Macro AS Flashcards

(84 cards)

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

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2
Q

aggregate demand

A

total spending in an economy

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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

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4
Q

total spending=

A

total income=total output

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5
Q

inflation

A

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

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6
Q

unemployment

A

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

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7
Q

balance of payments

A

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

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8
Q

economic growth

A

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

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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

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10
Q

national income

A

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

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11
Q

GDP

A

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

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12
Q

GDP per capita

A

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

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13
Q

nominal economic growth

A

% increase in GDP from one year to the next

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14
Q

real economic growth

A

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

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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)

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16
Q

macroeconomic consumption function

A

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

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17
Q

the demand for labor…

A

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

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18
Q

aggregate demand

A

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

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19
Q

aggregate demand curve

A

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

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20
Q

money government spends comes from

A

taxes but is mostly borrowed creates a deficit and opportunity cost

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21
Q

austerity

A

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

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22
Q

factors that affect consumption

A

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

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23
Q

factors that affect investment

A

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

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24
Q

factors that affect government spending

A

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

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25
factors that affect exports
import tariffs overseas, exchange rates, stage of economic cycle overseas, international competitiveness, subsidies to uk producers
26
factors that affect imports
stage of economic cycle here, foreign government regulations, import tariffs, subsidies to uk producers
27
economic cycle stages
peak/boom, downturn, trough/slump/depression, recovery
28
labor intensive
industries that need humans to produce goods
29
capital intensive
industries that don't need humans to produce goods
30
downsides to a boom
use of finite resources, increase in pollution, things get more expensive
31
upsides to a boom
more tax revenue, less spent on benefits(less opportunity cost for government cost)
32
competitiveness
ability to outsell other substitute goods
33
slump overseas->
rise in unemployment overseas-> fall in disposable income overseas-> fall in C overseas-> fall in uk exports
34
duties
tax on a specific product
35
boom
occurs when real national output is rising at a faster rate than the trend rate of growth
36
characteristics of a boom
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
PO gap
positive output gap- output is over the 2.25 rate of growth target
38
NO gap
negative output gap-output is under the 2.25 rate of growth target
39
sellers market
when potential buyers fight to outbid each other, supply is low, demand is high
40
SRAS
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
why does SRAS slope upward
at higher price levels less efficient firms can enter the market and firms are incentiveised to produce more
42
determinants of SRAS
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
base year
year an index number is first introduced
44
index number
number used to represent a group of numbers
45
mothball
to set a factory/production line aside waiting to start again for when AD picks up again
46
why is LRAS generally assumed to be vertical
in the long run productive capacity dictates supply rather than price level
47
LRAS
The economy's productive cpacity
48
Yfe
full employment level of national income
49
determinants of LRAS
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
factors that shift AD
changes in C+I+G+(X-M)
51
shape of Keynesian LRAS curve
inverted L
52
factors that shift SRAS
changes in costs of production, changes in productivity, changes in taxes and subsidies
53
short run economic growth
rise in GDP (RNO) from one year to the next
54
quantitative easing
a process by which the ban of England puts money in to the banking system so they can loan money to customers
55
accelerator effect
when an increase in national income leads to a proportionately larger increase in capital investment
56
multiplier effect
the idea that the final impact o national income of an injection will be larger that the size of the original injection
57
MPC
marginal propensity to consume, the fraction of an increase in disposable income spent on domestically produced goods
58
why MPC would stop (/multiplier)
people choose to save all, people spend it on imports, taxation
59
frictional unemployment
unemployment related to the process of switching jobs which may involve a period out of work
60
cyclical unemployment
unemployment who's number varies with the trade/economic cycle AKA demand deficient unemployment
61
negative multiplier effect
a withdrawal from the circular flow of income can be magnified resulting in a final impact larger than the original withdrawal
62
wealth effect
if people feel wealthier they spend more
63
structural unemployment
when there is a mismatch between the skills of those unemployed and the skilled required by the new jobs
64
2 main reasons for structural unemployment
geographical immobility occupational/industrial immobility
65
hidden unemployment
you are employed by your skills are not e.g. engineer working at McD
66
hysteresis
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
fiscal policy
the use of government income and expenditure to influence AD and so to help achieve macroeconomic aims
68
monetary policies
the use of interest rates the exchange rates and money supply to influence AD and so help achieve macroeconomic aims
69
demand management policies
fiscal and monetary policies that deal with cyclical unemployment and AD
70
supply side polices
policies that aim to increase the quantity and improve the quality off the factors of production
71
supply side policies examples
education and training, cut welfare benefits, reduce income tax, privatisation, free child care, flexible labour market, encourage entrepreneurs
72
Income effect
Ceteris paribas if prices go up you can't afford as much of a good
73
Substitution effect
If the price of a good rises people will switch to substitutes
74
Cost push inflation
Inflation attributed to a rise in the costs of production
75
Demand pull inflation
Inflation attributed to a rise in AD (too much money chasing too few goods)
76
HICP
Harmonised index of consumer prices
77
Negatives of inflation
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
Triple lock
A guarantee that pensions will rise by whichever measure of inflation rises the most : CPI, RPI, average wages
79
Real wage unemployment
When a min wage is imposed above the market clearing wage more labour is supplied than is demanded
80
Investment
Spending money on capital equipment e.g. Machinery
81
Why we have taxes
To fund public services, redistribute income, to correct for market failure, to influence ad
82
Money for deficit comes from
Borrowing , previous surpluses, sell gov assets
83
Demand side polices
Aimed at changing AD
84
Supply side polices
Aimed at increasing the quality or quantity of labour