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Macro Econ Year 1 > Revision > Flashcards

Revision Flashcards

1
Q

Circular Flow of Income Definition

A

A model that indicates how goods, services, factors of production and payments move throughout an economy between firms and households.

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2
Q

Stock Definition

A

A quantity measured at a particular point in time.

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3
Q

Flow Definition

A

Measured over a specified period of time.

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4
Q

National Income Definition

A

Measures the value of the flow of incomes received by labour and other factors of production when producing goods and services.

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5
Q

National Output Definition

A

Measures the value of the flow of actual goods and services produced by the economy.

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6
Q

National Product Definition

A

Same as national income and output.

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7
Q

National Expenditure Definition

A

Shows the value of spending these incomes on the goods and services.

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8
Q

Injections Definition

A

Money that originates outside the circular flow and so increases national income/ output/ expenditure.

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9
Q

Leakages Definition

A

Any money that flows out of the circular flow and has the effect of reducing national income/ output/ expenditure.

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10
Q

National Capital Stock Definition

A

The stock of capital goods in the economy that has accumulated over time and is measured at a point in time.

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11
Q

Wealth Definition

A

The stock of assets which have value at a point in time.

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12
Q

Income Definition

A

An inflow generated over a period of time.

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13
Q

National Wealth Definition

A

The stock of all goods that exist at a point in time that have value in the economy.

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14
Q

Consumption Definition

A

Total planned spending by households on consumer goods and services produced within the economy.

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15
Q

Closed Economy Definition

A

An economy with no international trade.

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16
Q

Savings Definition

A

Income which is not spent by households and individuals.

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17
Q

Investment Definition

A

Spending entering the circular flow of income as a result of investment, government spending and exports.

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18
Q

Open Economy Definition

A

An economy open to international trade.

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19
Q

GDP Definition

A

The sum of all goods and services on the total value of output, produced in the economy over a period of time.

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20
Q

Economic Growth Definition

A

Capacity of the economy to produce more goods and services over time.

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21
Q

Economic Cycle Definition

A

The fluctuations in the economic activity of an economy. It reflects fluctuations in real output above and below the trend rate of economic growth.

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22
Q

Negative Output Gap Definition

A

Where the economy is producing below its potential output and unemployment is likely to be a problem.

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23
Q

Positive Output Gap Definition

A

The economy is growing more rapidly than normal and is producing above its potential, inflation is likely to be a problem.

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24
Q

Sustainable Economic Growth Definition

A

A rate of growth which can be maintained without creating other significant economic problems, especially for the future generations.

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25
Q

SPICED

A

Strong Pound Imports Cheaper Exports Dearer

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26
Q

GDP/AD Equation

A

GDP/AD=C+I+G+(X-M)

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27
Q

Causes of the economic cycle

A

Change in level of business and consumer confidence, alternating periods of stocking and destocking, change in value of consumer spending and business investment, change in government policy, change in interest rate.

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28
Q

Recession Definition

A

When an economy is growing at less than its long term rate of growth and experiences 2 consecutive quarters of negative growth.

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29
Q

Cyclical Business Definition

A

Businesses where demand is closely linked to the strength of GDP, e.g. fashion retailers, overseas holidays.

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30
Q

Counter Cyclical Businesses Definition

A

Businesses that do well or ok even when the economy is weak, e.g. pawnbrokers, fast food outlets.

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31
Q

Aggregate Demand Definition

A

The total planned spending on real output produced within the economy.

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32
Q

Real National Output Definition

A

The value of goods and services having accounted for inflation.

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33
Q

Aggregate Supply Definition

A

The level of real national output that producers are prepared to supply at different average price levels.

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34
Q

Consumption Definition

A

Total planned spending by households on consumer goods and services within the economy.

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35
Q

Durable Definition

A

Products that are not quickly consumed and last for a longer amount of time than non durables.

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36
Q

Non-durable Definition

A

Products that are consumed quickly and must be re-bought.

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37
Q

Factors that affect consumption

A

Interest rates, expected future income, availability of credit, distribution of income, consumer confidence, unemployment, wealth effect, taxes, level of income.

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38
Q

Consumption Function

A

The relationship between consumption and the different factors that determine how much households consume.

39
Q

Marginal Propensity to Consume (MPC) Equation

A

Change in consumption/ change in income

40
Q

Personal Savings Ratio

A

Measures the actual and realized saving of the personal sector as a ratio of total personal sector disposable income.

