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Edexcel A-level Economics > Macroeconomics > Flashcards

Macroeconomics Flashcards

1
Q

Aggregate demand=?

A

AD=C+I+G+(X-M)
consumption+investment+government spending+(export-import)

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2
Q

Difference between AS classical theory and Keynesian theory?

A

Classical theory: self-adjustment to full employment
Keynesian theory: government intervention, not always full employment

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3
Q

Definition of inflation?

A

A sustained increase in price level overtime.

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4
Q

Measurement of inflation?

A

CPI (consumer price index)
A weighted basket of goods and services

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5
Q

Reasons for inflation?

A
  • Demand-pull inflation
  • Cost-push inflation
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6
Q

What is demand-pull inflation?

A

Aggregate supply cannot increase as equivalent as increase in aggregate demand.

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7
Q

Reasons for cost-push inflation?

A
  • Exchange rate decrease–>Px decrease, Pm increase relatively, Qx increase, Qm decrease, (X-M) increase–>AD increase–>demand-pull inflation
  • excessive growth of money supply
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8
Q

Consequences of inflation?

A

Positive:
- borrower
- importer
- encourage C&I–>AD increase
- increase GDP/output
- PED＜1–>revenue increase
Negative:
- lender
- saver
- fixed-income suffer
- exporter
- menu-cost: cost on reflecting higher price
- shoe-leather cost: cost on finding cheaper materials and better deals
- unemployment
- BOP deficit

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9
Q

Policy to correct inflation?

A

Demand-side policy: fiscal (by gov.) & monetary (by central bank) policy
Supply-side policy: market-based & interventionist

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10
Q

Examples of fiscal policy?

A
  • Tax increase
  • Government spending
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11
Q

Examples of monetary policy?

A
  • interest rate increase
  • Exchange rate increase
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12
Q

Examples of market-based policy?

A
  • privatization
  • deregulation
  • labor reform
  • taxation
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13
Q

Examples of interventionist policy?

A
  • education
  • healthcare
  • infrastructure (transportation and telecommunication)
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14
Q

Limitation of GDP?

A
  • inaccuracy for statistics
  • population
  • non-price factor–>quality of products
  • externality: pollution/conjestion/depletion of natural resources
  • income distribution
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15
Q

Definition of recession?

A

A period of two or more consecutive quarters of negative economic growth.

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16
Q

Indicators of living standard?

A
  • real GDP per capita
  • HDI (human development index)
  • PPP (purchasing power parity)
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17
Q

How to calculate unemployment rate?

A

unemployed/(unemployed+employed)

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18
Q

Causes of unemployment?

A
  • Friction unemployment
  • Seasonal unemployment
  • Structural unemployment
  • capital-intensive replacing labor-intensive
  • technological reasons
  • cyclical unemployment, real wage inflexibility
  • classical unemployment (unsatisfied with wages)
  • voluntary unemployment
19
Q

Effects of unemployment?

(Hint: five dimensions)

A

Workers:
income decrease–>purchase power decrease

Business:
Supply of labor decrease–>wage increase–>cost increase–>output decrease

Government:
tax revenue decrease (direct tax & indirect tax)
G increase–>social welfare/unemployment benefits

Social problem:
Crime rate increase; uneven distribution of income

Economy:
export decrease; resource fully utilized

20
Q

Underemployment definition?

A

People of working age with part-time jobs when they would rather work full-time, or with jobs that do not make full use of their skills and education.

21
Q

Significance of changes in employment and underemployment:

A
  • public finance
  • net migration
  • confidence level
22
Q

What’s current account, financial account and capital account?

A

Current account: trade in invisible goods and services
Financial account: direct & portfolio investment, foreign reserve
Capital account: trademark copyright, patent, capital transfer

23
Q

Balance of current account=?

A

Balance of trade

24
Q

Reasons of current account deficit?

A
  • Inflation rate higher in domestic economy
  • Exchange rate increase, Px increase, Pm decrease
  • Tariff: increase in imports
25
Q

Circular flow of wealth?

A

Household–purchase goods&services–>Firms
–factors of production———->
<-Rewards for FOP—————–
<-Goods&services——————

26
Q

Multiplier effect?

A

investment · multiplier=GDP
1/1-MPC=MPS
(Marginal propensity to consume & supply)

27
Q

Causes of economic growth?

A

Actual growth (AD increase) and potential growth (LRAS increase)

28
Q

Evaluation of economic growth?

A
  • Timeframe
  • nature of the country (export-led country or?)
29
Q

Conflicts between objectives?

A
  • Inflation and unemployment (Philips curve)
  • economic growth and environmental protection (pollution, resource depletion)
  • inflation and balance of payment
  • Economic growth and income inequality
30
Q

Inflation–>exchange rate?

A

inflation–>price level increase–>price of exports increase, price of imports decrease relatively–>Qx decrease, Qm increase–>demand of ￥ decrease–>exchange rate decrease

31
Q

Exchange rate–>inflation?

A

Exchange rate decrease–>Px decrease relatively, Pm increase–>Qx increase, Qm decrease–>(X-M) increase

32
Q

Inflation–>BOP?

A

Inflation–>PL increase–>Px increase, Pm decrease relatively–>Qx decrease, Qm increase–>money inflow decrease, outflow increase–>trade balance deficit

33
Q

Evaluation of inflation and balance of payment contradicting?

A

If PED of export <1
offset: inflation decreases BOP, while decrease in exchange rate increases BOP

34
Q

Direct tax is a ____ tax, indirect tax is a _____ tax. The tax in between is _____?

A

progressive, regressive, proportional

35
Q

Definition of exchange rate?

A

Price of one currency in terms of another

36
Q

An increase in floating exchange rate is called____, and a decrease is called _____.

A

appreciation, depreciation

37
Q

An increase in fixed exchange rate is called____, and a decrease is called _____.

A

revaluation; devaluation

38
Q

How to revaluate?

A
  • sell foreign reserve to buy domestic currency
  • interest rate increase—exchange rate increase
39
Q

How to devaluate?

A
  • sell domestic currency to buy foreign reserve
  • interest rate decrease
40
Q

Advantages and disadvantages of floating exchange rate system?

A

Advantages:
- adjust itself
- no need of large amount of foreign reserve
- no retaliation

Disadvantages:
- maybe too high or too low–>unstable exchange rate–>trade may worsen
- speculation

41
Q

Advantages and disadvantages of fixed exchange rate system?

A

Advantages:
- stable exchange rate—benefit international trade
- no speculation

Disadvantages:
- retaliation
- large amount of foreign reserve
- information failure—gov. may over-/under-fix the exchange rate

42
Q

What’s the Marshall-Lerner condition?

A

PED(X+M)>1, exchange rate decrease–>improve BOP//exchange rate increase–>worsen BOP

43
Q

What’s J-curve?

A
  • in the short run, PED inelastic—>exchange rate decrease may lead to decrease in export revenue
  • long run: PED elastic…

Edexcel A-level Economics (3 decks)

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