All of Macroeconomics PiXL Flashcards
(83 cards)
1
Q
What is the Consumer Price Index?
A
- Consumer Price Index (CPI) - is an index showing the varying prices for goods
2
Q
What is the Exchange Rate Index?
A
is a way of measuring the performance of a currency against a basket of other currencies.
3
Q
What is the Index of Wages and Earnings?
A
Shows developments in wage and salary earners’ earnings for regular working hours.
4
Q
What is Gross Domestic Product (GDP)?
A
Is the monetary value of all products/ assets a country produces.
5
Q
What is Gross National Income (GNI)?
A
Is a measure of a country’s income.
6
Q
What is the Human Development Index (HDI)?
A
Measures a countries social and economic achievement.
7
Q
What is Economic Growth Measured in?
A
GDP
8
Q
What is the difference between Real and Nominal?
A
- Real values take into account inflation - Nominal values do not
9
Q
What is the difference between Total and Per Capita?
A
- Total takes into account the whole population - Per Capita is based upon how much an individual creates.
10
Q
What is the difference between Value and Volume?
A
- Volume is the physical number of products - Value is a measure of the benefit provided by a good or service to an economic agent.
11
Q
What is Gross National Product?
A
the total value of goods produced and services provided by a country during 1 YEAR, equal to the gross domestic product plus the net income from foreign investments.
12
Q
What is Gross National Income?
A
- Is a measure of a country’s income, including payments from abroad.
13
Q
What does a Production Possibility Curve Show?
A
shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently employed
14
Q
Limitations of using GDP to compare living standards between countries and over time.
A
- GDP does not consider how output contributes to the quality of peoples lives - GDP does not measure the quality of the environment
15
Q
Factors of national happiness?
A
- UK National Wellbeing - The relationship between real incomes and subjective happiness
16
Q
What is inflation?
A
Is the general tendency for prices to rise
17
Q
What is Deflation?
A
Reduction of the general level of prices in an economy. (negative inflation)
18
Q
What is Disinflation?
A
Reduction in the rate of inflation.
19
Q
How to calculate Inflation using CPI?
A
STEP 1 - How much has the CPI increased by? (Original CPI - New CPI) STEP 2 - Convert the CPI into a % (New Number - Original Number DIVIDED by Original Number X 100 ANSWER as a % is the Inflation rate
20
Q
What is the Retail Price Index?
A
an index of the variation in the prices of retail goods and other items.
21
Q
Limitations of using CPI to calculate the inflation rate.
A
- It is not fully representative and will not show data for non-typical households - Doesn’t take into account spending patterns e.g. houses with 4 children have different spending patterns to houses with no children - CPI does not show how products change i.e. new technology.
22
Q
What is Demand Pull inflation?
A
is a period of inflation which arises from rapid growth in aggregate demand.
23
Q
What is Cost Push Inflation?
A
occurs when we experience rising prices due to higher costs of production and higher costs of raw materials.
24
Q
How will a Growth in the Money Supply cause inflation?
A
he reason is that there is more money chasing the same number of goods. Therefore, the increase in monetary demand causes firms to put up prices.
25
Effects of inflation on the Consumer/Workers.
- Income Redistribution (low income families and older people are effected it causes a regressive effect, when prices of necessities increase rapidly) - Falling Real Incomes (with workers not getting pay rises and the cost of living increasing people have less disposable income)
26
Effects of inflation on Firms.
- Cost of Borrowing Increases (Firms invest less) - Risk of Wage Inflation (As workers real incomes are falling they may demand more pay to compensate) - Business Uncertainty (in prices etc)
27
Effects of inflation on Government.
- Increase in the Cost of Borrowing (Higher borrowing costs of people so there is pressure on the government to increase state pensions and unemployment benefits) - Business Competitiveness (As prices rise in one country products become less price competitive and so the balance of payments worsens)
28
What is the Claimant Count?
It records the number of people receiving unemployment benefits from the government (Job Seekers Allowance).
29
What is the International Labour Organisation (ILO)?
Is a survey which asks are you unemployed and actively seeking work?