41
Q

Personal Savings Ratio Equation

A

realized or actual personal saving/ personal disposable income

42
Q

Multiplier Definition

A

The relationship between a change in aggregate demand and the resulting, usually larger, change in national income.

43
Q

Accelerator Definition

A

A change in the level of investment in new capital goods is induced by a change in the rate of growth of national income or aggregate demand.

44
Q

Multiplier Equation

A

change in national income/ initial change in aggregate demand

45
Q

Exchange Rate Definition

A

The value of one currency in terms of another.

46
Q

Imports Definition

A

The purchase of a good or service from a foreign business to a domestic buyer that leads to a flow of money out of the UK.

47
Q

Export Definition

A

Sale of a good or service to a foreign buyer from a domestic seller that leads to flow of money into the UK.

48
Q

Strengthening Exchange Rates

A

Value of the pound is increasing, you can acquire the same amount of euros with less pounds, increase of imports or total cost for UK businesses will decrease. UK exports more expensive, decrease in UK exports.

49
Q

Weakening Exchange Rates

A

Value of pound is decreasing, spend more to get same amount of euros, imports more expensive, decrease in imports or more money will leave the UK. UK exports cheaper, foreign countries will buy more domestic products.

50
Q

Causes for change in exchange rates

A

Changes in demand and supply for: tourists travelling abroad, businesses trading with other countries, investors investing abroad.

51
Q

Why are exchange rates important?

A

Businesses must change their currency to pay suppliers the exchange rate can affect prices for foreign shoppers, determines how much spending money holiday makers can get stimulates more or less spending, influences amount of imports and exports into a country.

52
Q

What impacts the capacity of the economy?

A

Costs of production, technology, education and taxing, incentives, tax regime, capital stock, productivity, labour market.

53
Q

Factors causing the SRAS curve to shift

A

Wage rates, labour productivity, change in business’ costs of production, taxation, offer of government subsidies, technical progress, interest rates.

54
Q

Factors causing the LRAS curve to shift

A

Education and training, investment in capital equipment, technological advances, world specialisation through international trade, improved work practices, changes in government policy.

55
Q

Unemployment Definition

A

The number of people in an economy without a job, but who are actively seeking work.

56
Q

Types of unemployment

A

Frictional, structural, classical, seasonal, cyclical, voluntary.

57
Q

Frictional Unemployment

A

Unemployment that is usually short-term and occurs when a worker switches between jobs. Caused when there is movement in labour market which creates delay/ immobility of labour which stops unemployed workers filling vacancies. Can’t be solved but can be made easier by technology.

58
Q

Structural Unemployment

A

Unemployment due to industrial reorganization due to technological change. Growth or decrease in the industry or economy which can make workers no longer necessary. Caused by increased automation or a change into tertiary industries and a higher need for more skilled workers. Solved through mechanization as humans are needed to operate machines.

59
Q

Classical Unemployment

A

Occurs when the wages a worker is willing to accept is in excess of those an employer is willing to pay. Caused by excess supply of labour because people want higher wages than employers are willing to pay. Can be solved by getting rid of benefits, workers rights, trade unions and reduce or remove minimum wage.

60
Q

Seasonal Unemployment

A

The demand for a specific kind of work and workers change with the change in the season. Caused by change in climate and weather. Can be solved by diversifying the economy and not just focusing on one sector.

61
Q

Voluntary Unemployment

A

A situation where the unemployed choose not to accept a job at the going wage rate. caused by generous unemployment benefits makes jobs look less impressive. High taxes reduce the income people take home. High childcare costs make it cheaper for one parent to stay home. Solved by tightening requirements for benefits and make less desirable jobs more desirable with things like higher wages.

62
Q

Types of tax

A

VAT, stamp duty, London congestion charge, duties tax, corporation tax, income tax, national insurance contributions, inheritance tax, car tax, council tax, business rates.

63
Q

Fiscal Policy Definition

A

The government decisions regarding the manipulation of government spending. Taxation and borrowing which affects the aggregate demand of an economy and helps the government to achieve their macroeconomic objectives.

64
Q

Tax Threshold Definition

A

The level of income above which people pay income tax.

65
Q

Direct Tax Definition

A

A tax which cannot be shifted by the person legally liable to pay the tax onto someone else.

