Macro, unit 2
- Created by: Sian
- Created on: 21-04-16 11:12
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- Macro
- Balance or surplus on the current account
- Current Account = Exports of goods and serices - imports of goods and services + net cash transfers + factor incomes
- visible invisible balance
- exports, sale of surplus
- improve exports
- supply side
- education and training
- more productive, and quality is better so people want the goods.
- infrastructure increase PPF, reduce cost to transport goods, reduce business cost, so can focus on more production and invest to increase prodcution
- resource allocation, mobility of factors of production,
- education and training
- monetary
- decrease interest rates, devaluing the pound so deflate and hence SPICED
- expenditure switching
- decrease interest rates, devaluing the pound so deflate and hence SPICED
- fiscal
- decrease business tax
- cheaper to engage in business increase porduction
- decrease business tax
- supply side
- reduce imports
- fiscal (contractionary)
- supply side
- direct controls, quotas, tarrifs, embargos,
- expenditure switching
- direct controls, quotas, tarrifs, embargos,
- is it bad to have a deficit
- No: increases standard of living, world peace, depends if goods or services as ,maybe more proffessional work force not manual, may satisify domestic deman via own economy
- surplus,buy mor ein fuutre, High AD ijmplies Higher inlfation
- Yes: security, reliance, poor productivty
- No: increases standard of living, world peace, depends if goods or services as ,maybe more proffessional work force not manual, may satisify domestic deman via own economy
- J- Curve and reserve J- Curve
- Marshall Lerner Condition
- balance of payments, if surplus need a deficit on the capital account
- capital account= change in foriegn ownership of doemstic assets - change in domestic ownership of foeeign assets
- capital flows
- short term= hot money flows, speculative capital flows
- long term = direct overseas investment, portfolio overseas investment
- capital flows
- capital account= change in foriegn ownership of doemstic assets - change in domestic ownership of foeeign assets
- Current Account = Exports of goods and serices - imports of goods and services + net cash transfers + factor incomes
- Unemployment
- Cyclical (diagram)
- Solve
- Keynesianism, stimulate AD,
- fiscal (expansionary)
- decrease tax
- more dispoable income to spend, increase consumption
- propensity to consume greater than 0
- Increas gov spending
- crowd out of private sector borrowing as need to get money from somewhere
- increase AD more money in circular flow
- decrease tax
- monetary
- supply side
- lower interest rates
- monetary
- increase loans, investment in labour, increase employment
- increase consumption, stimualting demand for the market and thus employment for more workers
- lower interest rates
- fiscal (expansionary)
- Keynesianism, stimulate AD,
- insufficent AD
- disequilibrium unemployment
- Solve
- frictional
- Inadequate info between jobs to fill the requirement
- increase info, job seeker centers more aware
- education and training (supply side, fiscal)
- more skilled for various employment sectors when need to be emoployed
- can you fix it
- want to enjoy leisure time from working
- why not have it, good for students and other people economically inactive the rest of the year
- Inadequate info between jobs to fill the requirement
- seasonal
- downturn in demand for labour due to the season
- education and training (supply side, fiscal)
- more skilled for various employment sectors when need to be emoployed
- can you fix it
- want to enjoy leisure time from working
- why not have it, good for students and other people economically inactive the rest of the year
- education and training (supply side, fiscal)
- downturn in demand for labour due to the season
- structural
- supply side
- education and training
- increase and alter skill set so can be employed
- de-regulation
- housing market, labour contracts = decrease immobility of labour make transition more easily to new industries
- education and training
- supply side
- measure via Claimant Count and ILO survey
- not capture everyone, lying/pride, change in government criteria may hid those unemployed, black market(hidden employment),
- want full employment (diagram)
- classical unemployment (real wage unemployment)
- cut wages, so profiatble to operaate
- Insufficent AD, if wages are cut, it could lead to a further fall in AD, as workers have lower wages as consumption is affected.. In this case, cutting wages may be ineffective in solving classical unemployment
- cut wages, so profiatble to operaate
- Cyclical (diagram)
- Highand sustained stable growth
- economic output GDP, GNP, GDP per capita, real or nominal
- can look at non economic measures to show the growth of a country
- HDI, environment, taxation, social investment
- can look at non economic measures to show the growth of a country
- long term v short term growth
- making use of spare capacity
- Causes
- fiscal
- follow Keynesian economics
- decrease income tax
- opportunity cost of leisure increase, engage in more work
- Adam Smith's Canon of ood Tax, EECC
- supply side
- new raw materials and labour
- training and education
- increase capital and infrastructure
- de-regualtion
- government subsidy
- monetary
- decrease interest rates
- increase investment
- poor investement, mis allocation of resources, waste of resources, sunk costs
- exchange rates, there is an exchange rase target
- SPICED
- Transmission mechanism of monetary policy
- SPICED
- increase investment
- decrease interest rates
- fiscal
- economic cycles
- negative or positve output gaps
- keynesian theory
- low ad, sticky downwards wages = recession
- real business cycle
- natural phenomenono
- monetarists
- money supply rate increasing too slow or quick causes ecnomic cycle
- austrian theory
- interest rates too low, credit boom, previous unviable investement viable boom is bad
- counter-cyclical fiscal policy
- the multiplier
- K=1/1-C
- the accelerator
- international trade, help growth, (diagram)
- capital widening and capital deeping
- economic output GDP, GNP, GDP per capita, real or nominal
- Inflation
- of 2% on the CPI
- excludes mortgage repayments and council taxes (other housing costs)
- Can measure on the RPI, but usually higher
- Political government may not show extend of an economy's inflation if use a lower number/index
- pesnioners and some of the richest excluded
- conflicting objective
- Phillips curve
- stagflation high inflation, high unemployment
- Friedman's augmented expectations Phillips cuvre (diagram)
- money illusion, nominal changes mistaken for real change, revert back to natural rate
- NAIRU
- problem: not base actions entirely on past data, does not explain how inflation excpectations intially formed
- Friedman's augmented expectations Phillips cuvre (diagram)
- stagflation high inflation, high unemployment
- Phillips curve
- deflation
- causes
- good v bad
- increase in productivity
- decrease in AD
- causes
- causes
- monetary, MV=PT, (diagram)
- increase spending,SRAS increase, moey illusion, firm exp S and prices change once realises, decrease SRAS
- form of demand pull inflation
- money multiplier and fractional reserves
- money aggregates MB, M1, M2, M3
- quantitative easing
- money aggregates MB, M1, M2, M3
- control via, quantitative and qualitative controls, base rate of interest, reserve requirements
- base rate typically follows LIBOR rate
- increase spending,SRAS increase, moey illusion, firm exp S and prices change once realises, decrease SRAS
- cost push
- inputs' price, commodities oil and labour, firm operate cost plus pricing model
- not likely to persist in long run unless natural idsaster
- inputs' price, commodities oil and labour, firm operate cost plus pricing model
- demand pull
- AD increase above economy's growth rate will cause inflation
- monetary, MV=PT, (diagram)
- Do we want inflation
- prevent wage sitckness, stimulate spending as savings are devalued inn real terms
- HOWVEVER, increase risk, less investment, redce real value of savings, distortion/white noise for businesses, currency collapse, international competiveness, menu costs, redistribute wealth form lender to borrower
- do we want deflation
- cost of living falls, encourages saving fund for future investment, competitiveness of exports, real wage increases,
- HOWEVER, , deflation downward spiral, deferred spending, reduce velocity of circulation
- cost of living falls, encourages saving fund for future investment, competitiveness of exports, real wage increases,
- price level
- of 2% on the CPI
- time period, magnitude
- Balance or surplus on the current account
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