yr 13 Flashcards
what is the philip’s curve?
it shows the short run trade off between unemployment and inflation
(it’s called the short run because it’s illustrated by a movement along the aggregate supply curve)
(in the SR spare capacity exists but it doesn’t in the LR)
why is there no trade off in the long run (Philip’s curve)?
-economy is at position A, long run equilibrium unemployment is at 6% and inflation is at 0%
-AD is stimulated and shifts outwards towards AD1, so the position is now AD2
-at position B unemployment has fallen to 4% and the price level has risen (demand pull inflation)
-as firms hire more workers to meet an increase in AD, their costs must rise
-firms’ costs are rising due to scarcer and scarcer resources factors of production
-so SRAS shifts inwards to SRAS1 so it becomes position C
-the move to position C leads to a rise in unemployment (bad), and a rise in the price level (also bad) so no trade off in the LR
-at position C we’re back to 6% unemployment and 0% inflation
what does scarce mean?
when demand is higher than supply
what is Fisher’s equation of exchange?
the idea that increases in the price level (inflation) are caused by increases in the quantity of money in circulation (money supply)
MV = PT
(T aka Y sometimes)
what are the components of MV = PT?
-money supply
-velocity of circulation
(number of times a unit of currency is used in a year)
-average prices
-number of transactions
what does Fisher’s equation of exchange theory assume?
it assumes that V and T are fairly static, thus if there is an increase in P (average prices) then it can only be as a result in M (money supply) and vice versa
what are the weaknesses of Fisher’s equation of exchange?
-V and T are not constant in the UK due to supply side policies
-difficult to measure T as some are illegal
-M is also difficult to define
what is narrow money?
a measure of the value of coins and notes in circulation
what is broad money?
measure of the total amount of money held by households/companies in the economy
what is the natural rate of unemployment?
when there is no involuntary unemployment
what is intergenerational inequity?
having to pay back money borrowed by previous generations
what is the marshall lerner condition?
a devaluation of a currency improves the BoP only if the combined PED’s for imports & exports are greater than one
what is a depreciation?
a fall in the external value of one currency against another
what is the capital account?
a balanced of investment flows into and out of a country
what is excess savings?
when gross national savings > gross capital investment
what are financial flows?
flows of capital across national borders including debt and equity
what is FDI?
firms overseas building factories in the UK
what is globalisation?
an increase in interconnectedness and interdependence of economic activity and social relations
are tariffs good or bad..?
it depends on the industry
what is glocalisation?
moving away from globalisation
what is comparative advantage?
exists for a country when:
the relative opportunity cost of production is lower than in another country
a country is relatively more productively efficient than another
what is factor endowment?
countries have different factors of production in different quantities and of different quantities due to:
-weather
-location/geography
-population
-education levels
-natural mineral deposits
-EOS (external/internal)
