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MACROECONOMICS > Lecture 1 > Flashcards

Lecture 1 Flashcards

1
Q

Unemployment Rate

A

the percentage of the workforce without work

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2
Q

economic growth

A

the % change in real GDP (output) in economy

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3
Q

Inflation rate

A

measures the change in the cost of living/change in the price level or average price in economy
the continuous rise in the goods and services sold in the economy

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4
Q

exogenous variables

A

predetermined (an assumption that is given)

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5
Q

endogenous variables

A

determined by the model

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6
Q

classical economics

A

flexible price economics: models predict that intervention from policymakers is futile

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7
Q

heterodox economics

A

SUB SCHOOLS: models do not necessarily rely on agents reacting in markets

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8
Q

Keynesian economics

A

sticky price economics: models used to show the effectiveness of fiscal and monetary policy (OUTPUT FLEXIBLE, PRICES ARE FIXED)

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9
Q

Output

A

sum of all production in economy

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10
Q

expenditure

A

sum of all money spent in the economy

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11
Q

final goods approach to production method

A

sums up production of domestic final goods producers

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12
Q

value added approach

A

sums up value that every firm adds to chain of production (prevents double counting)

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13
Q

nominal gdp

A

sum of production using current prices and quantities

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14
Q

real gdp

A

sum of production holding prices constant at a base year

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15
Q

benefits of real gdp

A

washes out price information so that an increase in GDP is a result of an increase in quantities not prices

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16
Q

recession

A

when economic growth is negative for at least 2 periods

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17
Q

GDP deflator

A

uses a weighted average of prices using the relative difference between real and nominal GDP.
The weight of each price reflects the relative importance of each good produced.

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18
Q

CPI

A

consumer price index: uses a weighted average of prices faced by consumers (excludes housing costs)

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19
Q

RPI

A

retail price index: uses a weighted average of prices faced by the average family (includes housing costs)

20
Q

price level

A

a number estimated by ONS that reflects movements in the average price in the economy

21
Q

formula for GDP deflator

A

(nominal/real) x 100

22
Q

formula for CPI in month t

A

cost of CPI basket in month t / cost of basket in base period

23
Q

Do we use CPI or GDP for inflation in capital goods

A

Shows up in GDP deflator measure but not CPI/RPI

24
Q

Do we use CPI or GDP for inflation abroad

A

shows up in CPI/RPI (because basket of goods includes imported goods) but not in GDP deflator

25
Q

what is fixed in the GDP deflator

A

price

26
Q

what is fixed in the CPI/RPI

A

quantities

27
Q

what isn’t included in CPI basket

A

factory equipment

28
Q

where are changes in tastes picked up

A

Automatically in GDP deflator but manually by CPI

29
Q

what does GDP deflator ignore

A

external shocks eg. increases in price of oil

30
Q

disadvantages of using macroeconomic models

A

information loss: when we average, the high and low values cancel out
simplification: we use representative agents

31
Q

money

A

a deferred means of payment

32
Q

economic slack

A

difference between actual activity and ‘normal’ rate of economic growth

33
Q

business cycle

A

the oscillating pattern that we see in economic activity over a longer time period

34
Q

how does fiscal policy affect the CLOSED economy

A

an increase in G causes disturbances in the financial markets as funds are required which leads to pressure on interest rates. this decreases investment which also decreases Y.
Why does r increase?
G requires money to carry out spending so there is less money available for consumers to borrow so r increases as price of money increases. firms less likely to invest.

35
Q

What are the balance of payments money flows and real flows

A

money flows - financial

real flows - goods

36
Q

how does fiscal policy affect the OPEN economy

A
  • increase in G
  • increase in money demand in financial markets
  • upward pressure on interest rate
  • higher r causes capital inflow and increased demand for currency (lower exports)
  • higher exchange rate reduces output (CROWDING OUT)
37
Q

Labour force

A

subset of working age population willing and able to work at current wage rate (employed+unemployed)

38
Q

unemployment rate

A

proportion of the workforce without work

unemployed/labour force x 100

39
Q

participation rate

A

labour force/working age population

40
Q

equilibrium unemployment

A

minimum level of unemployment that still exists even when a wage is at a level that would normally ensure all those wanting work could work

41
Q

frictional unemployment

A

unemployment caused by job search

42
Q

structural unemployment

A

caused by economic structure (eg infrastructure problems)

43
Q

seasonal unemployment

A

caused by time of year

44
Q

supply side policy

A

government attempts to increase efficiency in economy, if successful shift AS to the right

45
Q

demand side policy

A

attempts to increase AD in economy to affect output, inflation and employment (fiscal/monetary)

MACROECONOMICS (3 decks)

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