Macroeconomics Flashcards
(27 cards)
How do you calculate AD
C+I+G (X-M)
What are the factors influencing levels of consumption
Wealth effect-physical/monetary
Real disposable income
Rate of interest
Availability of credit
Composition of households
What are the factors influencing investment
Consumer confidence
Interest rates
Availability of credit
Price and availability of new tech
What are the factors influencing government spending
Level of government revenue
State of economy
External shocks
Proximity to election
Factors influencing net exports
Exchange rate- pound weak- more exports less imports
Foreign consumer confidence
Foreign real disposable income
What is aggregate supply
Total output of goods and services that producers are willing and able to supply at different price levels in a give time period
Factors causing a shift in AS curve
Change in cost of production
Quantity and quality of labour
Improvements in tech
Role of private sector
What are the macroeconomic objectives
Low unemployment Economic growth Low stable inflation Balanced budget Balance of payments Redistribution of income
What is aggregate demand
Total or sum of all demand or expenditure in an economy at a given price
What is discretionary fiscal policy
Deliberate manipulation of government spending and revenue to achieve macroeconomic objectives- used to stimulate economic growth
What would happen if government wanted discretionary expansionary fiscal policy
Increase its own spending
Reduce levels of income tax- increase consumption levels
Reduce levels of VAT
Reduce corporation tax- increase investment
However exact impact on discretionary policy will depend upon…
Initial position of market equilibrium
Size of policy changes
Duration of policy changes
Consumer and producer confidence levels
What is automatic fiscal policy
Designed to prevent highs of economic boom being too high but increasing tax as income increases and prevent lowest of lows by JSA/ welfare payments
What are the 3 tax regimes
Progressive tax- higher tax with higher income
Regressive tax- pay less tax as income increases
Proportional/flat tax- pay the same amount of tax no matter the income
What are Adam smiths Good tax themes
Equity- everyone should contribute to support of government depending on ability
Certainty - taxes shouldn’t be arbitrary
Convenience- should be levied in a time and manor which is convenient
Economy - ought to take out and keep out of people’s pockets as little as possible
Elements of the government budget
Government spending equal to revenue- balanced budget
Spending higher than revenue- deficit - will add to national debt
Revenue higher than spending is known as a surplus- government pay off debt
What is monetary policy
The deliberate manipulation of me tart variables such as the interest rate or money supply to achieve macro goals
Give an example of monetary policy and how it works
Interest rate increase - cost of loans to firms increase- cost of production is higher- set prices higher - inflation - appreciation of pound- exports expensive Imports cheaper- balance of payments in doubt - value of savings increase- bigger gap between rich and poor
What effects does a reduction in interest have?
Opposite effects to increase. Leads mainly to an increase in U.K. Exports and a reduction in imports- improve (X-m) balance of payments element and cause economic growth
However exact impact upon interest rates will depend upon:
Forgiven consumer confidence
Initial equilibrium position
Size/ duration of depreciation/appreciation
Actions of other central banks
Martial learner conditions
What are the supply sided measures to cause outward shift in LRAS- labour market
Trade unions- less power
Welfare benefits-cut
Minimum wage-abolish
Marginal tax rates- lower tax
Taxes on labour- won’t take on labour if cost too much
Reduce cost of changing jobs/house prices- pensions taken from jobs to job- house prices lower- people move if necessary
Supply sided measure to cause outward shift in LRAS– capital market
Profitability- investment in order to make profit- gov needs to make environments to encourage investment
Allocating scarce capital resources- private sector should do this
Increase range of sources of capital- encourage private sector to provide financial capital
Supply sided measures to cause outward shift in LRAS– goods market
Encourage free trade-reduce taxes and barriers in imports
Encourage small business
Privatisation- eliminates distortion created by public monopolies
Deregulation- allowing all to compete in market- increases competition
What are the first 4 problems of supply sided policy
- Education and training- costly- opportunity cost
- Time lag- while before benefits are seen
- High skilled jobs won’t necessarily be more available
- workers might not become more skilled (quality of training may be poor)
