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Macroeconomics > Macro Book 3 > Flashcards

Macro Book 3 Flashcards

(61 cards)

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1
Q

4 main goverment macroeconomic objectives

A
  1. minimise unemployment
  2. stable balance of payments on current account
  3. sustainable economic growth
  4. stable general price level ( low inflation)
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2
Q

unemployment

A

people who don’t have a job but are actively seeking work and are available to start work in the next 2 weeks

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3
Q

2 main measures of unemployment

A
  1. Claimant count - the number of people currently ‘signing on’ to claim Jobseekers Allowance (JSA)
  2. LFS - the labour force survey of c. 60,000 households, identifying the number of people out of work currently searching and willing to start in the next 2 weeks
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4
Q

economically inactive

A

people not seeking work e.g students, disabled people, prisoners, retired people

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5
Q

underemployment

A

people who are employed but dont work as many hours as they’d like

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6
Q

frictional unemployment

A

people between jobs either because they’ve just left one job and not yet found another or because they’ve just become economically active e.g recent graduates

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7
Q

seasonal unemployment

A

when the demand for specific types of labour only exists at certain points in the year e.g holidays/ski reps

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8
Q

structural unemployment

A

caused by a change in the structure of the economy -the demand for certain types of labour no longer exists e.g UK coal miners

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9
Q

cyclical unemployment

A
  • caused by a lack of AD
  • unemployment during a recession is mostly cyclical
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10
Q

technological unemployment

A

workers being replaced by machinery e.g self service checkouts

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11
Q

classical unemployment

A
  • caused by wages being too high for labour markets to clear
  • firms have less incentive to supply labour but more people are willing to work ; excess supply is classical unemployment
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12
Q

geographical immobility of labour

A

workers can’t relocate to where there is demand for labour

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13
Q

occupational immobility of labour

A

workers lack transferable skills to switch to another job

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14
Q

reasons why labour may be geographically immobile (5)

A
  • need to be near dependents
  • children settled in school
  • differences in housing costs
  • friends and social ties
  • cultural or religious ties
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15
Q

costs of unemployment (7)

A
  • negative multiplier
  • lower living standards
  • lower government tax revenue
  • increase in government transfer payments (e.g JSA)
  • lower demand and profits for businesses
  • lower business and consumer confidence
  • loss of skills (when long term and across the economy known as hysteresis)
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16
Q

inflation

A

a sustained increase in the general level of prices

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17
Q

deflation

A

a sustained decrease in the general level of prices

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18
Q

disinflation

A

a fall in the rate of inflation

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19
Q

core inflation

A

inflation measured without the most volatile prices (e.g. energy and food)

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20
Q

hyperinflation

A

very high inflation, typically in excess of 100% p.a

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21
Q

anticipated inflation

A

inflation that economic agents expect and factor into their decisions

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22
Q

unanticipated inflation

A

inflation higher than economic agents’ expectations

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23
Q

demand pull inflation

A

inflation caused by an increase in AD

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24
Q

sources of demand pull inflation (4)

