Macro Performance Flashcards
1
Q
What are the main macro objectives
A
Tiger
- Trade
- Inflation
- Growth
- Employment
- Redistribution of income
2
Q
2 other macro objectives that are not main
A
- Environmental preservation
- Sound government finances
3
Q
3 different measure of GDP
A
- Output method - adding all the value of all goods and services produced in an economic year
- Income Method - Adding all factor incomes in a year
- Expenditure method - C+I+G+(X-M)
4
Q
3 Factors affecting consumption
A
- Real disposable income
- Interest rates
- Consumer confidence and Animal spirits
- House prices
5
Q
3 factors that can change consumer confidence
A
- household Dept
- Asset prices
- Interest rates
6
Q
3 factors that affect the investment rate
A
- Interest rates
- Tax rates
- Business confidence
7
Q
3 factors affecting government expenditure
A
- output gap
- economics conditions (confidence - interest rate on bonds) (austerity)
- to increase HDI (birth/death/literacy rates)
8
Q
what are the types 4 types of spending done by a government
A
- Current spending- maintenance of public sector
- Capital spending -investment
- Welfare spending - pensions and benefits
- Dept interest spending
9
Q
3 factors that affect net exports
A
- Exchange rate
- Disposable income at home and abroad
- Protectionism
10
Q
3 reasons for shifts SRAS
A
Supply side shocks
- wages
- Raw material/commodity prices (oil/import prices)
- Tax rates
11
Q
what is uk natural rate of unemployment
A
4-6%
12
Q
3 factors that shift the LRAS curve
A
- Productivity of FOP
- Quantity and quality of FOP
13
Q
when analyzing shift of AD or AS in macro economics what should you focus on
A
the effects on the key macro objectives
14
Q
What is a multiplier effect
A
When changes in components of AD cause an even greater change in national output
15
Q
What is the equation for the multiplier
A
1/1-MPC
16
Q
what is the marginal propensity to consume
A
the proportion of how much of 1 pound will be spent again
17
Q
how to you calculate final national output using the multiplier
A
initial injection x Multiplier = Final GDP
18
Q
3 Determinants of the MPC
A
sizes of leakages from the economics cycle
- imports
- savings
- taxation
19
Q
What is the accelerator affect
A
when changes in GDP directly correlate to changes in investment
20
Q
3 determinants of the accelerator effect
A
- Economic Growth
- interest rates
- time lags on investment
21
Q
3 reasons why UK investment rate is low
A
- low productitvity
- low public investment
- regulatory issues and land costs
22
Q
When an economy is in recession AD will have little inflationary pressure, Why?
A
- Unemployment - if unemployment is high firms can increase unemployment without changes wage rates therefore no cost push inflation
- Unused capacity - Unused factors of production are cheap and readily available therefore firms can ramp up production with little increased costs
- Consumer consumption is low - Firms do no set prices high as they are eager to sell
23
Q
Why must governments measure GDP
A
- gives insights into growth and performance and living standards in an economy
24
Q
What is GDP and real GDP
A
GDP - the final value of all goods and services produced in an economy in a year
Real GDP - GDP by adjusted for inflation
25
3 reasons why GDP may be inaccurate
- Double counting - when goods in the primary and secondary sector are counted twice.
- informal activity is not included
- Errors
26
3 Problems with using GDP as a measure of growth
- Negative externalities are not included therefore value of green GDP is much lower
- Income inequality - GDP has no bearing to which class in society that national income goes to
- Many other quality of life measures are not included
27
how to measure GDP per capita
GDP/Population
28
what is GNI
Total income generated by a countries factors of production no matter where they are
29
what is net factor income
difference in income earned from foreign factors of production and income paid to foreign factors of production
30
what is the equation for GNI
GNI = GDP + net factor income
31
what doesn't GNI account for
FDI
32
what is the equation for Green GDP
Green GDP = GDP - environmental costs
33
negatives of using Green GDP as a measure of GDP
- Environmental costs are subjective therefore placing monetary value on them is hard
- GDP is most likely massively reduced giving impression of a weak economy
- Politically sensitive
34
what is a recession
Two successive quarters of negative growth
35
what are fluctuations in the economics cycle caused by
supply and demand side SHOCKS
36
outline 3 costs and 2 benifits of economics growth
Pros
- higher disposable incomes
- higher profits
Cons
- inequality
- Inflation
- CA deficit
37
4 evaluation points for economic growth
- what type of growth (consumption vs export led)
- balanced growth?
