Macroeconomics

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What are the governments main macroeconomic objectives?
Economic growth, price stability, stable balance of payments, minimising unemployment.
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What data is commonly used to measure economic performance? Give at least 3.
real GDP, real GDP per capita, CPI, RPI, unemployment, productivity, balance of payments.
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What index number is given to the 'base year'?
100
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What are the uses of index numbers?
Interpreting percentage increases/decreases in price/output over a period of time.
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Give the formula for interpreting the % increase from index numbers.
Change in index numbers / original index number X 100
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What is the RPI?
A measure of inflation based on the average families basket of goods including house prices.
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The basket of goods is 'weighted'. What does this mean?
As certain goods have more importance and are bought more than others they are weighted to show their impact of a price change.
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What does national income measure?
The flow of new output produced by the economy in a period of time.
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What is national capital stock?
The amount of capital goods such as buildings and machinery in an economy.
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What is the difference between wealth and income?
Wealth is the stock of assets which have a value, whereas income is a flow generated over a period of time.
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What is a closed economy?
An economy with no international trade.
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What are withdrawals within an open economy? Give 2 examples.
Leakage of spending power out of the circular flow of income. Savings, taxations or imports.
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What are injections into an economy? Give 2 examples.
External spending entering the circular flow of income, gvt spending, firm investment and exports.
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What are the components of AD?
Consumption, investment, government spending, (exports-imports)
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What is the multiplier?
There relationship between a change in AD and the resulting usually larger change in NI.
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What is the marginal propensity to consume?
The amount of disposable income that people plan to spend on domestically produced goods.
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What factors affect investment decisions?
Expected future revenue, future costs of productions, profit the investment will yield, relative costs of labour and capital, technical progress over
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What are the two types of capital investment??
Fixed capital such as factories and machinery. Inventory investment in stocks.
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What is demand pull inflation?
An increase in AD faster than AS, so consumers bid up the prices of goods.
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What is cost push inflation?
Increase in the cost of a FOP which is passed onto the consumer.
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What is the claimant account?
The amount of people that are claiming job seekers allowance.
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What is unemployment?
Workers who are willing and able to work who are unable to find a job.
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Give two types of short term unemployment.
Frictional and seasonal.
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What is frictional unemployment?
The brief period where workers are moving between jobs.
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How is frictional unemployment different from structural?
Structural unemployment is usually more long term as workers need to fully retrain for jobs, whereas workers in frictional unemployment have the skills required for the job.
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What does cyclical unemployment relate to?
It depends on demand in the economy, so in periods of busts/recessions when demand is low - cyclical unemployment is high.
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Give 5 consequences of long term unemployment.
Less skilled workforce, dependence on state welfare, lower GDP, loss of confidence/ depression, decreased quality of life, more poverty.
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What % of inflation would need to be reached to be in deflation?
A negative %
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What are deflationary policies?
Policies that reduce aggregate demand to slow down inflation.
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What is the current account?
Measures the inflow and outflow of goods, services and investments.
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What does a deficit on the current account mean?
The value of imports is more than the value of exports.
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What are the factors that affect the current account balance?
Productivity, inflation, exchange rate, growth in other countries, consumer spending.
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How do neg and positive output gaps affect inflationary pressure and unemployment?
Pos - Low unemployment, high inflationary pressure
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What is monetary policy?
Monetary policy is when the government controls inflation using the supply of money.
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What are the objectives of monetary policy?
Price stability, consumer confidence, low inflation.
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What is the role of the MPC?
To set the Bank of England's interest rate.
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What factors does the MPC consider?
GDP growth and spare capacity, unemployment figures, exchange rates, bank lending figures, share/house prices, confidence, wage inflation,
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How long does it take for a change in the base rate to affect the entire economy?
2 Years.
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How does the exchange rate affect aggregate demand?
If the pound is strong imports are cheap which will decrease domestic demand, and also reduce exports as they are more expensive which will harm GDP.
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What is fiscal policy?
Using government spending&taxation to achieve economic objectives.
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What is a budget surplus?
When the government is spending less than they are gaining in revenue.
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What is the difference between direct and indirect taxes?
Direct taxes are paid to the gvt, whereas indirect taxes are paid to the businesss.
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What are the main categories of government spending?
Health, welfare, education, defence.
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What is a progressive tax?
When high income consumers pay a higher proportion of their income as tax than lower income earners.
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What is a regressive tax?
When lower income earners pay a higher proportion of their income as the tax is fixed.
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What is a proportionate tax?
The tax rate is fixed proportion of income. e.g. VAT.
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Other cards in this set

Card 2

Front

What data is commonly used to measure economic performance? Give at least 3.

Back

real GDP, real GDP per capita, CPI, RPI, unemployment, productivity, balance of payments.

Card 3

Front

What index number is given to the 'base year'?

Back

Preview of the front of card 3

Card 4

Front

What are the uses of index numbers?

Back

Preview of the front of card 4

Card 5

Front

Give the formula for interpreting the % increase from index numbers.

Back

Preview of the front of card 5
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