MACROECONOMICS/GLOBAL Flashcards
all macroeconomics vocab from syllabus (87 cards)
1
Q
monetary union
A
common market with the a common currency and central bank
2
Q
free trade area
A
elimination of all tarrifs for all g/s, except factors of production
3
Q
common union
A
free trade area and common external tariff
4
Q
common market
A
common union and the free flow of factors of production
5
Q
objectives of the WTO
A
encouraging fair competition and economic development and make trade free between countries trade liberization
functions: settling trade disputes + cooperation with international organizations
6
Q
arguments for and against trade protection
A
pro = infant industries protected, gov revenue from tariffs, health and safety from adminstrative barriers, diversification of LDC’s (need to grow new industries when diversifying)
con = lower choice, higher prices, higher costs as factors of production that are imported increase costs, no innovation in the long run because protected by the trade barriers, less comp thus less incentive to be efficient in long run.
7
Q
current account includes
A
balance of trade of goods
balance of trade of services
net income
net current transfers
8
Q
financial account includes
A
official borrowng
FDI - long term investemnts into productive resources of a foreign country and taxes etc..
portfolio investment - short term investments
reserve assets
9
Q
capital account includes
A
capital transfers
transcation in non-produced, non financial assets
10
Q
sustainable development goals
A
1, no poverty
2, good well being and health
3, zero hunger
4, clean and affordable energy
11
Q
economic development
A
an increase in the living standards of a population in a country
12
Q
sustainable economics
A
achieving increased living standards to meet human needs and wants without hurting the environment or exploiting resources
13
Q
what is part of economic development
A
- increasing employment opportunities
-reduced income inequality - reducing widespread poverty
- increasing living standards
14
Q
human development index(HDI)
A
health - life expectancy at birth
education = mean years of schooling/expected years
income = gni per capita per ppp
15
Q
Gender ineqaulity index (GII)
A
reproductive health - maternal mortality ratio and adolescent birth rates
empowerment - proportion of parliamentary seats occupied by females and proportion of adult females and males aged 25 years and older with at least some secondary education
economic status - measured by labour force participation rate of female and male populations aged 15 years and older
16
Q
Happy planet Index
A
well-being times x life expectancy/divided by ecological footprint
17
Q
strengths of measuring economic development
A
all these measurements are quantified, as a result we can check progress over time and compare the level of economic development between countries. We can even learn about the efficiency of political decisions in improving economic development.
- when combining single and composite indicators., they are useful in assessing how standard of living is/ changes in a country
18
Q
limitations of measuring economic development
A
Due to the multidimensional nature of economic development, single and composite indicators must be combined to get the big picture. Therefore, our understanding of economic development largely depends on how these indicators are combined
- here might be statistical issues included too. In many poor countries essential data might not be collected and as a result the UNDP or the World Bank uses estimations which might be inaccurate.
- cultural, environmental, social diversity among countries (and in most cases even within a country) is enormous. Therefore, different governments will have different priorities when trying to achieve increased living standards of their population. Hence, the comparison of many indicators might be less appropriate if countries have different objectives about improving well-being.
19
Q
economic growth
A
increase in real gdp over time
20
Q
poverty cycle
A
low income, low savings, low capital investments, low productivity thus low income. repeats.
21
Q
economic barriers to economic development
A
/informal economy -
/Indebtedness - gov cant use money for infrastrucutre. education etc,, which increase living standards
/dependence of primary sector in production - GDP is dependent on global demand and global prices tend to be volatile thus economy get enter crises + PED and YED tend to be low = limits abaility to increase growth compared to countries with manufacturing sectors
/
22
Q
political-social barriers to E. D
A
gender inequality, limited acces for education for girls, thus low standard of living for them also less employment oppurtnintues for them thus lower LS
unequal political power/ status , higher class have more deciision for policies etc.. and better standard of living for the low income is not a top priority for them
lack of good governance or corruption
23
Q
common characteristics of ELDC
A
high poverty
low gdp
high birth rate
dependent on agriculture sector
large urban informal sectors
24
Q
name all 10 strategies for economic growth and development
A
trade
diversification
market based
Interventionist
FDI
provision of merit goods
social entreprise
foreign aid
multilateral development assistance
institutional change
25
pros of diversification
- If the economy is not dependent on the exports of just a few products, then if the global price falls (less responsive to volatile global prices), the government still has revenues to finance development objectives
- Easier planning for the government of an ELDC (regarding spending on development projects) if there is less uncertainty about future export revenues.
