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A Level Economics > Macroeconomics > Flashcards

Macroeconomics Flashcards

1
Q

Index Numbers

A

A way of expressing economic data. An index number is a figure reflecting price or quantity compared with a base value.

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2
Q

Index Number Formula

A

Current Price / Base Price x 100

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3
Q

Inflation

A

A sustained increase in the general price level in an economy.

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4
Q

Real GDP

A

The true sum of all products produced by a country adjusted for inflation.

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5
Q

GDP Formula

A

GDP = Consumption + Investment + Government Expenditure + (Exports - Imports)

GDP = C + I + G +(X-M)

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6
Q

Real GDP Formula

A

Nominal GDP x (100/General Price Index)

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7
Q

Injections

A

Money which enters an economy (government spending, investment and exports).

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8
Q

Withdrawals (Leakages)

A

Money which leaves the economy (taxes, savings and imports).

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9
Q

Injections>Withdrawals

A

National Income will increase and vice versa.

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10
Q

Factor Services

A

Land
Labour
Capital
Enterprise

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11
Q

Factor Incomes

A

Wages/Salaries
Interest
Profit
Rent

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12
Q

Aggregate Demand (AD)

A

The total demand for goods and services produced in an economy at a given price level and in a given period of time.

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13
Q

What influences exports/imports?

A

Disposable income abroad
Disposable income at home
Exchange rate
Tariffs

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14
Q

Economic Shocks

A

Unexpected events that affect the economy and shift AD

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15
Q

Internal Shock examples

A 
Pound drops in value
Terrorist attack
Increased VAT
Civil War
Rise in the minimum wage
Fall in house prices
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16
Q

External Shock examples

A 
Stock market crash
Hurricane
Foreign war
Tariff policy
Sanctions
Major business goes bankrupt
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17
Q

The Multiplier Effect

A

A change in one or more components of AD will lead to a greater final change in AD and Real GDP (National Income).

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18
Q

Multiplier Effect formula

A

Change in NI/ Initial change in Government Spending

ΔY / ΔG

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19
Q

Marginal Propensity to Withdraw (MPW)

A

The proportion of additional income spent on withdrawals to the circular flow of income (MPS + MPT + MPM).

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20
Q

Marginal Propensity to Consume (MPC)

A

The proportion of money people spend on consumption after tax and imports.

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21
Q

The Accelerator Effect

A

Assumes an increase in AD will cause an increase in business investment as firms invest in order to produce more output.

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22
Q

Aggregate Supply (AS)

A

The total supply of all goods and services in the economy.

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23
Q

National Output

A

Measures goods and services produced by an economy.

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24
Q

National Income

A

Incomes received by labour and other factors of production.

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25
Q

National Expenditure

A

The total spending on goods and services in an economy.

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26
Q

Economic Growth

A

In the short-term, an increase in Real GDP, and in the long-term an increase in productive capacity.

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27
Q

Trend Growth

A

The expected increase in potential output over time.

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28
Q

Sustainable economic growth

A

Economic growth that can continue over time and does not endanger future generations’ ability to expand productive capacity.

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29
Q

Output Gap

A

A measure of the difference between the actual output (Y) and the potential output (Yf).

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30
Q

Negative Output Gap

A

There will be unemployment, low growth and/or a fall in output. A negative output gap will typically cause low inflation or even deflation.

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31
Q

Positive Output Gap

A

Occurs when economic growth is above the long run trend rate (e.g. during an economic boom). It will involve firms asking workers to do overtime.

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32
Q

Unemployment

A

When someone is willing and able to get a job, but does not currently have a job.

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33
Q

0 hour contracts

A

Where workers aren’t given a minimum hours a week but have to be available.

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34
Q

The Labour Force Survey

A

A survey of those actively seeking employment.