30
What is the UK Labour Force Survey?
Is a study of the UK employment circumstances.
31
What is the difference between Unemployment and Underemployment?
Underemployment - refers to people who are working at a lower capacity work than they are qualified for, also those who want more hours. Unemployment - Is where a person is actively seeking a job and cannot find work.
32
What is the significance of changes in the rate of employment and unemployment?
- Unemployment shows that scarce resources are not being used to their full capacity, therefore the economy is underperforming - Incomes change - Confidence changes for both parties consumer then Producer
33
What is Inactivity in terms of employment?
Is the proportion of the population of working age who are not active in the labour market.
34
Causes of Unemployment - Frictional Unemployment
- Is transitional unemployment due to people moving between jobs
35
Causes of Unemployment - Structural Unemployment
- Is the situation when the jobs are available, and also the workers are willing to work, but they don’t have the required job skills to qualify for the vacant positions.
36
Causes of Unemployment - Seasonal Unemployment
- Is due to the time of year where there are seasonal changes in employment.
37
Causes of Unemployment - Cyclical Unemployment & Demand Deficiency
Cyclical Unemployment - Is when people lose their jobs as a result of a downturn in aggregate demand. Demand Deficiency - Is when the decline in aggregate demand is persistent and the unemployment is long term
38
Causes of Unemployment - Real Wage Inflexibility
- Occurs when wages are set above the equilibrium level causing the supply of labour to be greater than demand.
39
Explain the significance of migration and skills for employment and unemployment.
Migration - Increases the supply of labour Skills - More efficient and productive workers, more skilled workers.
40
Effects of unemployment on consumers/workers.
- Loss of Income (Decline in living standards) - Loss of Financial Security - Prices can rise due to businesses losing money affecting consumers disposable incomes. - Increased risk of homelessness
41
Effects of unemployment of firms.
- Lower consumer spending because their is low demand for income elastic products - Increase in demand for inferior goods - Greater supply of labour potentially lower wages for workers
42
Effects of unemployment on the government.
- Lower tax revenues because there a fewer people paying income tax - Higher Government spending as more people need unemployment benefits
43
Effects of unemployment on society.
- Increase rates of crime - Widening inequality gap - Average life expectancy decreases
44
Components of the Balance of Payments - Current Account
- Balance of trade in goods and services - Net Primary Income (Incomes from interest, profits) - Net Secondary Income (Military Spending, foreign aid)
45
Components of the Balance of Payments - Capital Account
- Transfers of fixed assets - Sale of transferable contracts such as copyright.
46
Components of the Balance of Payments - Financial Account
- Net foreign direct investment - Net balance of portfolio flows (debt) - Hot Money Flows
47
What is a current account Deficit?
- Occurs when a country spends more on imports than it receives on exports.
48
What is a Current Account Surplus?
- Occurs when a country receives more from exports than it spends on imports.
49
The relationship between current account imbalances and macroeconomic imbalances.
Current Account Imbalances are linked to the Balance of Payments.
50
Explain the interconnectedness of economies through international trade.
- One countries imports are another countries imports - Trade gains from each country should be shared by all countries
51
Components of the Aggregate Demand Equation - Consumption
Includes demand for durable and non - durable goods (Non-durbles which are goods like food and drink which can be consumed and then have to be re-purchased)
52
Components of Aggregate Demand - Investment
This is spending on capital goods such as equipment and new buildings to produce more consumer goods in the future.
53
Components of Aggregate Demand - Government Spending
This is spending on state-provided goods and services including public goods and merit goods. Benefits are not included.
54
Components of Aggregate Demand - Exports
Exports sold overseas are an inflow of demand (an injection) into our circular flow of income and spending
55
Components of Aggregate Demand - Imports
Imports are a withdrawal of demand (a leakage) from the circular flow of income and spending.
56
Factors that cause a FALL in Aggregate Demand.
- Fall in net exports (M\>X) - Cut in Government Spending - Higher Interest rates - Decline in household wealth and incomes
57
Factors that cause a RISE in Aggregate Demand.