26
pros and cons of FDI
pros = - FDI increases employment and training
- Increased income
- Increased capital inflows, which are essential for breaking out of the poverty trap
- More competition might force domestic firms to become more efficient
- FDI can bring technology to the ELDCs previously unavailable to them
cons = Foreign firms may take advantage of a country’s natural resources or cheap labor without adequately contributing to the country’s long-term development.(have weak regulatory frameworks)
Exploitation of labor can occur if foreign companies pay low wages and do not adhere to proper labor rights, while profiting from the cheap labor force.
A major negative impact of FDI is that the profits generated by foreign companies are often repatriated back to the parent company’s home country, rather than being reinvested in the host country.
This can limit the positive impact of FDI on the host country’s economy, as the profits do not contribute to the local economy through reinvestment, job creation, or local development. The outflow of profits can hinder the country's ability to achieve sustainable growth.
27
pros and cons of foreign aid
pros = Aid can break the poverty cycle, investment in capital
cons = Inefficient: sometimes too much money is spent not too well on large-scale projects that lack clearly defined objectives, whereas perhaps, small/medium sized projects would have needed support more.
dependency of forign aid
27
cons of world bank AND IMF (same)
Cons:
- Conditionality: the World Bank forces recipients to carry out austerity measures (cutting spending and increasing taxes) in order to make sure it can pay loans back. Yet, these policies go against economic development (especially when transfer payments are reduced) and the government loses its economic and political sovereignty/independence.
27
world bank
Gives loans (concessional long-term loans) to ELDCs (to finance projects) in order to achieve economic development.
28
privatization
The process of transferring the ownership of a business, enterprise, or service from the public sector (government ownership) to the private sector (private ownership)
29
absolute poverty
if they are not able to afford basic necessities (such as food, shelter, clothing, drinking water, etc.)
30
relative poverty
if they earn significantly lower income than the median income in their society.
31
how to measure poverty? single indicators
international poverty lines = how much a person earns to be labelled as in extreme poverty
minium income standards = how much is enough?
it shows how much it costs to buy the minimum acceptable amount of goods and services based on the number of people in the family, where they live, how old they are
32
composite indicator of poverty = multidimensional poverty index ... includes...
health - child mortality and nutrition
education -years of schooling and school attendance
living standards - sanitation
cooking fuel
electricity
drinking water
assets
housing
33
difficulties with measuring poverty
they are many definitions of poverty, diff countries = diff poverty lines etc..
many below the line are not represented because they are illlitrate thus cant fill forms or homeless thus no adress
not enough data
34
causes of poverty and income inequality
discrimination, these people have far less opportunities to succeed economically, and thus tend to remain poor, increasing not only social, but also income and wealth inequalities.
inequality of oppurtunity, Kids coming from deprived areas are more likely to remain part of a low income household as they grow up due to the lack of opportunities.
Deregulation, more flexible labour markets (e.g. reduction of unemployment benefits or elimination of minimum wages), and privatization are all policies which - while boost aggregate supply - might hurt low income households (who represent most of the working class) more. Therefore, such policies can increase income inequality.
35
impact of wealth/income inequality on economic growth
low investment into capital = low income households are more likely not to educate their children beyond the requirements, which means poverty can be transferred from generation to generation. If new generations also lack proper education, the workforce might remain unproductive for long periods of time, preventing long-run economic growth.
increased domestic production - Sometimes government policies are directed towards boosting production to the benefit of the owners of factors of production but not the needs of low income households. This can also lower economic growth prospects as consumption by low income households drop (given they receive less benefits).
small, wealthy elite with outsized political power can shape policies that favour their interests at the expense of broader economic considerations. This can divert public resources away from essential investments like education and infrastructure, perpetuate inequality, and ultimately weaken long-term economic growth.