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35
Q

Claimant Count

A

The total number of people claiming Jobseekers Allowance (the benefit paid to people seeking employment)

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36
Q

Frictional Unemployment

A

A brief period of unemployment experienced by people moving between jobs or into the labour market.

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37
Q

Structural Unemployment

A

Caused by the decline of certain industries/occupations due to changes in demand/supply.

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38
Q

Cyclical Unemployment

A

Unemployment caused by a lack of job vacancies; and inadequate level of AD. Commonly occurs during recessions.

39
Q

Seasonal Unemployment

A

When people are unemployed at certain times of the year, because they work in industries where they are not needed all year round.

40
Q

Geographical Immobility

A

Workers are unwilling or unable to move from one area to another in job search.

41
Q

Occupational Mobility

A

Workers unwilling or unable to move from one job to another in search of work.

42
Q

Voluntary Unemployment (free market economist views)

A

Workers choose to remain unemployed and refuse job offers at current market wage rates.

43
Q

Involuntary Unemployment (Keynesian view)

A

Workers are willing to work at current wage rates but there are no jobs available.

44
Q

Real Wage

A

The value of wages adjusted for inflation.

45
Q

Real Wage Unemployment

A

When wages are set above the equilibrium level causing the supply of labour to be greater than demand.

46
Q

Natural Rate of Unemployment

A

The rate of unemployment when the labour market is in equilibrium.

47
Q

Costs of Unemployment

A

Harder to get a job if unemployed for a long period of time, as skills are lost
Lost productivity
Firms can force wages down as higher demand for jobs

48
Q

Hyperinflation

A

Very high and usually accelerating rates of inflation.

49
Q

Deflation

A

A sustained fall in the average price level of the economy.

50
Q

Disinflation

A

A fall in the rate of inflation.

51
Q

Stagflation

A

A situation with persistent high inflation combined with low economic growth.

52
Q

Consumer Price Index (CPI)

A

The average price level of goods and services in the UK. A basket of the average goods that a household buys, around 650 products, are taken every month. The target is 2%.

53
Q

Retail Price Index (RPI)

A

A measure of the average price level of goods and services in the UK. Normally higher, as includes: Mortgage interest, Payment, and council tax.

54
Q

Difficulties in measuring inflation

A

CPI and other measures may not give a totally accurate picture
Doesn’t capture the value that comes with greater choice (only 650 items)
Prices may increase due to an improvement in quality.

55
Q

Demand-pull Inflation

A

Too much demand chasing too few goods.

56
Q

Cost-push Inflation

A

Rise in the general price level resulting from an increase of the cost of production (e.g. raw materials).

57
Q

Inflationary noise

A

Inflation distorting prices.

58
Q

Fiscal Drag

A

Amount of tax increases as wages go up.

59
Q

International Trade

A

The exchange of goods and services between countries.

60
Q

Free Trade

A

No restrictions on the flow of goods and services between countries.

61
Q

Balance of Payments

A

Measures the difference between money flowing into and out of the country.

62
Q

Current Account

A

Shows the trade in visibles (goods), invisibles (services) and investment (e.g. property).

63
Q

Advantages and Disadvantages of International Trade

A

Advantages: Increased Income
Economic Growth
Competition and Innovation
Reduced prices
Disadvantages: Power of Multinational Companies
Unstable commodity prices
Can drive local companies out of business

64
Q

Current Account Deficit

A

Exports being less than Imports.

65
Q

Current Account Surplus

A

Exports being more than Imports.

66
Q

Depreciation/devaluation

A

Fall in value of exchange rate (exchange rate becomes weaker).

67
Q

Appreciation

A

Increase in the value of exchange rate (exchange rate becomes stronger).

68
Q

Monetary Policy

A

The use of interest rates, money supply and exchange rates to influence economic growth and inflation. Controlled by the Central Bank of England.

69
Q

Money supply

A

The amount of money in circulation in an economy.

70
Q

Bank Rate

A

Short-term interest rates set the Monetary Policy Committee (MPC) of the Bank of England.

