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Flashcards in Macro AS Deck (84)
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1
Q

5 macroeconomic objectives

A

stable prices (2% +/- 1% inflation) steady economic growth (2.25% pa.) full employment, favorable balance of payments fairer distribution of wealth and income

2
Q

aggregate demand

A

total spending in an economy

3
Q

policy conflicts between the macroeconomic objectives

A

economic growth vs 2%inflation, unemployment vs 2%inflation, economic growth vs fairer distribution of income and wealth, economic growth vs balance of payments

4
Q

total spending=

A

total income=total output

5
Q

inflation

A

a general increase in the average price level from one year to the next

6
Q

unemployment

A

when not all those who are willing and able to work are employed

7
Q

balance of payments

A

a record of all the currency flows into and out of a country in a given time period

8
Q

economic growth

A

the increase in the potential level of real output the economy can produce over a period of time

9
Q

3 ways to calculate national income

A

income method: wages+rent+interest+profits/dividends, expenditure method: C+I+G+(X-M) output method: primary+secondary+tertiary+Quaternary

10
Q

national income

A

measures the total value of goods and services produced within the economy over a period of time

11
Q

GDP

A

the total output (goods and services) in an economy in on year

12
Q

GDP per capita

A

the total output (goods and services) in an economy in on year divided by polultaion

13
Q

nominal economic growth

A

% increase in GDP from one year to the next

14
Q

real economic growth

A

% increase in GDP from one year to the next adjusted for inflation

15
Q

injections and withdrawals in the circular flow of inocome

A

injections: exports(x), government spending(G), investment(I). Withdrawals: imports(M), savings(S), taxation(T)

16
Q

macroeconomic consumption function

A

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

17
Q

the demand for labor…

A

is derived from the demand for the goods and services that labor produces

18
Q

aggregate demand

A

total level of planned real expenditure on domestically produced goods and servides

19
Q

aggregate demand curve

A

shows the level of planned demand for real output consistent with a particular price level

20
Q

money government spends comes from

A

taxes but is mostly borrowed creates a deficit and opportunity cost

21
Q

austerity

A

policy that tries to reduce deficit -> creates a neutral/ balanced budget

22
Q

factors that affect consumption

A

tax rates, consumer confidence, inflation expectations, interest rates, stage of economic cycle

23
Q

factors that affect investment

A

availability of spare capacity, stage of economic cycle, business confidence, interest rates

24
Q

factors that affect government spending

A

tax revenue, stage of economic cycle, size of public sector, government priorities

25
Q

factors that affect exports

A

import tariffs overseas, exchange rates, stage of economic cycle overseas, international competitiveness, subsidies to uk producers

26
Q

factors that affect imports

A

stage of economic cycle here, foreign government regulations, import tariffs, subsidies to uk producers

27
Q

economic cycle stages

A

peak/boom, downturn, trough/slump/depression, recovery

28
Q

labor intensive

A

industries that need humans to produce goods

29
Q

capital intensive

A

industries that don’t need humans to produce goods

30
Q

downsides to a boom

A

use of finite resources, increase in pollution, things get more expensive

31
Q

upsides to a boom

A

more tax revenue, less spent on benefits(less opportunity cost for government cost)

32
Q

competitiveness

A

ability to outsell other substitute goods

33
Q

slump overseas->

A

rise in unemployment overseas-> fall in disposable income overseas-> fall in C overseas-> fall in uk exports

34
Q

duties

A

tax on a specific product

35
Q

boom

A

occurs when real national output is rising at a faster rate than the trend rate of growth

36
Q

characteristics of a boom

A

fast growth of consumption, pick up in demand for capital goods, more jobs created, falling unemployment, high demand for imports, increase in government tax revenue, increase in inflationary pressures

37
Q

PO gap

A

positive output gap- output is over the 2.25 rate of growth target

38
Q

NO gap

A

negative output gap-output is under the 2.25 rate of growth target

39
Q

sellers market

A

when potential buyers fight to outbid each other, supply is low, demand is high

40
Q

SRAS

A

the relationship between real GDP and the price level, shows how much output the economy can generate in the short run at each price level

41
Q

why does SRAS slope upward

A

at higher price levels less efficient firms can enter the market and firms are incentiveised to produce more

42
Q

determinants of SRAS

A

costs of production, wage costs, impact or migration of workers on wages, length of working week, raw material and component prices, taxes that businesses have to pay (VAT, import tariffs and other protectionist measures), labor productivity, factor mobility, changes in exchange rates, external economic shocks, changes in tech, labor migration, commodity prices