36
impact of wealth/income inequality on living standards/economic development
inequity - With lower access to education and healthcare, individuals coming from lower income households are deprived of opportunities to become healthy, educated, informed and productive members of society. They end up below their potential and this is unfair, especially if this is true for the majority of a country's population.
higher crime rates + social upheavel - Social upheaval can end in civil conflict which wipes out economic growth and economic well-being for the majority of the population.
37
progressive taxation
higher income - larger proportion of income paid as tax
38
regressive taxation
higher income - lower proportion of income paid as tax eg, VAT
39
proportional taxation
same percentage of income paid regardless of income
40
direct vs indirect tax
direct - deducted from income - good for income equality =
personal income taxes (taxes paid from gross wages)
- corporate taxes (taxes on profits)
- wealth taxes (taxes on assets that constitute wealth, such as property)
indirect- on g/s - bad for income equality bc usually regressive
41
GDP
total value of all goods and services produced within the boundaries of a country in a given year
41
GNI
measure of incomes by the residents of the country independently of the geographical location of the factors of production involved
42
nominal vs real value
real value is adjusted for inflation whereas nominal uses current prices
43
purchasing power parity
identical goods in different countries should cost the same amount of money (in $). thus it is asjusted for the cost of living of that country.
44
strengths of using national income statisitics gdp and gni
1. Changes in GDP over time empowers voters to make better decisions when voting as they can evaluate their government.
An accurate measure of GDP can help households make more informed decisions about their consumption expenditure, hence it influences consumer confidence.
2. Accurate measure of GDP can help businesses make more informed decisions about their investment strategies, hence it influences business confidence.
3. Changes in GDP over time allow policy-makers to make better decisions and policy changes if needed.
_ higher gdp = expected higher standard of living vice versa
45
limitations of using national income statisitics gdp and gni
1. While national income statistics gives a total value for a country's output (or an average when looking at per capita values), it does not indicate how this income is distributed between different income groups of the country.
A relatively high GDP value could indicate that the country is doing well economically, but if there is a large gap between the rich and poor, the economic conditions of the vast majority of the population might actually be adverse.
2. Environmental costs are not counted in national income statistics.Hence, national income statistics might give a false picture of standards of living when they do not count the costs of environmental degradation as they are overestimating well-being. eg. pollution
3. In less developed countries, underground (or parallel) markets are huge, making up more than half of all economic activity. Therefore, it is very difficult to measure national income in these economies, and many times, the statistics under-estimate the economic well-being of the nation as they do not count such transactions, while in reality they do exist.
Over time if transactions that used to be part of the parallel economy get recorded, it might look as if GDP is on the increase, while economic activity (real output) might not have changed that much in reality. Also, if there is a growing underground sector, it might look that GDP is decreasing (or increasing at a low rate), while in reality all that happens is that these transactions don't get recorded any more.
46
OECD better life INDEX
- Community
- Health
- Life Satisfaction
- Safety
- Work-Life Balance
46
happiness INdex
real GDP per capita
- social support
- healthy life expectancy
- freedom to make life choices
- generosity
47
happy planet index includes
Ecological Footprint:
Life expectancy:
Wellbeing:
48
benefits of a trading bloc
1, trade creation (HL only)
production shifts from a high-opportunity-cost producer to a lower-opportunity-cost producer within the union. = Lower prices for consumers. More efficient resource allocation. Higher overall welfare. increased living standards (After joining: the country can now import the same good tariff-free from a more efficient partner country in the union andn not produce that good themselves!!).
2, political stability, peace
Members of a trading bloc are less likely to engage in political conflicts as their economies are integrated to some extent. Instead, they are more likely to cooperate.
3, economies of scale
With more trade, due to the ability to export higher quantities, companies can sell to more consumers, hence they can enjoy the benefits that go with substantially increasing their output. This means that their average total costs drop as production increases.
4, stronger together
Members of a trading bloc represent a larger player among economies of the world and as a result can gain more in negotiations than if they were separate small economies.
5, mobility of labour
In common markets there are more employment opportunities. This is definitely true in the EU, where residents can work in any member country without obtaining a work permit.
49
negatives of a trading bloc
1, trade diversion (HL only)
When trade gets diverted away from a low opportunity cost (efficient) country to a higher opportunity cost (less efficient) country due a country joining a customs union. E.g. German car manufacturers buying car parts from Poland instead of China due to the trade protectionist measures of the EU.
