Macro Review

Question 1

Sustainability

Answer 1

The ability of present generation to meet its needs without compromising the ability of future generations to meet their own needs

Question 2

Progressive taxation

Answer 2

Taxation where the fraction of tax paid increases as income increases. The average tax rate increases.

Question 3

Automatic stabilisers

Answer 3

Institutionally built-in features (like unemployment benefits and progressive income taxation) that tend to decrease the short term fluctuations of the business cycle without the need for governments to intervene

Question 4

Infrastructure

Answer 4

Physical capital typically financed by governments that is essential for economic activity to take place including roads, power, telecommunications and sanitation, generating significant positive externalities.

Question 5

Discrimnation

Answer 5

Discrimination against gender, race, religion, or any other factor plays an important role in perpetuating inequality

Question 6

Transfer payment

Answer 6

Payments made by the government to vulnerable groups in a society, including older people, low income people, unemployment and many more. The objective is to transfer money taxpayers to those who cannot work, to prevent them from falling into poverty.

Question 7

Unemployment

Answer 7

When a person (who is above a specified age and is available to work) is actively looking for work, but is without a job

Question 8

Full employment level of output

Answer 8

The level of output that is produced by the economy when there is only natural unemployment

Question 9

Recession

Answer 9

Occurs when real GDP falls for at least two consecutive quarters

Question 10

Crowding out

Answer 10

The idea that expansionary fiscal policy is not very effective in increasing aggregate demand because the increased borrowing needs of the government to finance the increased expenditures could lead to increased interest rates. Thus, reducing private sector investment, consumer spending, and other components of AD.

Question 11

Consumer Price Index

Answer 11

The average of the prices of the goods and services that the typical consumer buys expressed as an index number. The CPI is used as a measure of the cost of living in a country and to calculate inflation

Question 12

Disinflation

Answer 12

When the average price level continues to rise but at a slower rate so that the rate of inflation is positive but lower

Question 13

Inflation - targeting

Answer 13

When the central bank sets a desired rate of inflation, then manipulates its monetary policies so that the inflation rate stays within that range.

Question 14

Direct taxation

Answer 14

Taxes on income, profits, or wealth paid directly to the government

Question 15

Negative growth

Answer 15

Contraction in a country’s economy, reflected as decrease in GDP, expressed as negative percentage rate?

Question 16

Investment

Answer 16

Spending by firms on capital goods such as machines, tools, equipment and factories

Question 17

Industrial Policy

Answer 17

A type of interventionist supply side policies whereby the government chooses to support specific industries through preferential tax cuts, subsidies, subsidised loans and other means as they are considered pivotal in the growth prospects of the economy.

Question 18

Inflation

Answer 18

A sustained increase in the average price level over time

Question 19

Market - based supply side policies & what diagram do we use for it?

Answer 19

A set of policies based on well-functioning competitive markets in order to promote long term economic growth, shown by increases in LRAS

• USE NEW CLASSICAL DIAGRAM

Question 20

Interventionist supply side policies
& what diagram do we use for it?

Answer 20

A set of policies that aim to increase an economy’s productive capacity that relies on a greater role for the government; these include expenditures on infrastructure, education, health care, research & development and all industrial policies

– USE KEYNESIAN DIAGRAM

Question 21

Types of Unemployment

Answer 21

Cyclical - occurs in a recession, is a result of a decrease in AD
Seasonal - arises when people are out of a job because their usual job is out of season - lifeguards, ski instructors
Frictional unemployment - individuals who are in between jobs. as people who quit to find a better job or move to a diff location

Question 22

Structural Unemployment

Answer 22

A kind of long term unemployment that arises from a number of factors including tech change, changes in patterns of demand for diff labour skills, changes in geographical location of industries, & labour market rigidities.

Question 23

Contracted out

Answer 23

An alternate to direct provision, when a government hires the services of a private sector company

Question 24

Deficit Spending

Answer 24

Deficit spending is when gov spending is financed through borrowing because the tax revenues are not enough to cover their spending.

Question 25

National Income accounting

Answer 25

The services provided by a statistical entity in every country that measure the economy's national income and output as well as other economic activity

Question 26

Income approach

Answer 26

One of the three equivalent ways that GDP can be measured by adding all the incomes generated in the process ( wages, profits, interest and rent) for a given time period

Question 27

Expenditure approach

Answer 27

one of three analytically equivalent approaches of measuring GDP that adds all the expenditures made on final domestic goods and services over period of time by households, firms, the government and foreigners.

