The Macro economics environment - Economic Growth Flashcards
The four Key objectives of Macroeconomics
Economic Growth
Unemployment
Inflation
Balance of payments
What is macroeconomics
macroeconomics is the branch of economics that studies economic aggregates for ex: overall level of prices
What is the business cycle
Model of the level of national output over time
Describe the business cycle
Over time the ability of the economy to produce goods increases as things become more efficient with automization so full capacity output increases linearly.
The actual output of the economy goes through four stages:
Upturn
expansion
Peeking out
Slowdown
Cycle repeats frequently
Give some characteristics of an upturn stage in the business cycle
Low inflation, current account surplus, low output, unemployment high
Give some characteristics of an peeking out stage in the business cycle
high output, low unemployment, high inflation, CA deficit
What is an intermediate target and name five
Intermediate targets are economic and financial variables that central bankers try to influence by using monetary policy tools, but which are not in themselves the ultimate goal or target of a policy.
Interest rates Supply of money Taxes Government expenditure Exchange rates
Give some government objectives
High economic growth Stable economic growth Low unemployment Low inflation Avoid BoP deficits Avoid excessive FX fluctuations Avoid financially distressed sectors of the economy A stable financial system
What are the trade offs for economic growth vs equality and unemployment vs inflation
High economic growth vs greater equality ex: pandemic hit less developed areas harder
Low unemployment vs low inflation inverse relation
Explain the opportunity cost and trade offs government make from policy choices
Achieving more of one objective is at the cost of achieving less of another
Total injections in the circular flow of income are
Total injections here are : J=I+G+X
I=Investment
G=Government expenditure
X=Export expenditure
Total withdrawls in the circular flow of income are
Total withdrawals here are: W=S+T+M
S=Net Savings
T=Net Taxes
M=Important expenditure
Explain the standard aggregate demand and supply outlook
Level of national demand goes down as prices increase
There is a Balance effect- Pe is talking about overall level of prices in the economy
Interest rate effect on this demand and supply
Supply is upward sloping
Shortages and surpluses will not persist indefinitely - will come back to an equilibrium
What causes an increase in aggregate demand
Any increase in any component of demand (C+I+G+(X-M)) drives an increase in aggregate demand
How do you rise the aggregate supply level
Increase potential output in the economy by:
Increase quantity of factors of production available to you
Or you can try to make the factors of production individually more productive ex: Education