2, different interests in the trading bloc
Due to the fact that several countries form a trading bloc, when it comes to multilateral trading negotiations, it is much more difficult to come to terms and make agreements that the trading bloc can uniformly accept.
3, loss of sovereignty
Being a member of a trading bloc means that the government gives up its rights to set their own protectionist policies (in the case of customs union and common market). They have to go with the decision of the trading bloc, where they usually have a minority say.
50
2 problems with the wto
1. unequal bargaining power
Some (richer and more developed) members, such as the EU countries and the US seem to have a larger bargaining power than the representatives of smaller economies. Hence, the functions and objectives of the WTO are hard to meet if they go against the economic and political interest of these developed countries.
2. difficulties of reaching agreements on services/primary products
51
what are the macroeconomic objectives?
economic growth
low unemployment
low and stable inflation
sustainable level of gov debt
52
impact of economic growth on living standards?
higher gdp tends to equal increased living standards. however, not always becuase of worse income distribution and environmental damages
53
impact of economics growth on environment with RWE?
Higher real national output usually also leads to increased pollution becuase more g/s which require more industrial activity, and therefore it negatively affects the environment.
RWE = himalayas (mountains in asia) - india, china, nepal have benefited from increased tourism with = increased income thus real gdp. however, caused littering, building roads, hydpropower dams and toursit facilities also caused destruction of local ecosystems/loss of biodiversity. also the industrial growth from the surrounding countries = increase co2 emission which = melting of himalayas glaciers.
54
impact of economic growth on income distribution?
In many cases higher economic growth widens the gap between the rich and the poor, leading to a worsening income distribution, especially if a small elite enjoys the benefits of economic growth while the vast majority of the population might have only insignificant increase in their incomes if any.
However, this depends on how the government uses its power. With good governance, economic growth can be used to lower income inequalities, as economic growth can lead to budget surplus, which can then be used to redistribute income or provide a more efficient social safety net.
55
unemployment
people of working age, 16-64 who are actively looking for a job, but are unable to find one
56
unemployment doesnt include
university students, retired, disabled, stay at home parents, children
57
what are the problems with measuring unemployment?
1. hidden unemployment = those who give up looking for a job (they are not included as unemployed but should be) which results in an underestimation
2. underemployment = underestimation as a result of part time works who would prefer full time or when someone is overqualified (not using labour to full potential)
3. overestimation = those who say they are unemployed to get benefits from the gov but are working in the informal/parallel economy
4. ignores regional, ethnic, age and gender disparities
58
what causes cyclical unemployment?
When AD falls and in all sectors of the economy there is a higher unemployment as firms cut costs (by firing workers) or go bankrupt.
It is caused by a demand-deficient recession, hence it is also called demand-deficient unemployment.
59
structural unemployment
changes to demand in labour skill - in diagram its a shift in demand but wages stay the same thus excess supply of workers
60
frictional unemployment
those who are joining the workforce for the first time or are between 2 jobs/switching
61
natural rate of unemployment
economy producing at full employment level: frictional and seasonal and structural
62
personal and social costs of unemployment
increased crime rates
homelessness
increased indeptedness because will take out loans and perphaps to finance old loans
breaking down of families
increased stress levels which can lead to decreased health care *depresseion etc.. /physcial problems which means worker is less productive
63
economic costs of unemployment
low gdp - less products produced
decreased tax revenues - producing less thus less revenue from tax to collect
increased costs for unemployment benefits
greater disparity gap for income distribution - easier for high skilled to find new job compared to low skilled
loss of income for individuals
64
inflation
sustained rise in average price levels
65
disinflation
decrease in inflation rate
66
deflation
sustained decrease in average price levels
67
CPI
measures the change in price of a basket of g/s consumed by the average household
68
what are the problems with measuring with CPI?
comsumption patterns - high income buy different products than low income
change in quality of a product - price of the product may increase but so does its quality and the CPI does not take this into account (only assumes price increases)
changes in consumption - CPI needs to be updated often and quickly as the world progresses/advances
doesn't take into account discounts thus consumers pay less compared to what CPI says
69
in demand pull inflation, why do prices increase even more in long run?
