Theme 2 (Macro) Flashcards

Question

What is the international labor organisation's 2 measures to determine if you are unemployed? | (2.1.3) ## Footnote Employme=nt & Unemployment

Answer 1

You are unemployed if : You have been without a job, have been actively seeking work in the past four weeks and are available to start work in the next two weeks out of work, have found a job and are waiting to start it in the next two weeks

Answer 2

The LFS is a random household survey of approximately 50,000 households in the UK

Answer 3

ILO tends to be higher : Claimants may feel a social stigma attached to claiming and therefore choose not to.

Answer 4

the ONS defines an under-employed worker as someone who is currently in employment, but wants to work more hours.

Answer 5

Number of people who are in work

Answer 6

a person is neither working or actively seeking employment. Economic inactivity includes students, early retirees and the long-term sick.

Answer 7

The working-age population consists of all the people in a country who are old enough to be part of the workforce. Therefore excluding students etc.

Answer 8

Due to the economically active population has grown faster than employment has.

Answer 9

Seasonal unemployment - occurs when people are unemployed at particular times of the year when demand for labour is lower than usual Structural unemployment - caused by a mismatch of skills between the unemployed and available jobs. Frictional Unemployment - unemployment that occurs from the inevitable time delays in finding new employment in a free market.

Answer 10

Frictional Unemployment - Reduce unemployment benefits. Structural unemployment - Education/training Seasonal Unemployment - transition from working in tertiary sector rather than primary sector

Answer 11

Demand deficient unemployment - occurs when there is insufficient demand in the economy to maintain full employment Therefore : Cyclical Unemployment - When companies got no bread so they cant pay workers

Answer 12

Real wage inflexibility occurs when wages are set above the equilibrium level causing the supply of labour to be greater than demand.

Answer 13

A lack of skills reduces the labour flexibility, This is known as occupational immobility. Given markets are dynamic. There is a risk that a labour lacks the necessary skills and becomes U overtime due to free rider problem attached to training staff. Result is structural U.

Answer 14

Total amount of people moving into a country in order to find work

Answer 15

The Balance of Payments is a record of a country’s transactions with the rest of the world, usually to do with trade.

Answer 16

Export revenue – Import expenditure (X-M) 1 - Trade in goods 2 - Trade in services e.g. tourism, insurance 3 - Investment income e.g dividends from shares, profits MNC’s 4 - International transfers e.g Govt transfers to the UN, Aid

Answer 17

Trade Surplus - import expenditure is smaller than export revenue Trade Deficit - = import expenditure is greater than export revenue

Answer 18

Demand Pull Inflation

Answer 19

Growth = increase average Y = (M have +ve YED) = M>X Exchange rate (SPICED) = appreciation currency = reduction IPC = M>X IPC (relative wages, productivity, K/tech, relative inflation rate) Lack of competiveness quality (R&D, K/tech, skilled L) It will increase Cyclical U as there is a reduction in IPC,

Answer 20

A reduction in AD = lower demand pull inflation

Answer 21

A higher rate of economic growth will cause higher levels of consumer spending. Therefore, there will be a rise in import spending – which will tend to cause a deterioration in the current account. In this case, economic growth is causing inflationary pressures as the economy gets close to full capacity.

Answer 22

Total amount of expenditure by all economic agents within the economy over a given period of time.

Answer 23

C = consumption (households expenditure on G/S) + I = investment (firms expenditure on capital [K]) + G = government (public G/S, but it does not include transfer payments like benefits) + (X-M) = exports – imports

Answer 24

Household consumption (C) makes up approximately 65% of AD Government spending (G) accounts for approximately 25% of AD Investment (I) is around 15% of AD Net exports (X-M) around -5% of AD

Answer 25

This is because 'C' takes up a high percentage (65%) of AD while 'I' takes up a lower percentage (15%) therefore a 1% increase in 'C' would be much greater

Answer 26

Increase in the average price level reduces the purchasing power / real income of economic agents. Therefore you’d expect them to spend less i.e. fall in consumption. At higher average prices means reduced international price competiveness of UK G/S and exports. Therefore an economy is less likely to export, more likely to import.