- Sustainable
- Private sector crowding out
38
what are the 2 main way of measuring unemployment
- Labour force survey
- Claimant count
39
What is structural unemployment
Structural unemployment is made up of occupational immobility and geographical immobility
(mismatch of skills a producer needs vs skills a worker has and workers not willing or able to move to where demand for labour exists)
40
3 causes of structural unemployment
- Tech advancement
- Loss of comparative advantage
- economics transitions (primary to secondary)
41
What is the natural rate of unemployment
what does it consist of
- Unemployment that occurs when labour markets are in equilibrium
it consists of structural and frictional
42
what are determinants of the natural rate of unemployment according to free market economists
- Generous benefits system
- Excessive regulation in labour markets (firms aren't willing to risk hiring low skilled labour because of hiring and firing laws)
43
what are the determinants of the natural rate of unemployment according to interventionists.
- Lack of transport and housing infrastructure
- Lack of in education and training
44
Outline 3 costs of unemployment
- Deteriation of government finances
- high cost push inflation
- inequality/poverty
45
outline two benefits of unemployment
- Greater pool of workers to hire from
- less of a currant account deficit
46
give 4 evaluation points about costs and benefits of unemployment
- Is unemployment at natural rate
- Duration of unemployment (hysteresis?)
- Type of unemployment
- Distribution of unemployment (which classes and age groups in society are affected)
47
what is the CPI
- expenditure survey is used to create a basket of goods that reflect the spending habits of consumers in the economy. These items are weighted as a percentage of income. As price levels rise the average price of the basket of goods will rise and this can be used to calculate inflation
48
what is the retial price index
the measure includes the rise in house prices. A basket of goods is calculated and weighed accordingly to consumer spending habits. Arithmetic mean is used to calculate average price changes of items in the basket of goods.
49
what are criticisms of the RPI measure of inflation
it uses an arithmetic mean which usually leads to an overestimate
50
What are 2 criticisms of the CPI measure of inflation
- It represents average changes therefore people on high and low incomes may experience different levels of inflation
- CPI is heavily affected by oil prices but does not include housing costs
51
Name 2 benfits of inflation
- Reduces the real value of dept (purchasing power of money declines)
- Low and stable inflation creates buisness and consumer confidence
-
52
Name 3 costs of inflation
- Loss of purchasing power (erodes savings, could effect most vunrable in society)
- Erodes export competitiveness
- Reduces buisness and consumer confidence
53
3 evaluation points about the effects of inflation
- How high it is
- Cause (demand/supply side)
- Anticipated vs unanticipated (hyperinflation)
54
what are the 3 cons of deflation
AD deflation:
- unemployment
- lack of economic growth
- debt burdons
55
what are 3 positives of deflation
Supply side :
- export led Economics growth
- increased purchasing power therefore confidence
- productivity
56
what is the main factor that affects the severity of demand side deflation
whether deflation is anticipated of not
57
what are 3 characteristics of anticipated deflation
- Delayed spending - Causes further price falls (but could also cause price increases)
- Positive real interest rates
- Increases the real value of dept
58
the two evaluation points for the severity of deflation.
Whether it is anticipated
What is its cause
59
what is hysteresis
temporary shocks cause long lasting effects
EG. unemployment may cause loss of skills and motivation to rejoin labour market
