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macro term 1 Flashcards

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1
Q

closed economy

A

has no foreign trade/no government

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2
Q

households own wealth as…

A

factors of production

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3
Q

household supply these factors to firms for

A
  • rent
  • wages
  • interest
  • profits (dividends)
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4
Q

national output

A

value of the flow of goods and services to households

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5
Q

national expenditure

A

value of spending by households on goods and services

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6
Q

national income

A

the total monetary value of the flow of output of goods and services produced in an economy over a period of time

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7
Q

examples of injections

A
  • investment
  • gov spending
  • exports
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8
Q

examples of withdrawals

A
  • saving
  • taxes
  • imports
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9
Q

what does the economy need to equal to reach a state pf equilibrium

A

the rate of withdrawals = rate of injections

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10
Q

how does national output occur

A

if their are net injections into the economy… firms can utilise FOP—supplied by households to produce goods and services

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11
Q

what happens if there is a contraction of production

A
  • net withdrawals (savings, taxes, or import spending)
  • reduced GDP
  • increased unemployment
  • lower business investment
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12
Q

investment

A

spending by firms on capital equipment and stock

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13
Q

exports

A

goods and services form the UK sold to foreigners

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14
Q

gov spending

A

on schools, hospitals, investments

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15
Q

saving

A

money not spent

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16
Q

taxes

A

from income, profits

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17
Q

imports

A

products and services bought from other countries

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18
Q

What is the circular flow of income?

A

an economic model that illustrates the movement of money, goods, and services between households and firms in an economy

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19
Q

True or False: In the circular flow model, households provide factors of production to firms.

A

True

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20
Q

Fill in the blank: In the circular flow of income, firms pay _____ to households for the use of their resources.

A

wages

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21
Q

What role does the government play in the circular flow of income?

A

The government collects taxes from households and firms and provides public goods and services, influencing the flow of income.

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22
Q

where does gov borrow money from

A

national debt is borrowed and is eventually paid back which is ultimately paid back by tax payers

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23
Q

what is a gilt

A

it is a government bond which allows the gov to loan money in exchange for an agreed upon interest rate

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24
Q

who are gilts mainly bought by

A
  • financial institution; pension/investment funds
  • banks
  • insurance companies
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25
what happens to gilts when the national debt increases
the gov has to pay more on all the bonds it has sold
26
how much of the yearly spending is on debt
10%
27
aggregate demand formula
C+I+G+(X-M)
28
aggregate supply
the total quantity of goods and services that producers in an economy are willing and able to supply at a given price level
29
what does AS show
the availability of an economy to produce goods and services and shows the relationship between the Real GDP and the average price levels
30
AS curve elasticity
relatively elastic upward sloping because higher prices make output more profitable and business can expand production
31
shifts for SRAS
WERPT -Wage rates -Exchange rates -Raw material -Productivity -Taxation
32
what is classical LRAS elasticity
perfectly inelastic
33
LRAS
is the productive potential of the economy the total real output of all firms at a given price, no. of workers, levels of productivity
34
factors shifting LRAS
Q2CELL Quantity and Quality of - Capital - Enterprise -Land -Labour
35
examples of LRAS determinants IRL
- migration and gov regulations can increase labour force and productive potential - technological advances increases volume of goods and services produced and education/skill means more output and workers
36
demand side shock
unexpected change that shifts AD
37
supply side shock
unexpected change that shifts SRAS
38
examples of demand side shocks
- house market bubble burst - stock market crashes - sharp rise of taxes or interest rates -world economy goes into recession - reduced gov. spending - covid
39
examples of supply side shocks
- large rise in commodity prices - trade union wage increases - sharp fall in oil and commodity prices - covid
40
negative output gap occurs
after a recession when their is sparce capacity in the economy as not all resources are being used up
41
appreciation in value of pound
SPICED Imports cheaper, Exports dearer: shifts AD inward as (X-M) falls Cheaper imported raw materials can decrease firms cost of production could shift SRAS to the right lowering cost push inflation
42
how do cheaper Imports cause AS to shift outward
the cost of production for domestic businesses decreases, allowing them to supply more goods and services at each price level
43
currency depreciation effect on AS
WPIDEC weaker pound imports dearer exports cheaper cost increases of imported components and raw material which decreases AS
44
gov initially invests £1bn. as a result national income increases to £2bn. what is multiplier
change in national income/ initial injection 3/1 = 3
45
Cost-push inflation
occurs when rising production costs lead to higher prices for goods and services driven by supply-side factors, such as increased labour costs, raw material prices, or taxes.
46
demand-pull inflation
arises from increased demand
47
demand pull inflation
occurs when there's an increase in aggregate demand (AD) that outpaces the economy's ability to produce goods and services (aggregate supply or AS
48
cost push inflation
occurs when the overall price level rises due to increased production costs for businesses, leading them to raise prices to maintain profit margins
49
what is likely during a boom
- increased imports due to increased consumer spending and business investment - rising profits
50
difference between accelerator theory and multiplier
the multiplier effect amplifies the impact of spending, while the accelerator effect amplifies the impact of changes in economic growth on investment
51
How to calculate GNP
GDP + income earned from overseas assets minus income earned by overseas residents
52
How can national income be measured
GDP, GNP, GNI
53
difference between GDP and GNP
GDP - measures production within a country’s borders GNP - measures production by a country’s citizens, whether inside or outside its borders
54
GNI
total income earned by a country’s residents and businesses, including income earned abroad, minus income earned by foreigners within the country
55
how to calculate GNI
GNI=GDP+(income from abroad−income paid abroad) eg. If UK citizens earn £10 billion from overseas investments, and foreign firms earn £7 billion from activities in the UK: GNI = GDP+(10−7)=GDP+3
56
difference between GNI and GNP
GNI = focuses on income (money earned) GNP = focuses on output (goods and services produced)
57
what is GNI usually used for
as a measure of national welfare or standard of living, especially when adjusted for population (GNI per capita)
58
how is GNI per Capita used as a measure of national welfare or standard of living
GNI per capita, estimates a countries average income per person. It reflects total income earned by a countries residents including from abroad
59
what does a higher GNI per capita suggest
people on average earn more income, allowing them to but more goods and services implying a higher standard of living used by World bank an UN especially adjusted for PPP to classify countries as low, middle, high income
60
limitations using GNI per capita as a measure of national welfare or standard of living
- doesn’t account for income inequality (it only shows average income and not how income is distributed) may be heavily concentrated among the richest households - ignores non-market factors like leisure time, environmental quality, and health - may not reflect differences in cost of living between countries unless adjusted for PPP - Some income earned abroad may not benefit citizens directly
61
net leakage occurs where
leakage > injection of demand - trade deficit - budget surplus
62
net injection occurs from
- trade surplus - budget deficit
63
what does CA = S - 1
investment must be coming from foreign savings CA deficit can indicate - dependence on imports - therefore dependence on foreign savings for investment/loans
64
CA deficit can also be sign of
- excessive investment, the CA deficit must be financed from foreign investment/loans - insufficient domestic saving
65
example of Investment in Assets to balance CA
Foreign investment; - (FDI) into businesses - buying government bonds - purchasing real estate - giving foreign entities a claim on domestic assets
66
What happens during an economic boom
High levels of AD, leads to rising real output, an increase in imports (as household income rises), rising price level (demand pull inflation)
67
multiplier calculation
change in Real GDP (national income) / initial change in AD
macro economics
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