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ECONS AS LEVEL > 4 The Macroeconomy > Flashcards

4 The Macroeconomy Flashcards

(54 cards)

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1
Q

National income

A

Total value of goods & services produced by a country voer a specific period of time

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2
Q

Gross domestic product (GDP)

A

Total output of goods & services produced in an economy during a specific period

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3
Q

Real GDP

A

GDP adjusted for inflation

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4
Q

Market prices

A

Includes subsidies & indirect taxes

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5
Q

Basic prices

A

Excludes subsidies & indirext tax, reflects actual income received by producers

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6
Q

Net Domestic Product (NDP)

A

GDP -depreciation

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7
Q

Net National Income (NNI)

A

GNI - depreciation

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8
Q

Net values

A

Excludes depreciation, represents income/ production net of asset wear & tear

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8
Q

Gross values

A

Includes depreciation of capital assets

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9
Q

Open economy

A

Economy that is involved in trade with other economies (no foreign trade)

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10
Q

Closed economy

A

Economy that does not trade with other countries (no foreign trade)

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11
Q

Injections

A

Additions to country’s flow of income

Investment
Govt spending
Exports

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12
Q

Leakages

A

Withdrawals from coutnry’s flow of income

Savings
Taxes
Imports

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13
Q

What happens when injections > leakages

A

Money in is greater than money out
- Higher output
- Less unemployment
- Income rises
- Economic growth

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13
Q

What happens when leakages > injections

A

Money out is more than money in
- Lower production
- Job cuts/ reduced wages
- Falling income

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13
Q

Components of AD + calculation

A

C + I + G + (X-M)

Consumption
Investment
Govt spending
Exports
Imports

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14
Q

Aggregate demand

A

Total demand for all goods & services within an economy at a given price level & time period

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15
Q

Determinants of AD

A
  • Consumer confidence
    • More financially stable, more likely to spend than save, increase consumption
  • Rise in income
  • Low interest rates
    • Borrowing increases, increase in C & I
  • Exchange rates
    • Currency depreciates, exports more cheap & imports more expensive, net exports increase & AD
    • Currency appreciates, exports more expensive, imports more cheap, net exports decrease & AD
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16
Q

Why is AD curve downward sloping

A

As price level falls, quantity of goods & services demanded increases

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17
Q

Changes in consumption & effect on AD

A

Increase in consumption:
- Increase in AD
Due to:
- Higher income
- Higher consumer confidence
- Lower interest rates
- Lower income tax (more disp. income)

Decrease in consumption:
- Decrease in AD
- Lower income
- Lower consumer confidence
- Higher interest rates
- Higher income tax

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18
Q

Changes in investment & effect on AD

A

Increase in investment: - Increase in AD
Due to:
- Lower interest rates
- Higher business confidence
- New technology

Decrease in investment:
- Decrease in AD
- Higher interest rates
- Low business confidence
- Higher business tax

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19
Q

Changes in govt spending & effect on AD

Study These Flashcards
A

Increase in govt spending:
- Increase in AD
Due to:
- Creates more economic activity
- Increases job opportunity, direct job creation (infrastructure, education- teachers, construction workers)
- Increase income

Decrease in govt spending:
- Decrease in AD
Due to:
- Cuts back on spending, less demand in economy
- Lower economic activity
- Fewer jobs, less income

20
Q

Changes in net exports & effect on AD

Study These Flashcards
A

Increase in net exports:
- Increase in AD
Due to:
- When domestic currency weakens, currency depreciation
- Export prices are cheaper compared to import prices
- Exports more high in demand therefore (X-M) value increase
- Net export & AD increases

Decrease in net exports:
- Decrease in AD
Due to:
- When domestic currency strengthens, currency appreciation
- Exports more expensive compared to imports
- More demand for imports due to cheaper prices
- (X-M) value decreases
- Decrease in net exports & AD

