6.1 Flashcards
Macroeconomics
involves the study of the whole economy at the aggregate level
Definition of economics
a social science directed at the satisfaction of needs and wants through the allocation of scarce resources which have alternative uses
Government’s 4 main objectives post WW2 (signs of a healthy economy)
- achieve economic growth & improve living standards & levels of economic welfare
- Create and maintain full employment or falling unemployment
- Limit or control inflation, or to achieve some measure of price stability
- Attain a satisfactory balance of payments, usually defined as the avoidance of an external deficit which might create an exchange rate crisis
Short-run economic growth
- Increase in country’s GDP
- Growth of real output resulting from using idle resources, including labour, thereby taking up the slack in the economy
Long-run economic growth
- increase in a country’s productive capacity
- An increase in the economy’s potential level of real output, and an outward shift of the economy’s PPF
GDP
- the sum of all goods and services, or level of output, produced in an economy over a period of time
real GDP
- A measure of all the goods and services produced in an economy, adjusted for price changes or inflation.
- The rate of inflation has been taken off
- Reflects changes in the total output of the economy
Nominal GDP
- GDP measured at the current market prices, without removing the effects of inflation
- real GDP multiplied by the average current price level for the year
- also called money GDP
Economic agents
- organisations or individuals that impact the economy by their actions
- households, firms, & governments
Function of banks
A place for households and firms to
- Store money safely
- Borrow money safely
Provides a link between saver and borrower, allowing for better distribution of money, leading to more economic activity
Gross value added (GVA)
- term used in the UK’s national accounts
- measures the contribution to the economy of each individual producer, industry, or sector
- used in the estimation of GDP
Define nominal
expressed in terms of current prices or figures, without making allowance for changes over time.
Recession
a fall in real GDP for 6 months or more (UK)
Interest rates
- The cost of borrowing and the reward for saving
Opportunity cost
- the cost of giving up the next best alternative
- the alternate forgone
How banks make money
- Collecting interest on loans
- Buy and sell shares
- Buy and sell bonds (government debt)
- Can save money with the BoE and get paid interest
Define tax
A compulsory contribution to state revenue, levied by the government on workers’ income and business profits, or added to the cost of some goods, services, and transactions.
Indirect taxes
- collected by firms on behalf of the government
- VAT, excise duties, import levies
Direct taxes
- levied on income, wealth, and profit
Personal Allowance
- Up to £12,570
- Tax rate: 0%
- Your Personal Allowance goes down by £1 for every £2 that your adjusted net income is above £100,000. This means your allowance is zero if your income is £125,140 or above.
Basic tax rate
- £12,571 - £50,270
- Tax rate: 20%
Higher tax rate
- £50,271 - £125,140
- Tax rate: 40%
Additional tax rate
- over £125,140
- Tax rate: 45%
Full employment
- No. of workers whom employers wish to hire equals No. of workers wanting to work
- 3% or less of the labour force is unemployed (Beveridge)
