MACROECONOMIC CONCEPTS
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- Created by: Helenarrowsmith
- Created on: 15-04-22 11:43
What is scarcity ?
unlimited wants but limited resources
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what does a production possibility frontier show ?
different combinations of producing 2 different goods using all resources
2 of 50
using a ppf where can you tell if a point is efficient ?
any point on the ppf curve - using all resources till the fullest
3 of 50
Using a PPF where can you tell if a point is inefficient / unemployment ?
any point inside the curve
4 of 50
what does it mean if a point is outside the ppf curve ?
its unattainable / unreachable given the resources
5 of 50
what does it mean if the PPF curve is a straight diagonal curve ?
constant opp cost - the resources to produce both products are very similar
6 of 50
what does it mean if the PPF curve is concave? curving shape ? (normal ppf)
resources are not very similar so if produce more of one have to produce less of another - increasing opportunity cost
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when will a PPF curve shift outwards ?
If there's more resources - higher quantity of FoP or better technology
or if there's less resources available - shift in
trade - can shift out PPF - can consume more then PPF curve
or if there's less resources available - shift in
trade - can shift out PPF - can consume more then PPF curve
8 of 50
what is the idea of comparative advantage ?
countries should specialise in the products they have the lower opportunity cost "cheaper to produce" and then they should trade with countries who are specialising in diff products
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what is absolute advantage ?
the producer that can produce the most output or requires the least amount of inputs (resources) - have an absolute advantage
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what is the difference between the private sector and public sector ?
private - part of the economy that is owned by individuals / businesses
public - part of the economy that is controlled by the gov
public - part of the economy that is controlled by the gov
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what is a subsidy
when the government pays businesses as an incentive to produce more or employ more
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what is the law of demand
an inverse relationship between price and quantity demanded
same as law of supply - price n quantity supplied
same as law of supply - price n quantity supplied
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what are the macroeconomic objectives for the government
- sustainable economic growth
- low unemployment
- price stability - low inflation - 2% target
- equal distribution of wealth n income
- low unemployment
- price stability - low inflation - 2% target
- equal distribution of wealth n income
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what is GDP?
the value of all final goods and services produced within a country in one year
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what is GDP per capita ?
GDP divided by population - identifies how many products each person makes
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how do you figure out the % change in GDP
year 2 - year 1 / year 1 x100
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what isnt included in the measure of GDP ?
intermediate goods - goods that helped produce final goods dont count
nonproduction transactions - eg stocks, bonds
used goods - old cars, used clothes
non market n illegal activities - black market, home produced goods
nonproduction transactions - eg stocks, bonds
used goods - old cars, used clothes
non market n illegal activities - black market, home produced goods
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what is the difference between nominal GDP and real GDP ?
nominal is not adjusted for inflation - measured for current prices
real GDP is adjusted for GDP - better measure of GDP
real GDP is adjusted for GDP - better measure of GDP
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what is the business cycle ?
shows the trend rate of growth - real GDP
peak into a recession (contraction of growth) - trough - goes into a recovery (expansion of growth) trend rate increases
peak into a recession (contraction of growth) - trough - goes into a recovery (expansion of growth) trend rate increases
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what is a recessionary gap
when the economy isnt doing well - high unemployment - low growth
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what is an inflationary gap?
when the economy is overheating - more inflation - higher demand - higher prices - excess demand?
22 of 50
what is the unemployment rate ?
the % of people in the labour force who want a job but are not working
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what is frictional unemployment ?
temporary unemployment - being between jobs - qualified workers with transferable skills
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what is structural unemployment ?
changes in the labour force make some skills obsolete = eg technology changes n robots - these jobs will never come back so need new skills as skills arent useful anymore
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what is cyclical unemployment ?
unemployment caused from a recession - D for goods n services fall - demand for labour is derived - so D for labour falls n workers r fired - higher unemployment
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what is the natural rate of unemployment?
frictional and structural unemployment are present at all times bc ppl r always between jobs n be replaced by tech , cyclical unemployment
occurs when there's a recessionary gap
occurs when there's a recessionary gap
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define inflation
the increase of the general price level in an economy, it reduces the purchasing power of money
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difference between nominal wage and real wage ?
nominal - wage measured in £ rather than purchasing power
real - wage adjusted for inflation
real - wage adjusted for inflation
29 of 50
what are real interest rates
the % increase in purchasing power that a borrower pays (adjusted for inflation )
real = nominal IR - expected inflation
real = nominal IR - expected inflation
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what are nominal interest rates
the % increase in money that the borrower pays - not adjusted for inflation
nominal - real + expected inflation
nominal - real + expected inflation
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what is the most commonly used measure of inflation ?
consumer price index (CPI) - market basket of goods
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how does consumer price index work ?
- base year is given an index of 100
- to compare each year is given an index number aswell
- to compare each year is given an index number aswell
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what is the formula for CPI ?
price of basket of goods / price of basket of goods in base year X100
eg 200 = prices went up 100% since base year
eg 95 = prices went down 5% than base year
eg 200 = prices went up 100% since base year
eg 95 = prices went down 5% than base year
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what is a cause of hyperinflation ?
Government prints too much money to pay debts (quantity theory)
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demand pull inflation
demand pulls up prices - an overheated economy with excessive spending but same amount of goods - excess D - causes demand pull inflation to manage demand better
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cost push inflation
higher production costs increase P - a negative supply shock increases the costs of production and forces producers to increase prices
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what's the formula for AD
AD = C + I + G + (X - M)
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why is AD downward sloping ?
higher P levels reduces the purchasing power of £
when P levels increases, lenders need to charge higher IR to get a real return on loans - higher IR - discourage C and I
when UK p rises, foreign buyers buy less UK goods and UK imports more
when P levels increases, lenders need to charge higher IR to get a real return on loans - higher IR - discourage C and I
when UK p rises, foreign buyers buy less UK goods and UK imports more
39 of 50
what does the LRAS curve represent ?
full employment point (YFE)
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what does the phillips curve show ?
the relationship between inflation and unemployment
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what is expansionary fiscal policy ?
increase gov spending, reduce taxation (increase disposable income) - laws that reduce unemployment and increase GDP (close recessionary gap)
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what is contractionary fiscal policy ?
decrease gov spending, increase taxation - laws that reduce inflation , decrease GDP (close a inflationary gap )
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what is the multiplier effect ?
idea that when ppl spend, that becomes another persons income , then they save abit and spend n so on
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what is the marginal propensity to consume
how much ppl consume rathe then save when there is a change in income
MPC = change in C / change in income
MPC = change in C / change in income
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what is national debt ?
the accumulation of all the budget deficits overtime
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what is a budget deficit ?
when the Gov's expenditures exceeds revenue
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what are the three functions of money
- medium of exchange - easily buy goods
- unit of account - acts as a measure of value
- a store of value - store purchasing power for the future
- unit of account - acts as a measure of value
- a store of value - store purchasing power for the future
48 of 50
what is liquidity ?
ease of which an asset can be accessed and used as a medium of exchange (turned into cash)
49 of 50
what is the federal reserve
the FED's job is to regulate banks n monetary policy
50 of 50
Other cards in this set
Card 2
Front
what does a production possibility frontier show ?
Back
different combinations of producing 2 different goods using all resources
Card 3
Front
using a ppf where can you tell if a point is efficient ?
Back
Card 4
Front
Using a PPF where can you tell if a point is inefficient / unemployment ?
Back
Card 5
Front
what does it mean if a point is outside the ppf curve ?
Back
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