Answer 27

use of goods and services by a household

Answer 28

Income after tax

Answer 29

Positive relationship - the more we receiv in disposable income the more we consume

Answer 30

As consumers save more they spend less = decrease in consumption

Answer 31

Gives an idea of average extent of saving for all ouseholds in the UK Calculated as percentage of disposable income that is saved

Answer 32

IR - the reward for saving and cost of borrowing High interest rate = increase reward saving = increase savings ratio = reduction C High interest rate = increase cost of borrowing = reduce demand big ticket consumer durables

Answer 33

Consumer confidence - effected by anything you feel may influence your future earnings or employment status Increasing consumer confidence increases consumer spending - and vice versa

Answer 34

Total amount of anything with value

Answer 35

Expenditure of firms into FOP

Answer 36

Gross investment is total level of expenditure by firms on capital equipment before depreciation is taken into account Net investment accounts for the depreciation of capital too

Answer 37

where entrepreneurs, encouraged by a rising market, tended to take too many risks Keynes thought that if there was great uncertainty, only a manic, strong-willed entrepreneur would put capital at risk When animal spirits are strong, investment is sufficient to maintain aggregate demand; when they are weak aggregate demand falls, and the economy lapses into depression.

Answer 38

Low interest rates = lower costs = increase profitability of investment decisions Known as marginal efficiecy of capital

Answer 39

Firms will borrow from either corporate or retail banks depending upon the size of the loan Firms have uncertainty about economy = access to credit harder = reduced investment

Answer 40

More regulations = reduces the profit incentive for I/FDI into that country Government borrows from financial markets This reduces the amount of finance available for private firms to borrow from A reduction in supply = in price, the cost of borrowing becomes more expensive Therefore higher government spending fails to increase overall aggregate demand As higher interest rates that follow causes an equivalent fall in investment

Answer 41

Public sector spending on goods and services

Answer 42

a payment made or income received in which no goods or services are being paid for, such as a benefit payment or subsidy

Answer 43

Budget surplus = Tax receipts > G Budget deficit = G > Tax receipts

Answer 44

National debt = Accumulation of budget deficits overtime which are yet to of been repaid

Answer 45

The Golden Rule states that over the economic cycle, the Government will borrow only to invest and not to fund current spending

Answer 46

Export revenue – Import expenditure

Answer 47

AD would shift to the left

Answer 48

increase real Y = increase in M as more people are W+A = increase risk trade deficit

Answer 49

increase real Y = increase in M as more people are W+A = increase risk trade deficit

Answer 50

SPICED = Strong Pound Imports Cheap Exports Dear Therefore Depreciation in £ = Increase IPC Lead to an increase in X Imports more expensive = reduction in M Improvement in (x-m) = trade surplus or reduction in the size of the deficit

Answer 51

Tariff = tax on imports = reduce M IPC = reduction M Quota = limit amount of M allowed to be sold = reduce quantity M Embargo = ban on a certain G/S or from a certain country Red tape = legislation/paper work = impact the cost and ease of importing = reduce M

Answer 52

Quality of G/S – linked comparative adv of L &/or K Investment into R&D – production & product development MNC marketing economies of scale and brand power Government’s can encourage this through their supply side policy i.e. investment into education & training, or a subsidy for firms

Answer 53

AS = total value of output at a given PL in an economy/country

Answer 54

atleast 1 FOP is fixed

Answer 55

The short-run aggregate supply curve is upward sloping because the quantity supplied increases when the price rises. In the short-run, firms have one fixed factor of production (usually capital)

Answer 56

Capital – machinery/tech improvements often increases productivity lowering unit costs = expansionary shift AS Land – raw materials/natural resources are scarce and volatile. Higher prices will increase costs = contractionary shift AS Labour – Low unemployment and NMW/NLW regulation will increase costs for firms = contractionary shift AS

Answer 57

On the AS curve, in the short run, money wage rates, Prices of FOP and the state of technology are fixed and can't change; a change in these results in a shift of the curve. In the long run, all factors of production are variable

Answer 58

* Changes in cost of FOP * Exchange rates * Government intervention / regulation

Answer 59

* Low level of confidence *

Answer 60

Exchange of inputs (FOP - labour) and outputs (G/S) Supply your labour in exchange for income (wage/salary) Income used to consume G/S i.e. output Becomes the firms income Generates the profits via GVA to invest into more capital

Answer 61

Income is a flow concept while wealth is a stock concept

Answer 62

Wealthier people have a High MPS therefore less tax revenue is gained

Answer 63

Injection - variables in an economy that add to the circular flow of income Injections (examples): Government spending (G), Investment (I) and Exports (X) are injections into the circular flow of income.

