Macroeconomics

Macroeconomics

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  • Created by: Jade
  • Created on: 09-10-11 13:49

Name 5 Macroeconomic Objectives

 

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1. Stable economic growth

2. Full Employment

3. Stable Prices

4. Satisfactory Trade Balance

5. Redistribution of income

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Name 3 Withdrawals

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Taxation (T)

Saving (S)

Imports (M)

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Name 3 Injections

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Exports (x)

Investment (I)

Government Spending (G)

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What does GDP stand for?

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Gross Domestic Product

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What does GDP mean?

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GDP means the total output produced by the economy, measured in money terms.

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Name 3 ways that GDP can be measured?

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1. Income Method

2. Output Method

3. Expenditure Method

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What is the income method?

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The income method measures everyones incomes and estimates total earnings by the amount of tax paid.

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What is the output method?

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The output method is the measure of the value of what firms produce

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What is the expenditure method?

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The expenditure method is the total amount that people spend measured by VAT

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Name 4 things that can happen if GDP rises?

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1. More Tax Revenue

2. Employment

3. Afford luxuries

3. Fewer people in poverty

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What is meant by 'Real GDP'?

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GDP adjusted for price changes

E.g inflation

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What does 'PPP' stand for?

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Purchasing Power Parity

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What is GDP per capita?

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GDP per capita is the average GDP per person, measured in money terms

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What is the Human Development Index?

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It's a way of measuring living standards.

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How can HDI be measured?

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  • Health (Infant Mortality Rates)
  • Education (Adult Literacy Rates)
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What is meant by Aggregate Demand (AD)?

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Aggregate Demand is the total demand in an economy at a given price level.

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What is the AD function?

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The AD function = C + I + G + (X-M)

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Define Consumption

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Consumption is the act of purchasing goods and services from your own country

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Explain two causes of an increase in exports?

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1. The price of items needed for production is reduced = more goods made = more exports.

2. Increase in demand from other countries (due to natural disasters)

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What does Aggregate Supply mean?

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Aggregate supply means the total amount produced at a given price

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Name 3 Determinants of AS

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1. Wages (cost of labour)

2. Tax

3. Cost of materials

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What is Monetary Policy?

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The manipulation of interest rates to influence levels of aggregate demand (to achieve our macroeconomic objectives).

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Who sets the Base Rate of Interest (r)?

The Base Rate of Interest (r) is set by the Bank of England.

Monetary Policy Committe meet monthly to decide on the rate

This feeds through to the commercial banks.

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What is Monetary Policy?

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What is the interest rate?

The interest rate is the cost of borrowing money and the return on saving money

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The manipulation of interest rates to influence levels of aggregate demand (to achieve our macroeconomic objectives).

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Monetary Transmission Mechanisms

An decrease in interest rates would....

Increase what?

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Who sets the Base Rate of Interest (r)?

The Base Rate of Interest (r) is set by the Bank of England.

Monetary Policy Committe meet monthly to decide on the rate

This feeds through to the commercial banks.

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It would increase...

LOANS - increase in C 

INVESTMENT

IN DEMAND HOUSES - increase in house prices - positive wealth effect

USE OF CREDIT CARDS - increase in C

 

which then...

INCREASES AD

 

 

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What is the interest rate?

The interest rate is the cost of borrowing money and the return on saving money

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An decrease in interest rate...

would decrease what?

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Monetary Transmission Mechanisms

An decrease in interest rates would....

Increase what?

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It would decrease...

SAVINGS - increase in C 

MORTGAGE PAYMENTS - increase in disposable Y (income) - increase in C 

which then...

INCREASES AD

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It would increase...

LOANS - increase in C 

INVESTMENT

IN DEMAND HOUSES - increase in house prices - positive wealth effect

USE OF CREDIT CARDS - increase in C

 

which then...

INCREASES AD

 

 

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Monetary Transmission Mechanisms

A increase in interest rate would...

Increase what?

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An decrease in interest rate...

would decrease what?

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It would increase...

SAVINGS - decrease in C

MORTGAGE PAYMENTS - less disposable Y (income) - decrease in C

which would...

DECREASE AD

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It would decrease...

SAVINGS - increase in C 

MORTGAGE PAYMENTS - increase in disposable Y (income) - increase in C 

which then...

INCREASES AD

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A increase in interest rates ..

would decrease what?

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Monetary Transmission Mechanisms

A increase in interest rate would...

Increase what?

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It would decrease...

LOANS - decrease in C

INVESTMENT

IN DEMAND HOUSES - decrease in house prices - negative wealth effect - decrease in C

USE OF CREDIT CARDS - decrease in C

this would ...

DECREASE AD

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It would increase...

SAVINGS - decrease in C

MORTGAGE PAYMENTS - less disposable Y (income) - decrease in C

which would...

DECREASE AD

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A increase in interest rates ..

would decrease what?

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It would decrease...

LOANS - decrease in C

INVESTMENT

IN DEMAND HOUSES - decrease in house prices - negative wealth effect - decrease in C

USE OF CREDIT CARDS - decrease in C

this would ...

DECREASE AD

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