Macro-Economics > Macro-Indicators > Flashcards

Macro-Indicators Flashcards

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1
Q

What 4 stages are in a traditional business/economic cycle?

A

-Peak/Boom
-Downturn
-Recession/Slump
-Recovery/Expansion

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2
Q

What are the causes of the economic cycle?

A

-Demand side shocks
-Supply side shocks

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3
Q

What is a positive output gap?

A

A positive output gap is where growth is greater than expected

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4
Q

What is an output gap?

A

The output gap is the difference between the actual level of GDP and the estimated long term growth.

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5
Q

What are automatic stabilisers?

A

Automatic stabilisers are expenditures that automatically rise during a recession and fall during a boom.
E.g. Government spending

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6
Q

What is Real GDP?

A

Real GDP is when figures have been adjusted for inflation.

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7
Q

What are the limitations of GDP statistics?

A

-Lots of different sources (Reliability in question)
-Inaccuracy of calculations
-Human errors
-Only predictions
-Dosent account for hidden economy (Black Market)
-Figures get adjusted later on

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8
Q

What are the benefits of economic growth?

A

-Its a main macro-economic objective
-Higher living standards
-Life expectancy and health improves
-Education development
-Job creation
-Choice of goods and services
-Housing and facility standards improve
-Government budget increases
-The accelerator effect

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9
Q

What are the problems with economic growth?

A

-Inflation rises
-Strain on services
-Environmental issues
-Scarcity especially for non-renewables
-Inequality as rich may be the ones benefiting the most
-Unsustainable
-Primary product dependency e.g. oil market for Nigeria

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10
Q

What is the Easterlin paradox?

A

The idea that increase in GDP do not lead to increases in happiness

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11
Q

What are some of the impacts of economic growth?

A

-Firms may have increased sales due to larger incomes in an economy
-Government sees a rise in tax revenue
-In developed countries the environment will likely become cleaner whereas in developing countries there will be more pollution
-Creates a larger economy, increasing the number of jobs
-Living standards increase for everyone in developing countries

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12
Q

What is unemployment?

A

Unemployment is the amount of people who are willing and able to work but currently can’t find a job/are not in work.

-Unemployment rate is currently 4.3%

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13
Q

What does full employment lead to in an economy?

A

-GDP growth
-Rise in consumer and business confidence
-More efficient businesses
-More demand
-More taxes
-fewer benefits
-Larger ability to export
-People are more trained at work

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14
Q

Why does regional unemployment happen?

A

-Population density
-Business investment
-Resources
-Infrastructure
-Skills available within the area
-Government intervention

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15
Q

What are the limitations of unemployment statistics?

A

Only a sample and can have sampling errors
-Surveys is done once a month, there will be fluctuations everyday
-There is a time lag between performance of an economy and firms response
-Dosent include the underemployed
-Inaccuracy of claimant count
-Age of respondents not considered
-Lots of people aren’t counted in the working population

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16
Q

What are the negative consequences of unemployment?

A

-Could cause a fall in GDP
-Negative multiplier effect
-Resources are not being fully utilised
-Less tax revenue
-More benefit payments
-Reduction in international competitiveness
-Dependents suffer
-Social issues E.g. mental health

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17
Q

What are the positives of unemployment?

A

-Inflation lowers
-Ease of labour mobility (frictional unemployment)
-Consumers not paying taxes and gaining benefits can increase consumption
-Spare capacity means more flexibility

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18
Q

What is voluntary unemployment?

A

Voluntary unemployment is when people choose not to work, maybe due to them having enough money or the benefits system or they may be refusing job offers

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19
Q

What is seasonal unemployment?

A

Seasonal unemployment is when people are not employed at certain times of the year E.g. holiday parks in the winter as they are weather dependent

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20
Q

What is frictional unemployment?

A

Frictional unemployment is short term unemployment when people are moving between jobs.

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21
Q

What is structural unemployment?

A

Structural unemployment occurs when there are long term changes in the structure of the economy E.g. industrial decline.

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22
Q

What is technological unemployment?

A

Technological unemployment is when capital takes place of labour, automation meaning people lose their jobs.

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23
Q

What is cyclical unemployment?

A

Cyclical unemployment is when a fall in GDP leads to increased unemployment due to demand deficit.

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24
Q

What is real wage/classical unemployment?

A

Real wage/classical unemployment is when wages are inflexible downwards.
-They are stuck to high above the level needed to reduce unemployment

