
Q

What letter represents GDP on graphs?

A

Y

33
Q

Name a feature of aggregate demand?

A

AD only shifts when Consumption, Investment, Government spending, or Net exports change (independent of the price level)

34
Q

What’s the wealth effect?

A

As the price level decreases, the purchasing power of income increases (people are richer)

People are more likely to spend money on goods/services in the economy

Hereby increasing Consumption

35
Q

What’s the Trade effect?

A

As the price level decreases, exports become more competitive and imports become less competitive

Hence, there’s a greater demand for exports and the revenue generated from exports will increase

Less spending on imports due to domestic goods/ services becoming more competitive

This increases the value of Net Exports and AD and Real GDP

36
Q

What’s the interest Effect?

A

If the price rate decreases, interest rates will decrease in the economy

Because central banks will adopt interest rate policies to meet an inflation target

This stimulates:

Lower consumption and exchange rate
Higher investment
Higher net exports

Shifting AD

37
Q

What do we call the willingness of a household to spend any extra income that they earn?

A

The marginal Propensity to Consume

38
Q

What are the determinants of consumption (independent of the price level)?

A

Level of real disposable income

Interest rates/ availability of credit

Consumer Confidence

Asset Prices

Household Indebtedness

39
Q

Why might the level of real disposable income increase?

A

A decrease in the marginal rate of income tax causes the level of real disposable income to increase and hence, increasing the marginal propensity to consume.

40
Q

Why might the lack of availability of credit effect consumption?

A

Banks might be unwilling to lend money

Reducing the impact of lower interest rates

41
Q

Why might high consumer confidence effect consumption?

A

A low level of unemployment causes people to feel confident in their job prospects

This deters them from saving money

Increasing the marginal propensity to consume

42
Q

Why might High Asset Prices effect consumption?

A

They make people feel more wealthy
Causing an increase in the MPC

E.g. Share prices, or house prices

43
Q

Why might Household Indebtedness effect consumption?

A

Individuals are more likely to save their money if their family is in debt

Reducing the MPC

44
Q

Define savings

A

The part of disposable income that’s not spent on goods/services in the economy

It’s also a determinant of Aggregate Demand- if savings increase, consumption decreases

45
Q

Identify the 6 Determinants of Saving?

A

Level of Real Disposable Income

Interest rates

Consumer confidence

Range of financial institutions

Tax Incentives e.g. ISAs

Age Structure of Population

46
Q

What is an ISA? And what is it an example of?

A

An individual savings account that pays tax free returns on savings

This is an example of a tax incentive

47
Q

What are the determinants of investment?

A

Interest Rates

Business confidence

Corporation Tax

Spare capacity

Level of competition

Price of capital

48
Q

Define investment

A

When firms spend money on capital goods to increase their productive capacity

49
Q

Why might interest rates effect the level of investment?

A

Firms finance investment either by borrowing money or investing retained profits

If interest rates are lower the marginal propensity to invest will decrease

50
Q

Why might the level of business confidence effect the level of investment?

A

Business confidence is determined by expected profit and expected demand in the economy

If these are high then the marginal propensity to invest will increase to be able to supply their future demand

51
Q

Why might corporation tax effect the level of investment?

A

The higher the corporation tax, the lower the level of retained profit is going to be

Retained profit is used to invest

Hence, the marginal propensity to invest will decrease

52
Q

Why might spare capacity effect the level of investment?

A

If businesses are operating at close to full capacity then the MPI increases

Because they want to increase capacity e.g. by building new factories

53
Q

Why might the level of competition effect the level of investment?

A

If competition is high a lot of investment will occur

So that businesses can get ahead of their competitors

54
Q

Why might price of capital effect the level of investment?

A

If the price of capital is low then investment is less costly

This increases the MPI

55
Q

What’s the price of capital

A

The cost of capital measures the cost that a business incurs to finance its operations.

It measures the cost of borrowing money, or raising it from investors compared to the expected returns on an investment.

56
Q

What are the 4 types of Government Spending?

A

Current Spending

Capital Spending

Welfare Spending

Debt Interest Payments

57
Q

What’s current spending?

A

Govt spending on the maintenance of public services and payment of public sector wages

58
Q

What’s capital spending?

A

Govt spending on infrastructure projects

59
Q

What’s welfare spending?

A

Govt spending on benefits and pensions

60
Q

What is the difference between debt interest payments and the other 3 forms of govt spending?

A

The Capital, Current and Welfare spending would all act as an injection into the circular flow of the economy

Consequently shifting Aggregate Demand

61
Q

What’s budget deficit?

A

When govt spending is greater than taxation revenue in a fiscal year (April - April)

62
Q

What’s a budget surplus?

A

When govt spending is less than taxation revenue in a fiscal year

63
Q

What’s national debt?

A

The Total stock of debt over time

The ACCUMULATION of budget deficits

64
Q

What are the 5 determinants of net exports (x-m)

A

Real disposable income earned abroad

Real disposable income earned at home

Strong or weak exchange rates

Protectionism at home/abroad

Relative inflation levels at home

65
Q

How does Real disposable income earned abroad and at home effect net exports?

A

If the real disposable income earned abroad is higher than the real disposable income earned at home

The marginal propensity to export increases

This increases export revenue and net exports

66
Q

How do Strong or weak exchange rates effect net exports?

A

Strong: SPICED
(Strong Pound = Imports Cheap Exports Dear)
Export demand and revenue decreases

Weak: WIDEC
(Weak Exchange rate = Imports Dear Exports Cheap
Export demand and revenue increases

*Dear = Expensive

67
Q

How does protectionism at home and abroad effect net exports?

A

If we have high tariffs on imports coming in from abroad, import expenditure will reduce

Hence, net exports will decrease

68
Q

How do relative inflation at home effect net exports?

A

If inflation in the UK is higher than that of trading partners

Exports will be less competitive and will produce less revenue

Net exports will decrease

69
Q
A

A-Level Economics (2 decks)

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