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Economics A level Edexcel A > Theme 2 - Macroeconomic objectives > Flashcards

Theme 2 - Macroeconomic objectives Flashcards

1
Q

what does TIGERS stand for

A

T - Balanced TRADE performance - not having a huge defect or surplus
I - Inflation , low and stable
G - Growth, strong and sustained growth
E - employment - low unemployment
R - Redistributing income
S - Stability in the ecobomy

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2
Q

how does the simple circular flow of income work

A

households provide benefits to firm in the form of labour or entrepreneurship, and they are rewarded in the form of income, which they then spend on goods and services produced by firms

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3
Q

what other things can affect EXPENDITURE and what are they called

A
  • government spending (G)
  • firm spending (i)
  • spending by foreigners (X)
    these are called INJECTIONS as they INJECT money into the economy
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4
Q

what affects INCOME in the circular flow of income and what are they called

A
  • savings (S)
  • tax (T)
  • imports (M)
    these are called leakages as money leaves the economy
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5
Q

if injections are greater than leakages….

A

there’s an increase in economic growth

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6
Q

if leakages are greater than injections…

A

there is a fall in economic growth

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7
Q

what factors can affect the SIZE of the circular flow

A
  • amount of households
  • if the quality or quantity of factors of production increase
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8
Q

methods to measure growth

A
  1. Output method - measuring the value of goods and services in real GDP
    • the value added is calculated
  2. Income method - measuring the total income in the economy
  3. Expenditure method - measuring all the different types of spending in the economy ( C + I + G + ( X - M)
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9
Q

disadvantages of the output method

A

issue of double counting, hard to ensure that there isn’t double counting which would cause inflated figures

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10
Q

what is aggregate demand

A

a measure of spending in the economy

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11
Q

why are national income statistics so useful for the government

A
  • they provide a report card for governments to see how their economies are doing(measure economic performance)
  • they allow governments to see if they are meeting their economic growth
  • allows governments to evaluate policy
  • allows economists/businesses to forecast expected growth
  • help evaluate living standards
  • allow for a comparison between different economies
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12
Q

what are national income statistics

A

measures of economic growth

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13
Q

what are the different measures of national income are there

A
  • GDP
  • GDP / capita
  • GNI (per capita)
  • Green GDP
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14
Q

what is GDP

A
  • income = output = expenditure
    GDP is the value of all final goods and services produced in an economy in a year
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15
Q

benefits of using GDP

A
  • gives us a measure of growth
  • gives us a measure of living standards in the economy
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16
Q

issues with using GDP

A

GROWTH
- risk of double counting which may inflate the final figure of GDP
- informal activity would not be included in GDP so wouldn’t be added in the GDP statistic
- errors because of the vast data collection

LIVING STANDARDS
- negative externalities would not be included - eg deforestation, making GDP living standards higher than they should be

  • income inequality- nothing about income distribution is mentioned in GDP statistics
  • there are other quality of life aspects that affect living standards which are not included in GDP - eg healthcare, gender equality, education
  • GDP does not tell us anything about INDIVIDUAL incomes
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17
Q

what is double counting

A

when we include the value of output in the primary sector then include it again when the primary commodity has been manufactured into something in the secondary sector

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18
Q

what is GDP/ capita

A

an average measure of individual incomes in the economy

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19
Q

GDP per capita equation

A

GDP / population

20
Q

issues with using GDP per capita

A

all issues that occur with using GDP
- significance of remittances, GDP per capita will not take into account any income earned abroad

  • influence of FDI - the risk of using GDP per capita is that FDI could distort the final figure as money is earned in the home country, even though the income is usually sent back to the foreign country
21
Q

what are remittances

A

when domestic workers leave the country and work abroad to earn higher incomes but the income is then sent back to the home country

22
Q

what is fdi

A

foreign direct investments is when foreign firms operate in your home country

23
Q

what is GNI (per capita)

A

the total income generated by a countries factors of production regardless of where those factors of production are located

24
Q

GNI equation

A

GDP + net factor income

25
Q

advantages of GNI

A
  • remittances are taken into account, giving us a more accurate reflection of living standards
  • GNI would not be influenced by FDI, so repatriation of profit will not be a concern
26
Q

issues with using GNI

A
  • Green GDP = GDP - environmental costs
    • putting a monetary value on environmental costs is difficult, and quite normative/subjective
    • Green GDP can massively reduce the GDP figure and may be politically sensitive
27
Q

what measures quality of life standards

A

HDI

28
Q

how to measure short term growth

A
  • measure aggregate demand in the economy
    • an increase in short term growth = increase in aggregate demand
29
Q

equation for aggregate demand

A

C + I + G + (X - M)

30
Q

what did the PPC tell us

A

the maximum production in the economy given the level of available factors of production

31
Q

what do different points in the PPC curve represent

A
  • if we are on the curve, we are producing the maximum possible amount (this is potential growth)
  • if we are inside the curve, that is our actual growth
  • an increase in short growth will move us from inside the curve to on it
32
Q

what will increase short term growth

A
  1. fall in interest rates - money becomes cheaper to borrow, more spending
  2. increase in investment, which will increase I in aggregate demand equation
  3. increase in govt spending or decrease in tax as it would increase consumption
  4. fall in exchange rate, exports increase, imports decrease

INCREASE AGGREGATE DEMAND

33
Q

what is long term growth

A

potential growth

34
Q

what is long term growth caused by

A

an increase in the quantity/quality of factors of production
an increase in aggregate supply

35
Q

how to show long term (potential growth) on a PPC curve

A

shift the curve outwards

36
Q

what might cause long term growth

A
  • increase in productivity - this improves quality of labour
  • advancements of technology- increases quality and quantity of capital
  • increase in investment- increasing capital quality
  • improved govt spending for infrastructure, lowering firms cost of production- makes economy more efficient so they can produce more
  • increase in net immigration- quantity of labour increases
37
Q

what is actual growth

A

the level of aggregate demand over time

38
Q

what is the trend rate of growth

A

measures how much the productive capacity of the economy increases each year

39
Q

why does actual growth fluctuate

A
  • shocks - demand side shocks or supply side shocks, meaning supply or demand falls rapidly
40
Q

summarise the economic cycle diagram

A
  • at the peak of actual growth, we are experiencing a “boom”, high economic growth with inflation
  • then we experience a slowdown going down
  • at the trough, we are at a recession
  • going up, we experience a recovery
41
Q

WHAT IS A RECESSION

A

2 successive quarters with negative growth

42
Q

what does it mean when the actual growth is below the trend rate of growth

A

there is a negative output gap, where there are spare factors of production not being used up

43
Q

what does it mean when actual growth is above trend rate of growth

A

there is a positive output gap - workers could be working unsustainable hours

44
Q

what are the four main macroeconomic objectives

A
  • sustainable economic growth
  • low unemployment
  • low and stable inflation , plus or minus 2%
  • balance of payments equilibrium
45
Q

What is the circular flow of income?

A

the movement and spending of income throughout the economy

46
Q

what is economic growth

A

the increase of the productive potential of the economy

Economics A level Edexcel A (22 decks)

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