43
Q

base year

A

year an index number is first introduced

44
Q

index number

A

number used to represent a group of numbers

45
Q

mothball

A

to set a factory/production line aside waiting to start again for when AD picks up again

46
Q

why is LRAS generally assumed to be vertical

A

in the long run productive capacity dictates supply rather than price level

47
Q

LRAS

A

The economy’s productive cpacity

48
Q

Yfe

A

full employment level of national income

49
Q

determinants of LRAS

A

changes in pollution size, increase/decrease in partial equipment, innovation in technology, policies to increase workforce, education and training, factor mobility, improvements in production processes, improved attitudes of entrepreneurs,

50
Q

factors that shift AD

A

changes in C+I+G+(X-M)

51
Q

shape of Keynesian LRAS curve

A

inverted L

52
Q

factors that shift SRAS

A

changes in costs of production, changes in productivity, changes in taxes and subsidies

53
Q

short run economic growth

A

rise in GDP (RNO) from one year to the next

54
Q

quantitative easing

A

a process by which the ban of England puts money in to the banking system so they can loan money to customers

55
Q

accelerator effect

A

when an increase in national income leads to a proportionately larger increase in capital investment

56
Q

multiplier effect

A

the idea that the final impact o national income of an injection will be larger that the size of the original injection

57
Q

MPC

A

marginal propensity to consume, the fraction of an increase in disposable income spent on domestically produced goods

58
Q

why MPC would stop (/multiplier)

A

people choose to save all, people spend it on imports, taxation

59
Q

frictional unemployment

A

unemployment related to the process of switching jobs which may involve a period out of work

60
Q

cyclical unemployment

A

unemployment who’s number varies with the trade/economic cycle AKA demand deficient unemployment

61
Q

negative multiplier effect

A

a withdrawal from the circular flow of income can be magnified resulting in a final impact larger than the original withdrawal

62
Q

wealth effect

A

if people feel wealthier they spend more

63
Q

structural unemployment

A

when there is a mismatch between the skills of those unemployed and the skilled required by the new jobs

64
Q

2 main reasons for structural unemployment

A

geographical immobility occupational/industrial immobility

65
Q

hidden unemployment

A

you are employed by your skills are not e.g. engineer working at McD

66
Q

hysteresis

A

a rise in unemployment leading to a recession so ling and prolonged that workers become deskilled and demotivated. the economy never quite makes it back to its original trend rate of growth

67
Q

fiscal policy

A

the use of government income and expenditure to influence AD and so to help achieve macroeconomic aims

68
Q

monetary policies

A

the use of interest rates the exchange rates and money supply to influence AD and so help achieve macroeconomic aims

69
Q

demand management policies

A

fiscal and monetary policies that deal with cyclical unemployment and AD

70
Q

supply side polices

A

policies that aim to increase the quantity and improve the quality off the factors of production

71
Q

supply side policies examples

A

education and training, cut welfare benefits, reduce income tax, privatisation, free child care, flexible labour market, encourage entrepreneurs

72
Q

Income effect

A

Ceteris paribas if prices go up you can’t afford as much of a good

73
Q

Substitution effect

A

If the price of a good rises people will switch to substitutes

74
Q

Cost push inflation

A

Inflation attributed to a rise in the costs of production

75
Q

Demand pull inflation

A

Inflation attributed to a rise in AD (too much money chasing too few goods)

76
Q

HICP

A

Harmonised index of consumer prices

77
Q

Negatives of inflation

A

People on fixed incomes loose out , businesses find it difficult to plan, lenders loose out , menu costs, shoe leather costs , loss of international competitiveness

78
Q

Triple lock

A

A guarantee that pensions will rise by whichever measure of inflation rises the most : CPI, RPI, average wages

79
Q

Real wage unemployment

A

When a min wage is imposed above the market clearing wage more labour is supplied than is demanded

80
Q

Investment

A

Spending money on capital equipment e.g. Machinery

81
Q

Why we have taxes

A

To fund public services, redistribute income, to correct for market failure, to influence ad

82
Q

Money for deficit comes from

A

Borrowing , previous surpluses, sell gov assets

83
Q

Demand side polices

A

Aimed at changing AD

84
Q

Supply side polices

A

Aimed at increasing the quality or quantity of labour