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Macro Year 1 > Year 1 > Flashcards

Year 1 Flashcards

(72 cards)

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1
Q

Aggregate Demand

A

The total amount of demand on all goods and services within an economy in a period of time

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2
Q

Aggregate supply

A

How much firms in an economy would be willing to supply in the short/long run at any given price level

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3
Q

Consumption

A

Total planned household spending on consumer products

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4
Q

Productivity

A

Output of a good or service per unit of a factor of production in a given time period

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5
Q

Macroeconomic equilibrium

A

where AD equals AS

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6
Q

Multiplier effect

A

The process by which a change in one component of Aggregate Demand results in a greater final change to Aggregate Demand

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7
Q

Disposable income

A

The income households have to devote to consumption/saving taking into account taxes

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8
Q

Investment

A

Spending on capital goods by firms to increase productivity

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9
Q

Government spending

A

Money spent by the public sector on the acquisition of goods and provision of services

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10
Q

Net investment formula

A

Gross investment - depreciation

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11
Q

Depreciation

A

The monetary value of a capital good decreases in value to to wear, tear and other obsolescence

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12
Q

Factors causing a shift in AD

A

1) Disposable Income
2) Benefits/pensions
3) Interest rates
4) consumer/business confidence
5) wealth effect
6) monetary and fiscal policy

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13
Q

Downward multiplier

A

An initial increase in withdrawals results in a greater final change

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14
Q

Inflation

A

A sustained increase in the general price level

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15
Q

Deflation

A

A sustained decrease in the general price level, the inflation rate is negative

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16
Q

Nominal vs real income

A

Nominal is the amount you actually earn and real income takes into account value in terms of goods you can purchase

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17
Q

Demand pull inflation

A

An increase in AD increases the general price level causing inflation

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18
Q

Cost-push inflation

A

Increased costs decreases SRAS, increasing the general price level causing inflation

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19
Q

Deflationary spiral

A

Deflation leads to general price level decreasing. Consumers notice decrease in price and decide to save to wait till prices drop further. Decreased consumption means AD decreases further/ firms lay off workers.

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20
Q

Wage price spiral

A

High inflation rate increases prices do cost of living increases. Workers negotiate higher wages and increase firms cost which shifts SRAS inwards and so prices increase further and may cause hyperinflation

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21
Q

Disinflation

A

Price level is increasing but at a decreasing rate

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22
Q

Hyperinflation

A

Inflation rises above 50%

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23
Q

Index number

A

(Current number ➗ base number)x100

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24
Q

Inflation rate

A

(New index - old index) ➗old index ✖️100

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25
Finding inflation (4)
1) Ons survey 7000 households 2) basket of 650 G+S and % of total spending on each of these 3) price survey of 1000s of shops to find average price of most common G+S 4) Calculate weighted average of all prices to find price level
26
Problems with CPI (4)
1) Unusual spending habits 2) Changes in quality 3) Time lag 4) Does not include mortgage repayments
27
Benefits of high inflation (3)
1) Protects from deflationary spirals 2) Reduces real value of debt 3) Decreases real wages so lowers Cost of Production
28
Cons of high inflation (3)
1) Wage price spiral 2) reduces real value of wages and savings 3) decreased business confidence
29
Macroeconomic objectives (6)
1) low/stable inflation 2) strong sustained economic growth 3) satisfactory balance of payments 4) balanced budget 5) environmental sustainability 6) increase equality
30
Active population (workforce)
People of working age who are able to and are actively seeking work or are actively working
31
Inactive population
People of working age who are unable to work or aren’t actively seeking work Eg. Rich people/university students
32
Unemployment
When somebody is able to work and actively seeking work but is currently jobless
33
Difference between unemployment rate and employment rate
Employment rate is working age population therefore includes economically inactive people as well
34
Unemployment rate
unemployment level ➗Active population (x100)
35
Employment rate
employment level ➗working age population (x100)
36
Activity rate
Active population ➗ working age population (x100)
37
ILO measure
Labour Force Survey of 80000 households every quarter and ask if they’re unemployed with definition: looking for work in last 4 weeks and are able to start in next 2 weeks.
38
Limitation of ILO measure
Inaccurate as only surveying 80,000 households from 2.7 million in the UK
39
Claimant count limitation as a measure
People may be unemployed but not claim benefits because of a stigma or if partner is high earner
40
Underemployment
Workers are employed but are working fewer hours than they want to or underusing their skills and qualifications
41
Unemployment types (5)
``` Real Wage unemployment Cyclical (demand deficit) Structural Frictional Seasonal ```
42
Causes for structural unemployment (2)
Occupational and geographical immobility
43
Short run vs long run
A period where at least one factor of production is fixed vs a period when all factors of production are variable
44
Spare capacity
When the economy is operating at below its maximum potential output
45
Full employment
When the economy is operating at its maximum potential output
46
SRAS shift factors (5)
``` Commodity prices New resources Wages Taxes Inflation (wage price spiral) ```
47
Difference between real and nominal GDP
Real values are values that have been adjusted to remove the effects of inflation. Nominal values are measured in money terms, they are unadjusted and current.
48
GNI
GDP plus net income paid into the country by other countries.
49
PPP
These are values that express GDP in accordance with how much the currency will buy in the local economy. This allows for more accurate international comparisons.
50
Limitations of using GDP (6)
``` The informal economy Currency values Income distribution Consumer and capital spending - possible future growth Quality of goods and services Quality of life - e.g. pollution/stress ```
51
Everything about happiness
Happiness rises with incomes, but only up to a certain point $70000. After this, marginal gains in happiness fall. This means that maybe economic growth isn't the most important aim. Happiness index by ONS takes into consideration health, finances, crime etc
52
Balance of payments
A record of all transactions between one country and the rest of the world
53
Current account deficit
More money is leaving the UK than entering it. Total inflows less than outflows.
54
Animal spirits
Increased business confidence. When there is a market boom entrepreneurs get too confident and take risks
55
Consumer credit
Borrowing by consumers to fund the purchase of goods and services
56
Potential growth
An increase in the productive potential of the economy
57
Remittances
Money transferred back home from abroad from relatives working abroad
58
Supply side policy
Policies that are designed to increase LRAS (productive capacity of the economy) by increasing quality or quantity of factors of production
59
Supply side interventionist policy (3)
Infrastructure Education Healthcare
60
Market based supply side policy (3)
Reduced corporation tax Decrease min wage Deregulation
61
Benefits of supply side policy (4)
Achieve economic growth Decrease inflation Improve current account (BoP) Decrease unemployment
62
Components of current account (4)
Trade in goods Trade in services Investment abroad Current transfers
63
Investment income
Any rent or profit made on an investment abroad
64
Exchange rate
The price of one currency in terms of another
65
Current account
A component of BoP, and measures trade in goods, services, investment income and current transfers
66
Capital and financial account
Part of the BoP and tracks investment into and out of the country
67
Factors affecting current account (5)
``` Exchange rates Inflation Costs Quality Income ```
68
Income
Measures the flow of money a person of economy receives each year
69
Budget balance
The difference between government spending and tax receipts
70
Consumption shifts to AD (4)
Disposable income Interest rates Consumer confidence Wealth effect
71
Investment shifts to AD (3)
Interest rates Business confidence Benefits payment
72
National wellbeing
Measures how satisfied people are in their lives

Macro Year 1 (1 decks)

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