71
Q

‘Conventional Monetary Policy’

A

Involves the Bank of England raising or lowering the Bank Rate in order to manage the level of AD in an attempt to control inflation.

72
Q

‘Unconventional Monetary Policy’

A

Quantitative Easing - Adding more money to the money supply.
Forward Guidance - Bank of England attempts to send signals to financial markets, businesses and individuals about changes in interest in order to avoid an economic shock.

73
Q

Fiscal Policy

A

Changes in taxation and government spending to influence the level and growth of AD output.

74
Q

Demand-side Policy

A

Meant to increase or decrease spending in the economy. Fiscal and Monetary Policy are Demand-side Policies.

75
Q

Types of Taxes

A

Corporation, Income, Inheritance, VAT, Council Tax, Tariffs, Road Tax, TV License, Royalties, Stamp Duty, Capital Gains Tax, Excise Duties, Business Rates, Betting Tax, Insurance Premium Tax, National Income Contributions, Congestion Charge, Airport Tax, Pigouvian Tax (Environment)

76
Q

Direct Taxes

A

Paid directly to the government by the individual taxpayer.

77
Q

Indirect Taxes

A

The supplier can pass on the burden of an indirect tax to the final consumer - depending on the PED of the product.

78
Q

Progressive Taxes

A

Greater proportion of tax is paid by those with high incomes.

79
Q

Proportional Taxes

A

An equal proportion of tax is paid by all incomes.

80
Q

Regressive Taxes

A

Greater proportion of tax is paid by those with low incomes.

81
Q

Capital Spending

A

Government spending on things such as roads, schools, hospitals etc.

82
Q

Transfer Payments

A

Welfare payments (e.g. pensions, benefits etc.).

83
Q

Automatic Stabilisers

A

Economic policies designed to offset fluctuations in economic activity without individual intervention from the government.

84
Q

A ‘Good’ Tax

A
  • Convenient and certain (i.e. people know what they will pay and how)
  • Equity: Should be fair
  • Efficiency: Achieves its objectives (i.e. redistribution of income/reducing negative externalities)
  • Flexibility: Easy to change/collect
85
Q

Crowding Out

A

When increased government spending fails to increase overall AD as higher government spending causes an equivalent fall in private sector spending and investment.

86
Q

Cyclical Deficit

A

Takes into account fluctuations in tax revenue and spending due to the economic cycle (e.g. in a recession, tax revenue falls and spending on unemployment benefits increases)

87
Q

Structural Deficit

A

This is the level of the deficit even when the economy is at full employment (the deficit that is not affected by economic performance).

88
Q

Supply-side Policies

A

Policies that shift AS, they consider how to improve the productive capacity of the economy (increasing AS).

89
Q

Supply-side Policy Examples

A 
Education and training
National Minimum Wage (NMW)
Reduction in direct taxes
Government assistance to new firms
Deregulation
Reduction of unemployment benefit
Privatisation
90
Q

Absolute advantage

A

A country has an absolute advantage if it can produce more of a good than other countries from the same amount of resources.

91
Q

Bonds

A

Financial securities sold by companies (corporate bonds) or by governments (government bonds) which are a form of long-term borrowing. Bonds usually have a maturity date on which they are redeemed, with the borrower usually making a fixed interest payment each year until the bond matures.

92
Q

Broad money

A

The part of the stock of money (or money supply) made of cash, other liquid assets such as bank and building society deposits, but also some less liquid assets. The measure of broad money used by the Bank of England is called M4.

93
Q

Capital Markets

A

Where securities such as shares and bonds are issued to raise medium- to long-term financing, and where shares and bonds are then traded on the ‘second-hand’ part of the market, e.g. the London Stock Exchange

94
Q

Capital Ratio

A

The amount of capital on a bank’s balance sheet as a proportion of its loans.

A Level Economics (12 decks)

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