Macroeconomic performance Flashcards
the economic cycle
Short-run fluctuations of national output (real GDP) around its long-term trend
what are the different phases of the economic cycle?
- Recovery/Growth: rising GDP, rising inflation, falling u/e
- Boom: high GDP, high inflation, low u/e, high BoP deficit
- Downturn: falling GDP, falling inflation, rising u/e, falling BoP deficit
- Slump/trough: low GDP, low inflation, high u/e, low BoP deficit
positive output gap
GDP is above the long term trend which might be a sign of rising inflationary pressure.
negative output gap
Downward inflationary pressure. Working below the LRAS. Output is lower than full capacity.
spare capacity
Spare capacity occurs when a business is not making full use of its available capacity – there are spare factors of production including land, labour and capital. When an economy has plenty of spare capacity, short run aggregate supply (SRAS) is elastic, and the output gap is negative.
monetary policy
Monetary policy involves changes in interest rates, the supply of money & credit and exchange rates to influence the economy.
fiscal policy
The use of taxation and government expenditure to influence the economy.
economic growth
An increase in the capacity of an economy to produce goods and services measured by comparing GDP in different periods of time.
What do governments want regarding the rate o economic growth?
Want it to be increasing, don’t want it to be as high as possible as this would prevent room for additional growth. raises standard of living and tax revenue yet results in long-term inflation.
How can a PPF demonstrate economic growth?
Curve shifting outwatds from PPF to PPF2.
What has to change about FOP’s in order to bring about economic growth?
Increase in quality or quantity.
How can technological progress increase the rate of economic growth?
Inventions and innovation.
Short run economic growth
The short run is a concept that states that, within a certain period in the future, at least one input is fixed while others are variable. In economics, it expresses the idea that an economy behaves differently depending on the length of time it has to react to certain stimuli. The short run does not refer to a specific duration of time but rather is unique to the firm, industry or economic variable being studied.
Long run economic growth
The long run is a period of time in which all factors of production and costs are variable. In the long run, firms are able to adjust all costs, whereas in the short run firms are only able to influence prices through adjustments made to production levels. Additionally, while a firm may be a monopoly in the short term, they may expect competition in the long run.
what are the two main measures of unemployment?
Claimant count and labour force survey.
underemployment
A situation where people are working fewer hours than they wish; may also reflect the fact that workers accept jobs that don’t utilise their skills.
Cyclical unemployment
- Unemployment caused by a persistent lack of aggregate demand for goods and services, where national output < potential output leading to a negative output gap.
- Lack of AD
- Expansionary monetary policy and Expansionary fiscal policy.
Seasonal unemployment
- Seasonal workers without jobs due to the time of year where there are seasonal changes in employment.
- Demand for goods and therefore workers fluctuates at different times of year.
- Supply-side policies
Frictional unemployment
- The number of people who are classed as unemployed while they are moving between jobs.
- supply-side policies.
Structural unemployment
- Long term decline in an industry and a mismatch between existing skills and those needed in new growth industries.
- Supply- side policies (long term)
Negative multiplier
Occurs when an initial withdrawal or leakage of spending from the circular flow of income leads to knock-on effects and a bigger final drop in real GDP.
Hysteresis
A type of long term unemployment that results form the persistence of high unemployment rates over an extended period of time. Occurs when the economy experiences a period of prolonged weakness.
Inflation
A persistent rise in the price level within an economy over a period of time. Measured using a basket of goods where items we spend the most on are given the most importance, CPI is one measure. Decrease in the purchasing power of money.
Deflation
Deflation is a sustained period when the general price level for goods and services is falling. This means that a weighted basket of goods and services is becoming less expensive over time. It is normally associated with falling level of AD leading to a negative output gap where actual GDP is well below potential GDP. With price deflation, the real purchasing power of cash increases, but the real value of outstanding debts also rises.