When AD rises, in the long-run, SRAS will shift up/left as resource prices (including wages) are flexible upwards, so they increase, as there are very few still unemployed resources, so they cost a lot more to be employed. Thus, the new intersection will be at Yfe
70
cost push inflation causes
stagflation (stagnation = recession and inflation)
70
what are the costs of HIGH inflation?
-greater uncertainty because it makes it difficult to predict future prices costs etc..
-redestributive effects: borrowers benefit because the money they give to lenders becomes less valuable due to inflation and lenders get money with less purchasing power thus disadvantaged
+ employers benefit because they pay the same wage to workers as inflation increases and workers get less valuable money
+ importers benefit because they get goods for cheaper from foreign suppliers and exporters dont benefit as foreign buyers see their g/s as expensive and exports decrease
-damage to export competitiveness
- less saving due to ppl spending now to prevent higher prices in future
70
what causes deflation
decrease in AD (malignant = bad)
or increase in SRAS (begnin = good)
70
how is economic growth impacted by DEFLATION
greater uncertainty and increase in the real value of debt for borrowers = both lower consumption = lowers AD
as lower AD causes lower prices this can cause a DEFLATIONARY CYCLE
firms cut costs by firing workers and if revenues drop below level of costs then firms cant sustain this in the long run and will go bankrupt without investment from investors or lenders . THESE ALSO LEAD TO HIGHER CYCLICAL UNEMPLOYMENT!!!
71
what are the costs of deflation?
deflation means the value of money INCREASES so:
lenders benefit (get money with more purchasing power), borrowers don't and the value of their debt also increases which leads to larger indebtdness, lower disposable income and lower consumption
exporters benefit, importers dont
workers benefit, employers dont
consumption drops because ppl believe the money could become more valuable in the future/ used to buy more stuff
higher uncertainty = lower business and consumer confidence = reduces consumption
71
how is economic growth impacted by inflation
since consumption increases from less savings, increase real GDP BUT ALSO greater uncertainty means less investment and damage to export competitivess means decrease in net exports thus lower GDP
71
Discuss the relative costs of unemployment vs inflation
inflation is wanted but at a low rate, usually high inflation is the one negative costs and avoided
also while inflation decreases ur income, unemployment removes ur income completely. hence the increase in unemployment makes affected people way worse off than an increase in inflation rate
but also inflation affects everyone in society whereas unemployment only affects the proportion of workers that actually lose their job
72
government debt / national debt / public debt
all the liabilities that the gov has to settle in the future
73
budget deficit
expenditures exceed revenues
74
budget surplus
revenues exceed expenditures
75
what are the costs of high govt debt
Future government spending might have to be cut in order to pay back government debt (as the government needs to have a budget surplus). Note that a decrease in government spending is known as contractionary fiscal policy and can lead to lower economic growth or even a recession (due to the fall in AD as government spending is a component of it).
Future taxation might have to be increased in order to pay back government debt (as the government needs to have a budget surplus).
have to pay debt instead of using revenue for infrastructure, education etc... oppurtunity cost
lower credit ratings as they are more unlikely to pay back all their debt
76
explain the trade off between low unemployment and low inflation
when unemployment is low, consumption increases which shifts AD right , real gdp increases and pushes prices up = high inflation
when unemployment is high, consumption drops, shift AD left and causes prices down = low inflation/disinflation or wose case deflation
when inflation is high due to demand pull inflation, AD shifts right = higher output and more jobs for people to fulfill thus low unemployment
when inflation is low or deflation, firms cut costs by firing workers and many go bankrupt as their costs become more than their revenues = higher unemployment
77
explain RWE for trade off between unemployment and inflation
the US in 2020-2021 where unemployment decreased from 6.7% nov 2020 to 4.6% oct 2021 becuase of the slow reopening of business after covid 19 etc...
and at the same time inflation increased from 1.2 % in nov 2020 to 6.2 % in oct 2021
78
why is there no trade off between unemployment and inflation in the long run
Because economy will always return to its natural rate of unemployment where it is fixed and thus no change in unemployment rate even if inflation changes
