Macroeconomic Models Flashcards
1
Q
3 withdrawals of the balance of payments
A
- Saving
- Imports
- Taxes
2
Q
3 injections in the balance of payments
A
- govt spending
- investment
- exports
3
Q
Definition of AD
A
Total demand of all goods in the economy
4
Q
National output
A
Total output of all goods in the economy
5
Q
Disposable income
A
income post the deduction of tax
6
Q
GDP Equation
A
NI=NE=NO
7
Q
Multiplier effect
A
increase in injections leads to a greater than proportional increase in AD
8
Q
multiplier equation
A
Change in Real GDP //// Initial injections
9
Q
Multiplier ratio
A
1// (1-MPC)
10
Q
MPC
A
Marginal perpencity to consumer is the % of income which is spent rather than what is saved
11
Q
Accelerator
A
the change in GDP (or NI) leading to greater investment
12
Q
Do benefits count as government spending
A
benifits dont count as spending as the government isn’t buying anything
13
Q
Balance of Payments
A
- current account
- Capital and financial account
14
Q
Components of the current account
A
- trade in services
- Trade in goods
- current transfers
- investment income
15
Q
4 Macroeconomic objectives
A
2% inflation (+- 1%)
steady growth
full employment
trade equilibrium
16
Q
what is the balance of payments
A
record of all payments in and out of one country
17
Q
investment income
A
money flowing into an economy from oversees investors investing in the UK economy
18
Q
current transfers
A
remittances and money for nothing.
19
Q
Why does the UK want an equal current account
A
so the capital and financial account then doesn’t have to be excessively positive to lead to a equal balance of payments
20
Q
6 factors affecting the current account
A
- exchange rate
- relative inflation
- costs of commodities
- quality
- income
- protectionism
21
Q
SPICy acroynym
A
Stronger
Pound
Imports
Cheaper
22
Q
Mortgage
A
borrowing for a house
23
Q
interest rate
A
cost of borrowing and the reward for saving
24
Q
changes in the bank rate affecting the balance of payments
A
AD= C + I + G + (x-m)
25
impact of lower confidence
higher savings
26
dot.com bubble
over confidence in tech firms led to over investment and when may of these firms seemed unviable many firms withdrew and this spooked market led to low confidence and hence low investment
27
Animal spirits
The Kensian view that firms and economic agents act as one entity and follow what others are doing
28
Positive wealth effect
increase in wealth makes consumers feel more confident increasing AD through increasing consumption and investment.
29
What is the largest source of wealth in the US and the UK
Houses however US house owenership is higher than in the UK
30
Differences in wealth effect
In cities and in lots of European countries a high wealth effect from an increase in house prices is felt less than in the us as there is in the UK lower house ownership will mean that a negative wealth effect leads to a cancelling out of the wealth effect
31
Savings ratio
percentage of income saved
32
savings ration EQ
SR= saved/ disposable income
33
Income vs wealth
Income- the flow of money a person or economy receives each year
wealth- the sum of all of the assets in an economy
34
What are factor incomes
the income households earn from loaning factors of productions to firms
35
Real GDP
A state of measuring the output of a county
36
GDP Equation
National income = national output = national expenditure
NI = GDP= AD
37
AS definition
total goods produced in the economy
38
Short Run
A period where one factor of production is fixed
39
SRAS
As in the short run where all factors of production is fixed and supply varies with demand and price
40
Why does the SRAS slope upwards
if firms want to increase output in the short run they have to pay higher wages as they want to hire more workers. This increases firms cost and hence they increase prices
41
Why does price increase when output increases
Costs of production increase (extra pay for workers working overtime) leading to an increases in the price level
42
Does profit change with movement in the AS curve
profit doesn't change with movements in the AS curve
43
What does a Kenyan LRAS look like
its an SRAS curve meeting an LRAS curve.
Awknolege the increasing challenge to access the factors of production
as resources become competitive market prices
44
Sick Back Flip acronym
3 features of the Kenyan LRAS
Spare Capacity
Bottleneck
Full Employment
45
Maximum potential output
LRAS curve
46
What does a neoclassical LRAS look like
Believes economics always at full employment in the long rum
This is because the economy has time to operate at full employment
47
How does overtime lead to SRAS
as the factors of production are fixed to increase labour firms must pay above the usual cost of Labour in the form of overtime to increase production
48
Which graph shows a shift in cost
SRAS
49
Which curve is used to show the impact of quantity produced and productity
LRAS
50
Impact od a change in price of Oil
Left shift in SRAS
51
Impact of commons price changes
SRAS left
52
What happened when diamonds were found in Sierra lean
increase in the factors of productio n
LRAS shifts right
53
Impact of more investment on LRAS
Increased in investment
increased in productivity
shift right in LRAS
54
What is the unit on the real national output line
Y
55
Impact of decrease in incomes
shutdown of manufacturing
lower incomes
lower consumption
x multiplier
firms lowering saving
less investment
government gets less tax
as moves inwards
56
How does exports and imports create demand for pounds
imports (sells pounds)
exports- buy pounds to purchase product
57
Sources of currency supply
tourists abroad
imports
58
Currency demand
Domestic tourism
exports
59
What is an increase and decrease in the price of a currency called
appreciation
depreciation
60
When the UK was concerted for imports of swine flu there was lower imports pigs
ER appriciated as less currency was being sold
61
If the UK regulates exports what is the impact on the ER
the ER will depreciate
62
Speculation
When investors predict changes to a currencies exchange rate to make profit
63
Impact of speculation
speculation of a further appreciation causes a present appreciation noe
64
SPICED acroynum
Stronger
Pound
Imports
Cheaper
Exports
Dearer
65
Which graphs is to show the impact of exchange rate
SRAS
Changes dont last long
66
Impact on appretion on AD
Stronger pound makes imports cheaper
Demand for exports is higher
balance of trade becomes more negative
Ad shifts to the right
66
Oil prices, impact on graph
Oil is a commodity
increase in cost of production
cost push inflation
supply moves left
Inflation
67
What was the dot com bubble
when investors, through heard behaviour, over invested in digital products.
This led to a crash in the price of technology prices
68
What is VAT
% tax on goods and services
69
George Soros
The guy who manipulated the pound and made billions of pounds
70
Exchange rate
the price of one currency in terms of another.
71
Axis on exchange rate diagram
price of pounds
Quantity
72
factors that affect supply of currency
1. tourism abroad
2. imports
73
How is the Labour Market different to the goods market
goods are demanded by households and supplied by firms
because labour is a factor of production (All factors of production are supplied by households to firms) households lend these to firms in return for factor incomes
74
What is excess supply in the labour makret
unemployment
75
8 factors changing demand for labour
Derived Demand
Productivity
Capital costs
migration
benefits
income tax
education
76
Definition of derived demand
Demand for a factor of production that occurs as a consequence of demand of another good or service
77
impact of productivity in a labour diagram
increase inproducitivity decreases the opportunity cost of productivity more product which may lead to the firm increasing the demand
they may not do this because an increase in productivity may encourage more market entrance
78
Capital costs defined
Capital and labour are substitutes
a person operating a checkout or a self checkout
79
Impact of migration on labour supply
if migrants leave the economy the supply of labour decreases
80
Debate in the income tac rate
if apple have to earn a set amount
lower tax
work fewer hours
decrease in labour supply
orrr
lower tax
work more to earn more money
increase in labour supply
81
Non percutinary benefits
non money benefits of a job
82
Examples of non percutinary benefits
- company car
- paid holiday
- job satisfaction
83
Non percutinary benefits example Jobs
Bin man or Low pay admin.
- subjective