Question 28

Output approach

Answer 28

Adds up the value of the final goods and services produced by each economic sector such as agriculture, manufacturing, transport.

Question 29

GDP & real GDP

Answer 29

gross domestic product - the value of all final goods and services produced within an economy over a period of time, usually a year or a quarter real GDP = GDP adjusted for inflation

Question 30

GNI & real GNI

Answer 30

gross national income - income earned by all national factors of production. equal to GDP plus factor income earned abroad minus factor income paid abroad real GNI - adjusted for inflation and differences in the cost of living between countries

Question 31

OECD Better Life index

Answer 31

An index to compare well- being across countries based on several dimensions that have been identified as essential in the areas of material living conditions and quality of life

Question 32

Happiness index

Answer 32

An index that is used to measure economic well being of a population using several quality of life dimensions

Question 33

Happy Planet Index

Answer 33

An index that combines four elements to show how efficiently residents of diff countries are using environmental resources to lead long happy lives

Question 34

Monetarist/New Classical View

Answer 34

Monetarists

Question 35

Keynesian View

Answer 35

Keynesian scared of employment, prefer for government to intervene KEG

Question 36

Components of AD

Answer 36

consumption (C) + investment (I) + government spending (G) + net exports ( total exports (X)- total imports(M))

Question 37

Determinants of AD

Answer 37

C = consumer confidence, interest rates, wealth, income taxes, level of household indebedtness, expectations of future price level I = interest rates, business confidence, technology business taxes, level of corporate indebtednes G = political and economic priorities X -M = income of trading partners, exchange rates policies

Question 38

Inflationary gap

Answer 38

the case where equilibirium output exceeds real output as a result of increases in AD

Question 39

Deflationary/recessionary gap

Answer 39

arises when the equilibirium output is less than real output as a result of decreases in AD

Question 40

economic growth

Answer 40

refers to increases in real GDP over time

Question 41

Natural Rate of Unemployment

Answer 41

the rate of unemployment that occurs when the economy is producing at its potential output or full unemployment level output. = to structural + frictional + seasonal

Question 42

Lorenz curve

Answer 42

a curve showing what percentage of the population owns what percentage of the total income or wealth in the economy. (the further the curve is from line of absolute equality, the more unequal the distribution of income)

Question 42

cost push inflation and its causes

Answer 42

inflation caused by result of increased production costs ( typically because of rising money wages or rising commodity prices) illustrated by leftward shift of SRAS curve

Question 43

Poverty & difference between relative and absolute

Answer 43

arises when the lack of material possessions or money prevent an individual or a family from achieving a minimum satisfactory standard of living relative is a comparative measure of poverty according to which income levels do not allow people to reach a standard of living that is typical of the society in which they live i.e - single parents stuggling while absolute poverty is people living below minimum income necessary to satisfy basic needs (homless & malnourished)

Question 44

single indicators of poverty

Answer 44

international poverty lines minimum income standards

Question 45

Composite indicators of poverty

Answer 45

multidimensional poverty index

Question 45

causes of deflation

Question 46

regressive tax

Answer 46

will worsen the income & wealth distribution in an economy

Question 47

proportional tax

Answer 47

works to redistribute income & wealth but is less effective than a progressive one.

Question 48

direct tax

Answer 48

taxes on income, profits, or wealrg paid

Question 49

demand side policies supply side policies

Answer 49

aims to manipulate AD to smooth out short-term flunctuations in economic activity while supply side policies aims to increase AS in the long term

Question 50

keynesian multiplier

Answer 50

multiplier / 1- mpc

Question 51

market based policies

Answer 51

a set of policies based on well - functioning competitive markets in order to promote long term economic growth, shown by increases in LRAS - PIL

Question 52

policies to encourage competition

Answer 52

deregulation, privatisation, trade liberalisation, anti-monopoly legislation

Question 53

labour market policies

Answer 53

reducing unemployment benefits, reducing power of labour unions, abolishing minimum wage

Question 54

incentive related policies

Answer 54

cuts in personal income taxes, business taxes & capital gain tazes

Question 55

interventionist policies

Answer 55

policies that aim to increase an economy's productive capacity that relies on a greater role on gov- i.e ERIPI - education & training improvements in quality/access to health care r & d provision of infrastructure industrial policies

Question 56

economies of scale

Answer 56

falling average costs that a firm experiences when it increases its scale of operations

Question 57

economic inequality

Answer 57

unequal distribution of income and wealth

Question 58

economic inequalit