Answer 64

Leakage - Variables in the economy that withdraw from the circular flow of income Leakages (examples): Taxation (T), Savings (S) and Imports (M) are withdrawals (or leakages) out of the circular flow.

Answer 65

It can be said that the economy is growing / multiplier effect

Answer 66

It can be said that the economy is shrinking / negative multiplier effect

Answer 67

The circular flow of income is said to be balanced Meaning the economy isnt growing or shrinking

Answer 68

Planned AD equals planned AS

Answer 69

change in national income / initial injection = multiplier

Answer 70

Injection via component of AD will lead to a shift to AD2. This will increase real GDP from Y1 to Y2. This will reduce cyclical U. This will increase average income. This will increase C. This will cause another shift in AD from AD2 to AD3. Whereby economic growth Y to Y3, is greater than the initial injection of Y to Y2.

Answer 71

Asset bubble of 08/09 or covid, lead to a contraction in AD to AD2 as C & I fell due to a lack of confidence and uncertainty. The macro equilibrium means negative growth and GDP falls from Y to Y1. This leads to an increase cyclical U due to the fall in output (L= derived demand) Higher U = fall average income (JSA

Answer 72

Marginal Propensity to Save the proportion of one additional unit of income that is saved

Answer 73

Marginal Propensity to Consume the proportion of one additional unit of income that is spent on domestic G/S

Answer 74

The marginal propensity to import the proportion of one additional unit of income that is spent on imports

Answer 75

Mark to market the proportion of one additional unit of income that is taxed by the Government

Answer 76

marginal propensity to withdraw MPW=MPS+MPT+MPM

Answer 77

1/(1-MPC) or 1/MPW

Answer 78

Actual growth is measured as an increase in real GDP Potential growth is an increase in the capacity of the economy

Answer 79

Actual growth = changes in GDP Trend growth = changes in GDP overtime and in the productive potential of an economy

Answer 80

If actual real GDP is less than potential real GDP, then there is a negative output gap This signifies that the economy is operating with spare capacity and unemployment is likely to be relatively high

Answer 81

when actual output is greater than potential output

Answer 82

Inflationary pressure

Answer 83

Asset bubble = increased value of assets which is unsustainable = leads to a crash = creates significant losses for the owners of these assets

Answer 84

Supply side policy Increase LRAS you can increase the sustainable rate of growth Invest into capital or labour = increase productive potential Diversify the economy into different types of output If one market fails/slows, others to fall back on to support GDP and employment

Answer 85

1 – You can't observe/measure potential output for an entire economy and all its FOP working at 100%. Therefore it’s estimate can be inaccurate. 2 – Actual GDP measures can be inaccurate i.e. the hidden economy

Answer 86

business cycle describes how the economy tends to exhibit recurring trends in economic growth rates

Answer 87

High Growth Low Unemployment Low Spare Capacity Inflationary Pressure High Consumer Confidence High Tax Revenue Low Gov spending

Answer 88

2 or more consecutive quarters of negative income

Answer 89

High rates of unemployment High levels of spare capacity Low rate of inflation Low business and consumer confidence Worsening government budget balance

Answer 90

Increased GDP Lower cyclical U Increased average income

Answer 91

Subjective happiness Longer hours/stress of work Exploitation and income/wealth inequality

Answer 92

Higher sales & profits Smaller negative output gap Increased investment

Answer 93

Risk positive output gap Higher scarcity FOP Increased costs

Answer 94

Lower cyclical U Reduced JSA expenditure Higher income tax receipts

Answer 95

Risk trade deficit (M>X) See previous IPC inflation argument Harm GDP / certain sectors

Answer 96

Positive multiplier effect Encourage investment Increase LRAS

Answer 97

Non-renewable resources used up Negative production externalities created EC cost on environment

Answer 98

Trade Inflation Growth Employment Redistribution of income Sustainibility

Answer 99

average sustainable rate of economic growth over a period of time

Answer 100

It is unsustainable and unnatainable Would create inneficient labour markets

Answer 101

To create sustainable long term growth

Answer 102

When central banks control interest rate and money supply

Answer 103

the interest rate set by the Bank of England for lending to other banks, used as the benchmark for interest rates generally Can change up to 8 times a year

Answer 104

Increase interest rate = increase marginal propensity to save = reduce consumption = deflationary pressure

Answer 105

1. The central bank creates money electronically 2.They purchase Government bonds from financial markets 3.As demand for Government bonds increases so does their price. 4.This then reduces the yield on these bonds for investors. 5.This encourages banks/financial institutions who’ve sold previous government bonds to issue corporate bonds at lower interest rates to encourage borrowing. 6.This will filter through the financial markets into lower interest rates for all agents.

