MACRO ECON

• Inflation is the general increase in prices on goods and services in a give period of time in an economy.
• Capital goods are used to produce goods and services to increase productivity. An example of this is machinery.
• Allocative efficiency is when an economy is producing goods and services productively based on the consumer wants and needs. This means less waste and maximise utility.
• Economic growth is the increase in real GDP overtime which improves quality of life.
• Savings is any income not spent
• Investments is spending by firms on capital goods, such as machinery
• Hyperinflation is when prices are rising extremely quickly and money looses value
• Disinflation is when prices are rising but at a slower rate
• Deflation is when the average price levels are falling
• Inflation is also a fall in the value of money because the fixed amount e.g £10 can buy less
• Barter is when you swap a good for another.Used to exchange goods and services before money
• The macroeconomic objectives

  1. The rate of economic growth
  2. Rate of unemployment
  3. Low stable inflation
  4. sustainable balance of payments
• 2 ways to measure inflation

  CPI - Consumer price index

  RPI - Retail price index
• Unemployment is the number of people in the workforce who are willing and able to work but cannot find a job
• 2 ways to measure unemployment:

  • The claimant count
  • The labour force survey
• The claimant count is counting the number of people claiming unemployment related benefits.e.g universal credit

  ADV - No cost and easy to collect

  DIS - excludes people looking for jobs but are not eligible for benefits
• The labour force survey is a survey asking people if they are actively seeking work.People saying yes are added to the ILO unemployment count

  ADV - more accurate than claimant count

  DIS - expensive to collect
• ILO stands for International labour organisation
• Labour force survey is more accurate because it doesn't exclude people who don't have work but are not eligible for benefits
• The balance of payments records the international flow of money.So the flow of money going in and out of a country
• Deficit is when there is more money flowing out the country than in the country
• Surplus is when there is more money coming in than out a country
• Macroeconomic objectives can be used to measure a countries economic performance and to compare it with other countries.
• National output is all the goods and services produced in a country
• GDP measure the total value of goods and services produced in an economy in a given period of time
• Nominal GDP is not adjusted by inflation
• Real GDP is adjusted by inflation
• GDP per capita means per person and indicates a countries standard of living
• GDP per capita is measured by purchasing power party (ppp)
• Purchasing power party estimates what exchange rate would be used to purchase an identical good or service between two currencies.
• The circular flow of income is a diagram showing the distribution of income and expenditure between households and firms.
• The formula for circular flow of income:

  National output = National income = national expenditure
• The circular flow of income

  A) Households

  B) Firms

  C) Goods and services

  D) Spending

  E) Factors of income

  F) Factors of production

  
• The circular flow of income is affected by Leakages and Injections.
• Leakages is when money flows out the circular flow

  1. Savings
  2. Imports
  3. Taxes
• Injections is when money is injected into the circular flow

  1. Government spending
  2. Exports
  3. Investments
• Injections = Leakages the economy is in equilibrium

  Injections > Leakages the economy grows so Real GDP increases

  Injections < Leakages the economy shrinks so Real GDP decreases
• • National output is when firms produce good and services
  • National income is the money paid to households by firms e.g wages and rent
  • National expenditure is when households spend the money they get from national income on goods and services
• The multiplier effect is when a change in one component of AD leads to multiplied final change in levels of RGDP
• Equation for Aggregate demand:

  C + I + G + (X-M)