Save
Macroeconomics
Semester 1
Lesson 12
Save
Share
Learn
Content
Leaderboard
Share
Learn
Created by
Matezik Sebestak
Visit profile
Cards (34)
What are the primary causes of fluctuations in GDP?
Fluctuations in
aggregate demand
View source
What components can cause demand shocks in aggregate demand?
Consumption
,
investment
, government spending, net exports, and
monetary policy
shocks
View source
Why is private investment considered the most important source of fluctuations in aggregate demand?
Because it is more
volatile
despite being a small part of aggregate demand
View source
What is the cumulative process in relation to GDP and aggregate demand?
An exogenous rise in aggregate demand causes a multiple increase in GDP.
GDP stops rising when injections equal withdrawals.
Example: If investment rises by £100mn with a marginal propensity to withdraw of 0.4, GDP rises by £250mn.
If investment spending rises with GDP, the upward movement can continue longer.
View source
What does the multiplier effect indicate about an increase in aggregate demand?
An increase in aggregate demand leads to a multiple increase in
GDP
View source
If investment rises by
£
100
m
n
£100mn
£100
mn
and the marginal propensity to withdraw is
0.4
0.4
0.4
, what is the total increase in GDP?
£
250
m
n
£250mn
£250
mn
View source
What are the three reasons that investment spending can continue to rise with GDP?
The accelerator effect
The
availability of funds
Expectations
View source
How does the accelerator model relate investment to GDP?
Investment is
linked
to changes in GDP through the
capital output ratio
View source
What happens to investment during a recession according to the accelerator model?
Investment falls as
GDP
decreases
View source
What role do retained profits play in the availability of funds for firms?
Firms use retained profits to finance innovations and
inventions
View source
How do interest rates affect firms' borrowing during different phases of the business cycle?
Borrowing costs are lower during
recessions
when interest rates are low
View source
How do business expectations influence production plans?
Current decisions are influenced by
volatile
or
self-fulfilling
expectations
View source
What are the factors that can lead to the slowing of economic expansion?
Capacity constraints
in
resources
Rising prices of
labor
and
capital
Slowing GDP
leading to reduced investment
View source
What is the 'floor' in the context of economic contractions?
The floor is a low level of
GDP
that is not zero
View source
What role do unemployment benefits play during economic downturns?
They serve to limit the fall in
GDP
View source
What is the significance of turning points in business cycles?
Turning
points
are
hard
to
predict
and
explain
View source
What organization has been dating business cycles in the USA since the late 19th century?
The
NBER
(National Bureau of Economic Research)
View source
What are the two measures of unemployment discussed in the study material?
Claimant count
ILO
unemployment
View source
What does the claimant count measure in the UK?
It measures all those
claiming
unemployment-related
benefits
View source
What are the problems associated with the claimant count measure?
Changes in the
benefit system
,
non-claimants
not counted, and
double counting
of multiple job holders
View source
How does the ILO measure unemployment classify individuals?
ILO employed: at least
1 hour
of work per week or job training.
Unemployed: out of work or not tried to find work for
4 weeks
.
Economically inactive: everyone else.
View source
What is the advantage of the ILO unemployment measure?
It measures those who say they are
unemployed
, not just those claiming
benefits
View source
What is the disadvantage of the ILO unemployment measure?
It lumps together anyone who does just one
hour
of paid work with those working longer hours
View source
What are the three key concepts used in the ILO measure of unemployment?
Unemployment rate
: unemployed people divided by total
labor force
.
Labor force: total employed and unemployed in the economy.
Participation rate
: percentage of
working age
population in the labor force.
View source
What are the types of unemployment discussed in the study material?
Frictional unemployment
Structural unemployment
Equilibrium unemployment
Cyclical unemployment
Involuntary unemployment
Voluntary unemployment
View source
What is frictional unemployment?
Short-term
unemployment associated with
matching
workers with jobs
View source
What is structural unemployment?
Long-term unemployment due to
mis-matching
of skills and vacancies
View source
What is cyclical unemployment?
Extra unemployment that occurs during periods of
recession
View source
What is
involuntary
unemployment
?
Unemployment that occurs when individuals do not choose to be out of work
View source
What is
voluntary
unemployment
?
Unemployment that individuals choose to take
View source
What causes cyclical unemployment?
Caused by a
negative output gap
.
Requires
wages
to be sticky.
Labour markets
are not competitive.
View source
What causes frictional and structural unemployment?
Frictional unemployment: normal
turnover
of labor.
Structural unemployment: shifts in demand for products, geographical job distribution, and
technological
change.
View source
How has the shift from manufacturing to service sector employment affected unemployment?
It has fostered
structural unemployment
due to changes in job demand
View source
What recent changes have contributed to structural unemployment?
Decline in
manufacturing
and competition from countries like
China
View source