66
Q

Indirect Tax Definition

A

A tax which can be shifted by the person legally liable to pay the tax onto someone else.

67
Q

How can taxes influence the level of economic activity?

A

A reduction in VAT makes goods and services cheaper people encouraged to spend money, a decrease in income tax causes an increase in spending because people have more disposable income.

68
Q

Progressive Tax

A

A tax is progressive if, as income rises, a greater proportion of income is paid to the government in tax. Combined with transfers to lower income groups, reduces the spending power of the rich while increasing that of the poor.

69
Q

Regressive Tax

A

When the proportion of income paid in tax falls as income increases. Hits lower income individuals harder as they are paying a uniform tax, the same as higher income individuals.

70
Q

Proportional Tax (flat tax)

A

When the proportion of income paid in tax stays the same as income increases. All consumer, regardless of earnings, are required to pay the same fixed rates.

71
Q

Multiplier Equation

A

1/1-MPC

72
Q

Marginal Propensity to Consume

A

The proportion of each extra pound of disposable income spent by households.

73
Q

Marginal Propensity to Import

A

The proportion of each extra pound of income spent on imports.

74
Q

Marginal Propensity to save

A

The proportion of each extra pound of disposable income not spent by households.

75
Q

Marginal Propensity to Tax

A

The proportion of each extra pound of income taken by the government.

76
Q

Monetary Policy

A

Controlling the macro economy via changes in monetary variables such as interest rates, exchange rates, size of money supply and availability of credit, its usually in order to control inflation.

77
Q

Interest Rate

A

The cost of borrowing money, or the returns received on savings.

78
Q

Economic Activity

A

The total amount of buying and selling that takes place in an economy over a period of time.

79
Q

High Interest Rates

A

Lower spending by individuals, fewer loans, less business investment, more saving.

80
Q

Low Interest Rates

A

More spending by individuals, increase in loans, increased business investment, less savings.

81
Q

Supply Side Policy

A

A range of measures designed to improve the productive capacity of the economy and increase the average rate of growth of the economy.

82
Q

Labour Market Policies

A

Level of AS determined in part by the quantity of labour supplied to the market and the productivity of the labour. These policies are designed to improve quality and quantity of the supply of labour available to the economy. Trade unions, state welfare benefits, minimum wage.

83
Q

Capital Market Policies

A

Increasing capital stock of the country, such as its factories, offices and roads, will push the AS curve to the right. Allocating scarce capital resources, increasing the range of sources of capital available to firms.

84
Q

Goods Market Policies

A

Designed to increase efficiency through encouraging competition. If the productivity an industry improves then they will be able to produce more with a given amount of resources, shifting the LRAS to the right. Encouraging free trade, encouraging small businesses, privatization.

85
Q

Inflation Equation

A

difference between period 1 total and period 2 total/ period 1 total x100

86
Q

Ways to measure inflation

A

Retail price index or consumer price index.

87
Q

Retail Price Index

A

A measure of inflation in the UK that includes house prices, housing costs such as mortgage interest payments and council tax which are excluded from consumer price index.

88
Q

Consumer Price Index

A

A measure of inflation in the UK that includes some financial services charges such as stockbrokers fees which are excluded from retail price index.

89
Q

Disinflation Definition

A

When the rate of inflation is falling and the price level is rising more slowly than previously.

90
Q

Deflation Definition

A

When prices are falling, the rate of inflation is a negative.

91
Q

Reasons why prices could increase

A

Cost push and demand pull.

92
Q

Cost Push

A

Rise in price level caused by an increase in the costs of production. Causes: wage and salary increase, increased price of raw materials, raise in indirect tax rates, reduction in subsidies, firms may increase prices to increase their profit.

93
Q

Demand Pull

A

Rise in price level caused by an increase in aggregate demand. Causes: low interest rates, firms increasing spending due to increased demand, increased government spending, tax cuts, increase demand for exports, increase in wages, less substitute goods.

94
Q

Problems of Inflation

A

Consumers have less buying power and consumer spending may reduce, workers may demand higher wages triggering a wage price spiral, if people are on fixed incomes they will be worse off sue to having less disposable income and will be able to buy fewer luxury goods, costs to businesses may increase and may cutback on production and reduce AS.

Macro Econ Year 1 (1 decks)

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