A
  • falling interest rates
  • increased government spending
  • increase in incomes and/or consumer confidence
  • increased exports
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25
cost push inflation
inflation caused by rising costs for firms (CAN ONLY BE SHOWN BY SHIFTING SRAS CURVE)
26
sources of cost push inflation (4)
- rising wages - increased indirect taxes - rising energy/fuel costs - rising raw material prices
27
wage-price spiral
1. workers living standard drop due to inflation 2. negotiate a pay rise with employers 3. firms labour costs increase so total cost rises 4. firms raise prices to maintain profit, causing inflation
28
costs of inflation (5)
1. shoe leather costs (e.g time spent checking prices) 2. redistributive costs (value of money/debt is eroded over time so savers are worse off and borrowers better off) 3. international competitiveness (prices are relatively more expensive, harming exports) 4. menu costs (cost of updating price labels etc.) 5. wider economic costs (uncertainty over future prices may makes long term decision making more difficult)
29
possible benefits of inflation (2)
1. allowing some inflation allows realtive prices to adjust 2. inflation means firms can overcome the problem of prices (especially wages) being sticky downwards - workers find it more difficult to fight real terms wage decreases
30
benign deflation
- caused by falling costs (righwards shift SRAS) - creates short-run economic growth - reduces GPL - increases employment - may improve current account balance (effectively the reverse of cost push inflation)
31
malign deflation
- more of a problem than benign deflation - caused by falling AD - fall in short-run economic growth, possible recession - reduces GPL - fall in employment - purchases may be postponed as purchasing power of money likely to be higher in the future, AD may fall further - however may improve current account balance (lower import expenditure)
32
exchange rate
the price of one currency in terms of another
33
SPICED
strong pound imports cheaper exports dearer
34
WPIDEC
weak pound imports dearer exports cheaper
35
who buys sterling? (6)
- foreign firms importing from the UK - foreign tourists coming to the UK - UK tourists coming home - foreign investors - currency speculators - central banks
36
who sells sterling? (6)
- UK firms importing from abroad - UK tourists - foreign tourists going home - currency speculators - UK investors into foreign financial systems - central banks
37
MPM
marginal propensity to import - the proportion of an increase in income that is spent on imports
38
fiscal policy
tax + government spending
39
monetary policy
interest rates + quantitiative easing
40
expansionary policies
designed to increase AD and cause value of RNO to increase
41
contractionary policies
designed to reduce AD or the size of an increase in AD
42
pro cyclical
work in line with the business cycle - expansionary during growth stage and contractionary during a recession
43
counter cyclical
work against the business cycle
44
reasons for taxation (3)
- to correct market failure - as a macroeconomic policy tool - redistribute income (and wealth)
45
progressive tax
tax that takes a higher proportion of high earners' income ( e.g. income tax)
46
proportionate tax
tax that takes an equal proportion of income irrespective of the level of income
47
regressive tax
when low-earners' end up paying a higher proportion of their income in tax
48
direct taxes
- paid directly by an individual or organisation ( usually on income or profit) and the tax liability can't be passed on - shift AD - e.g. income tax, national insurance, coroporation tax, council tax
49
indirect taxes
- levied on goods and services - consumer may bear the burden in the form of higher prices - shift SRAS - e.g. VAT, stamp duty, excise duty on alcohol
50
arguments in favour of indirect taxes
- can reduce market failure - dont disincentivise work - can be changed more easily
51
arguments in favour of direct taxes
- indirect taxes are inflationary - direct taxes are more progressive, indirect are more regressive - indirect taxes can lead to the emergence of black markets
52
UK tax bands
- personal allowance: up to £12,570 = 0% - basic rate: £12,571 - £50,270 = 20% - higher rate: £50,271 - £125,140 = 40% - additional rate: over £125,140 = 45%
53
government/national debt
stock variable that has been accumulated over time
54
budget deficit
amount by which government expenditure exceeds tax revenue and therefore the amount that must be funded through borrowing
55
inter-generational equity
fairness between different generations
56
automatic stabiliser
when a change in one variable leads to an opposing change in another
57
discretionary fiscal policy
a conscious decision by the government to change its fiscal policy e.g. cutting income tax
58
supply-side policies
government policies designed to increase the rate of long-run economic growth by increasing LRAS (QQT of FOP)
59
free market supply-side polices
- intended to increase the productive capacity of the economy by reducing government involvement - e.g. tax cuts, privatisation, deregulation, labour market reforms
60
interventionist supply-side policies
- policies designed to increase the economy's productive capacity through an increase in government intervention - e.g. education + training, infrastructure projects, subsidies, intervention in labour markets
61
output gap
the difference between the current level of output in an economy and its long-run productive capacity

Macroeconomics (6 decks)

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