- Depreciation in the Exchange Rate - Cuts in direct and indirect taxes - Increase in house prices - Expansion in credit availability + lower interest rates
58
What causes Contraction and Expansions along the AD curve? (movements along the AD curve)
Prices
59
What is disposable income?
is the total earnings a household makes that are available to save or spend. (after taxes)
60
How does Disposable Income influence Consumer Spending?
If disposable income increases, households have more money to either save or spend, which naturally leads to a growth in consumption.
61
Influences on Consumer Spending - Interest Rates
lower interest rates cuts the cost of paying the debt on a mortgage and increases the effective disposable income of homeowners.
62
Influences on Consumer Spending - Consumer Confidence
- Fears of rising unemployment and expectations of higher taxes will hit consumer sentiment and spending. If you don’t have enough confidence, you are unlikely to go ahead with major purchases
63
Influences on Consumer Spending - Wealth Effect
- How a change in personal wealth influences consumer spending and economic growth. - For example a sustained fall in house prices might cause a decline in personal wealth and spending as homeowners have less housing equity available to borrow.
64
Distinction between gross and net investment.
Gross investment spending is total investment on new capital inputs whereas net investment is gross investment adjusted for capital consumption (depreciation)
65
Influences on Investment - The Rate of Market Growth
- Investment tends to be stronger when consumer spending is rising. - Higher expected sales increase potential profits - Price mechanism should allocate extra funds and factor inputs towards capital goods into those markets where consumer demand is rising.
66
Influences on Investment - Business expectations and confidence.
- During a downturn many businesses may postpone investment because they feel that demand will not be high enough to give them the rate of profit they need. The Keynesian term for business confidence is animal spirits.
67
Influences on Investment - Demand for Exports
If demand for exports is high businesses are more incentivised to invest as the market size has increased
68
Influences on Investment - Interest Rates.
- If the rate of interest increases cost of funding increases, lowering the expected rate of return. - Higher interest rates also raise the opportunity cost.
69
Influences on Investment - Access to Credit.
if businesses can borrow more money then they will invest more
70
Influences on Investment - Government and regulations
If co operation tax is lower then business have more profit which then can be spent on investment.
71
Explain how the trade cycle affect government expenditure.
In a period of a slump/ recession the government has to pay more unemployment benefits so government spending increases.
72
How odes Fiscal Policy Influence Government spending?
This is because Fiscal Policy affects the Aggregate Demand curve by government spending and taxation. Fiscal Policy refers to any use of the governments budget to affect the economy.
73
How do exchange rates affect the Balance of Payments?
- Strong pound makes imports more attractive and exports less so and vice versa with a weak pound.
74
How does the state of the world economy effect a countries Balance of Payments?
If countries are going through tough economic times then they are likely to produce less and also import less affecting countries that import and export from that country.
75
How does the degree of protectionism affect the Balance of Payments?
Protectionism occurs when countries place restrictions on imports into the economy, making imports less attractive to those in that country, so the exporter looses out on another potential customer.
76
How do non price factors affect the Balance of Payments?
If the customer gets better non price factors with product A than B they will be more inclined to buy product A than B.
77
Understand the AS curve.
78
Factors that cause shifts in the Aggregate Supply curve?
- Employment costs
- Changes in other production costs
- Comodity Prices
- Exchange rates
79
What is the relationship between Short-Run Aggregate Supply and Long-Run Aggregate Supply?
- SRAS assumes that level of capital is fixed but you can change labour ie, workers doing overtime
- SRAS will shift to the left if costs of raw materials and increase in wages happens
- LRAS is determined by all factors of production, if there was an increase in investment or growth in the size of the labour force this would shift the LRAS curve right
80
Factors affecting Short-Run Aggregate Supply.
- Employment costs
- Costs of raw materials and energy
- Changes in exchange rates
- Changes in tax rates
81
Understand the different shapes of the Long-Run AS curve - Keynesian curve
82
Understand the different shapes of the Long-Run AS curve - Classical Curve
83
Explain the factors influencing Long-Run AS - Technological Advances