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25
Why are real wages inflexible downwards?
Real wages inflexible downwards because of minimum wage legislation and trade unions.
26
What are the effects of unemployment on businesses?
-Greater pool of applicants -Less upwards pressure on wages -Potential loss of skills in new recruits
27
What are the effects of unemployment on individuals?
-Loss of skills -Loss of confidence -Loss of income -Lower standard of living
28
What are the effects of unemployment on the economy?
-Lower GDP output -Opportunity cost of idle resources
29
What are the effects of unemployment on the government?
-More unemployment benefits -Loss of tax revenue -Government budget deficit -Poverty pocket -More crime
30
What is creeping inflation?
Creeping inflation is small increases in the price level over a sustained period
31
What is hyperinflation?
Hyperinflation is a rapid increase in the price level. -Very high inflation
32
What is deflation?
Deflation is where there is a fall in the price level of the economy
33
What is disinflation?
Disinflation is the inflation rate falling but not necessarily being negative.
34
What is stagflation?
Stagflation is a period where inflation is rising or very high at a time when the economy is in recession. -The economy is stagnating but there is also inflation
35
What causes stagflation?
-Supply side shocks such as supply chain disruptions and a sudden spike in a universally required commodity -Poor economic policies such as interest rates being too low for economic condition and excessively high government spending.
36
How is inflation measured?
A basket of 700 goods that are commonly bought is totaled up each month - about 180000 prices are collected. -How it is measured is called the consumer price index (CPI) -The CPI basket changes to account for changes in fashion, taste, technology ect.
37
What is the difference between CPI and RPI?
RPI stands for retail price index and includes additional housing costs on top of the CPI basket of goods
38
What is cost push inflation?
Cost push inflation is where the cost of production causes an increase in their price levels often due to commodity prices, wages, equipment costs, land costs or other types of factors of production
39
What is demand pull inflation?
Demand pull inflation is inflation caused by increases in aggregate demand in an economy. -The main causes are increases in aggregate demand
40
What are the costs of high inflation?
-Firms reducing investment -Consumers bringing forward/ reducing spending -Higher unemployment -Lower output causing a fall in GDP -Exports become less competitive -Disturbance to the distribution of wealth and income
41
What is the balance of payments?
The balance of payments is a record of all financial dealings over a period of time between one country and all other countries
42
What 2 main components is the balance of payments split into?
-The current account -The financial account The financial and current account will always balance, a movement in one causes a movement in another
43
What is the current account?
The current account is where payments for the purchase and sales of goods and services are recorded
44
What is the financial account?
The financial account is where flows of money associated with saving, investment, speculation and currency stabilisation are recorded
45
What makes up the current account?
-Trade in goods: 'visibles' -Trade in services: 'invisibles' -Primary income: From interests, profits and dividends on assets owned abroad -Secondary income: Mainly government income transfers to and from overseas organisations.
46
What is the difference between exports and imports know as?
The difference between exports and imports is balance of trade.
47
When is the current account in a surplus and deficit?
Current account surplus: When exports are larger then imports Current account deficit: When imports are larger then exports
48
What makes up the financial account?
The financial account includes transactions that result in a change in ownership of financial assets and liabilities between a countries residents and non residents. Includes: -Net balance of FDI -Net balance of portfolio investment flow -Balance of banking flows
49
What is the capital account?
Very minor and can largely be ignored Includes: -Debt forgiveness -Sale/Transfer of payments -Copyrights -Franchises -Leases it measures the value of changes in international transfers of ownership
50
Why does the balance of payments always balance?
As it is recorded using a double entry book keeping system where every account transaction is recorded both as a credit and a debit(outflow)
51
What is Foreign direct investment (FDI)?
This is flows of money to purchase a controlling interest in a foreign firm. -This is defined as 10% or more of the ordinary shares of voting power in the firm
52
What is portfolio investment?
This includes flows of money to purchase foreign shares where this is less then 10% of the company.
53
What are the reasons for international capital flows?
-People are looking for quick profits by buying and selling debts and shares -Capital flows are an essential part in finance of trade. Someone may take out a loan to buy a car -Banks in one country are finding it profitable to lend to economic agents in another country -Individuals transfer funds abroad for things like a holiday -FDI -Portfolio investment
54
What are the advantages of world capital flows?
-Facilitates growth in world trade -Provides capital for firms that would otherwise not be able to secure finance within their own countries -Leads to a transfer of technology and information between countries
55
What are the disadvantages of world capital flows?
-Makes parts of the financial system vulnerable as shown in the financial crisis -FDI leads to national firms being owned by overseas firms which some argue leads to exploitation of countries by overseas companies -Encourages governments firms and individuals to overborrow
56
What factors affect exports and imports?
-Price -Exchange rate -Inflation rate -International competitiveness -Protectionism -Relations between countries -Quality, service, functionality, USP
57
Why do current account deficits cause an issue?
-Cause AD to decrease and shift left -Lead to trade imbalances between countries -Large current account deficits can lead to a negative multiplier effect -In the long run they can cause a decline in an economy's international competitiveness.
58
Why can current account surpluses cause an issue?
-Could lead to inflation in an economy as it causes AD to shift to the right due to fewer exports and higher imports. -Current account surpluses may mean less choice and therefore welfare loss -Can lead to retaliation and protectionism from other countries
59
Why does the government want current account equilibrium/surplus?
-Economic stability -Sustainable growth -Confidence in the economy -Employment and production -Currency stability
60
How do you calculate index numbers?
Index number= Number in current year/ number in base year times 100
61
What factors contribute to weather economies suffer or benefit from current account deficit/surplus?
-Price elasticity of demand for imports/exports -Currency changes -Non price factors -Government/Central bank intervention -Size of trade imbalance/deficit/surplus
62
What are the trends in the UK current account overtime?
-Since WW2 the balance of trade of goods has been negative. Visible export has been less then visible imports. -The overall balance on trade in services, primary income and secondary income has been positive -The balance of trade in services has nearly always been positive
63
Why are economies interconnected?
-There is a ever increasing ownership of physical and financial assets such as companies shares or loans in one country by economic actors in another -Individuals are migrating in increasing number from one country to another -Technology is being shared between borders constantly.
64
What are the classical views on the Philips curve?
-Increase in AD so workers demand higher wages -When they receive more money they work more hours -The increase in AD then causes inflation and real wages stay the same -When workers realize their wages are the same they no longer supply extra labour and real output goes back to original levels -Unemployment remains unchanged but we have higher inflation
65
What does Keynesian believe?
-Believes idea of long run and short run isn't true and wages being variable is crazy -No difference in short and long run, there is one supply curve -Aggregate supply is determined by spare capacity in the economy -That there is a point where production can not increase sustainably
66
What is the difference between the Keynesian model and the classical model?
Keynes believed wages are 'sticky downward' and not variable, therefore output ca increase without inflation during periods of spare capacity.
67
Macro-Economics
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