Answer 106

Liquidity preference

Answer 107

once base rates get to a certain point then additional reductions have an inelastic response Meaning the changes to C, I & (X-M) is less effective

Answer 108

a bond issued by a country's government, promising to repay borrowed money a fixed rate of interest at a specified time

Answer 109

Banks reduced interest rates from 5.75% to 2% but it had little effect, so further reduced to 0.5% There was still little change in borrowing and banks wouldn't lend out money UK government then used quantatative easing totalling to £375 billion to compensate and promote lending

Answer 110

The central bank is independent and therefore politically neutral Interest rate changes can be implemented quickly with either minor changes for long term planning or large swift changes when faced with a supply side shock Expansionary monetary policy does not add to the UK’s national debt like Fiscal policy does

Answer 111

Time lag can be months or years as it has to filter through the transmission mechanism. If the increase in money does nothing to increase output in the long run, its only impact is inflationary The liquidity trap. This makes interest rate changes more effective during boom periods to prevent overheating, which is not the current economic landscape Monetary policy is more blanket than fiscal policy which can target a particular industry. Such national changes can then have negative effects for behaviour which the Government might want to encourage from its citizens

Answer 112

Government spending and taxation

Answer 113

Where the gobernment tries to boost the economy. Done by increasing government spending or decreasinf marginal rate of tax. Result outward shift in AD

Answer 114

Budget surplus = Tax receipts > Gov spending Budget defecit = Tax receipts < Gov spending

Answer 115

Indirect - Taxes that are imposed on eocnomic agent but not paid directly. Tax is indirectly paid via third party. Ex. Corp and Y tax Direct - Taxes paid directly by economic agent they are imposed upon (cannot be avoided through consumption choice) Ex. VAT and Stamp Duty

Answer 116

Consistent deficit spending increases the level of national debt. This is unsustainable and has problems Once debt is at a certain % of GDP, the ability to expansionary can be limited Excessive use of expansionary fiscal policy can create a structural budget deficit where the economy’s performance is reliant on deficit spending Indirect tax is regressive and future austerity can harm the most vulnerable groups

Answer 117

Debt interest repayment = pure leakage from the circular flow = high OC Crowding out effect = Govt borrowing from financial markets = reduce finance available for others = higher interest rates = reduced private investment Future generations face higher tax & lower Govt. spending. This will reduce their standard of living

Answer 118

In 1931, an Emergency Budget cut public sector wages and unemployment pay by 10% and raised income tax from 22.5% to 25%. In 1932, the UK government introduced tariffs at a rate of 10% on all imports except those from the countries of the British Empire

Answer 119

£145 tax cut for basic rate tax payers A temporary 2.5% cut in Value Added Tax £3 billion worth of investment spending brought forward from 2010 and a variety of other measures such as a £20 billion Small Enterprise Loan Guarantee Scheme

Answer 120

The governments used quantatative easing of overall £375 billion

Answer 121

is a form of either increased or decreased gov intervention effect - SRAS or LRAS

Answer 122

Market based - Decrease gov intervention Interventionist - Increase gov intervention

Answer 123

Reducing or abolishing the national minimum wage Reducing any tax Deregulating and/or privatising the public sector

Answer 124

Increased government spending on education and training Increased government spending on healthcare Increased government spending on infrastructure

Answer 125

Increased government spending on education and training Increased government spending on healthcare Increased government spending on infrastructure

Answer 126

S/R growth Y to Y2 (Keynesian diagram). Support reduction cyclical unemployment. Increase average income (GDP/capita) Increase C = positive multiplier effect. Cause an increase in AD & future growth. Create a profit incentive which will accelerate investment (accelerator). Which will increase LRAS = increase trend growth (Classical diagram). TIIB = higher standard of living, development (life expectancy), Government budget surplus & economic environment to foster further economic growth (I & FDI).

Theme 2 (Macro) Flashcards

(156 cards)