21
Q

Aggregate supply

Study These Flashcards
A

Total production of goods & services in an economy

21
Determinants of AS
Production costs Technology advancements Production tax Subsidies Quality of labour & capital
22
Causes of rise in SRAS
- Shift right - Decrease production cost - Subsidies - Decrease indirect tax - Positive supply shocks (e.g tech breakthroughs, new resources)
22
Cause of rise in LRAS
- Shift right - Increase in workforce size (e.g immigration, lower minimum working age - Increase capital stock (more factories, machinery) - Better education & training - Increase productivity
22
Cause of fall in SRAS
- Increase production cost - Increase indirect tax - Decrease subsidies
23
Economic growth
Increase in production potential (output) of an economy
23
Why is SRAS upward sloping
As price rises, firms supply more due to higher profits (even if costs rise)
24
Cause of fall in LRAS
- Shift left - Decrease in workforce size - Destruction of capital (e.g war, diaster) - Negative supply shocks
25
Why is LRAS vertical
Output is limited by resources and not prices
26
Causes of economic growth
- Increase in F.O.Ps - Increase in technology advancements - Improved education & skills - Increase in skill leads to higher efficiency & productivity increeasing the no. of output per worker - Increases employment as higher-skilled workers are more in demand - Increased employment leads to higher income for these workers, leading to an increase in consumption
27
Advantages of economic growth
- Higher living standards, increase GDP leads to higher income & better access to goods/ services - Employment opportunities, creates job as firms experience higher demand for their goods/ services, making them produce more & hire more workers to meet the increased demand - Improved public services, higher tax revenue allows govt to spend more on healthcare, education, infrastructure - Increased investment
28
Disadvantages of economic growth
- Environmental degradation, pollution, resource depletion - Income inequality - Inflation, too rapid of a growth in the economy can cause demand-pull inflation if demand outpaces supply - Resource strain, overuse of resources lead to shortages & limit long-term sustainability
29
Unemployment
Occurs when individuals who are able & willing are not able to find employment Represents the unused labour in the economy
30
Calculation of unemployment
Number of unemployed individuals/ Total labour force x 100
31
Structural unemployment
Due to changes that make certain skills obsolete E.g tech advancements, demand change
32
Frictional unemployment
Short-term unemployment, occurs between jobs or when entering workforce (e.g after graduating)
33
Cyclical unemployment
Occurs in periods of economic downturns (recession) Not enough demand in the economy for goods/ services, firms cut back production & lay off workers
34
Seasonal unemployment
Occurs due to industries that operate seasonally (tourism, agriculture)
35
Economic consequences of unemployment
- Loss of output - Lower income level - Decreased tax revenue
36
Technological unemployment
Increase in tech advancements & automation replacing human labour
37
Social consequences of unemployment
- Crime rates - Increased poverty - Potential loss of skills
38
Long-term effects on unemployment
- Loss of workforce - Harder to re-enter job market - Skills become outdated or rusty, esp in fast-changing industries like tech/ finance - Employers may doubt your ability to adapt quickly. - Extended unemployment can reduce motivation, self-esteem, & confidence in interviews or new roles making it difficult for them to secure jobs - Prolonged negative economic effects
39
Inflation
General rise in price level
40
Deflation
General decrease in price level
41
Disinflation
Slower/ stunted rate of inflation
42
Cost-push inflation
When the production cost increases (e.g raw materials, wages) FIrms pass increased production cost to consumers through higher prices
42
Demand-pull inflation
When demand exceeds supply
43
CPI
Consumer price index - Tracks average price change of a basket of goods/services Reflects cost of living
44
Consequences of inflation
- Reduced purchasing power - Money buys less, real incomes & savings fall - Higher borrowing costs - Interest rates may rise, borrowing expensive - Uncertainty - Discourages investment & spending - Income inequality
44
45
Why inflation is not always non-desirable
- Mild inflation (E.g 2%) encourages spending & investment - Because prices expected to increase, consumers more likely to spend now, therefore demand increase - Demand increase, firms grow, more hire workers, decrease unemployment - If firms expect prices to increase, more likely to produce now and investment in future growth - Mild inflation helps economy move forward, keeps consumer + busines sconfidence steady, encourages spending, maintain stable economic growth

ECONS AS LEVEL (6 decks)

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