test 2 - macro

• Economic objectives (that the government wants to achieve)


  > Low and stable inflation (2%)

  > Low unemployment

  > sustainable economic growth

  > satisfactory balance of payments
• Aggregate Demand definition


  The total demand for goods and services in an economy at a given price level
• Aggregate demand formula

  C + I + G + X - M
• what does each letter in CIGX-M stand for?

  C = Consumption

  I = investment

  G = government spending

  X = exports

  M = imports
• Aggregate Supply definition


  The total level of production from all firms in an economy
• Key variables of Aggregate Supply (PINTSWC)


  P - profitability

  I - interest rates

  N - number of firms

  T - technology

  S - subsidies

  W - weather

  C - cost of production
• Economic growth definition


  An increase in real GDP in an economy in a given period of time
• LRAS (Long Run Aggregate Supply)

  Level of production in an economy when it is working at capacity
• Multiplier definition

  Process by which any changes in the components of AD will lead to an even greater change in national output
• Accelerator definition

  Changes in investment can be directly linked to changes in the rate of GDP growth
• What are the three Leakages?

  > Savings

  > Taxation

  > Imports
• What are the three Injectors?

  >Investment

  >Government Spending

  >Exports
• What is the reward for each Factor of production?

  > Capital = Interest

  > Enterprise = Profit

  > Land = Rent

  > Labour = Wages and Salaries
• What is the structure of a 4 marker?

  > Highest vs Highest

  > Lowest vs Lowest
• Costs of Production (these affect SRAS)

  > Wages

  > Raw material

  > Oil price

  > Business taxes (VAT)

  > Import prices
• Quality and quantity changes in FOP (these affect LRAS)

  > Increase/Decrease in labour productivity

  > Increase/Decrease in investment

  > Increase/Decrease in infrastructure

  > Increase/Decrease in quantity of labour

  > Increase/Decrease in competition

  > New resource discoveries
• What is YFE?

  YFE is full employment level of output at sustainable levels
• What does SPICED stand for?

  S - Strong

  P - Pound

  I - Imports

  C - Cheap

  E - Exports

  D - Dear
• What does WIDEC stand for?

  W - Weak (pound)

  I - Imports

  D - Dear

  E - Exports

  C - Cheap
• Consumption definition

  Consumption is the total spending by households on goods and services in the economy
• Savings definition

  Savings is the part of disposable income that is not spent on good and services in the economy
• Investment definition

  Investment is when firms spend money on capital goods to increase their productive capacity
• Government spending definition

  Government spending is when a government spends money to influence the level of economic activity
• If the value of X-M increases, which way will the AD curve shift (left or right)?

  The AD curve will shift right
• What is occupational immobility of labour?

  When the skills of the workers don't match the jobs that are available
• What are the two types of structural unemployment?

  >Occupational immobility of labour

  >Geographical immobility of labour
• What are three types of Equilibrium Unemployment?

  >Structural unemployment

  >Frictional unemployment

  >Seasonal unemployment
• What are the two types of Disequilibrium unemployment?

  >Cyclical unemployment

  >Real wage unemployment
• What is cyclical unemployment?

  Unemployment in a recession due to lack of AD
• What is geographical immobility of labour?

  When workers are not willing or able to move to do the job
• What is Frictional unemployment?

  When a worker is inbetween jobs
• When does seasonal unemployment occur?

  When there is a temporary change in demand due to a change in seasons
• Multiplier definition

  Process by which any changes in the components of AD will lead to an even greater change in national output
• Accelerator definition

  Changes in investment can be directly linked to changes in the rate of GDP growth
• What are the Measures of Economic Growth

  >Real GDP

  >GDP/capita

  >GNI/capita

  >Green GDP
• What is the formula for Green GDP?

  Green GDP = GDP - environmental costs
• Costs of inflation

  >Lower purchasing power

  >Erosion of savings

  >Lower export competitiveness

  >Wage/consumer price spiral

  >Fiscal drag

  >Inflationary noise

  >menu costs
• Benefits of inflation

  >Workers pay increases

  >Firms encouraged to increase output

  >Reduces the real value of debt

  >Improvement of government finance
• Inflation - costs and benefits evaluation

  >Rate of inflation

  >Cause of inflation

  >Duration of inflation

  >Was it anticipated?

  >Stability of inflation
• Deflation definition

  Persistent fall of price levels in an economy in a year