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84 Cards in this Set
- Front
- Back
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What are Macro-economics? |
Focuses on workings of the economy as a whole. |
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What is the main Policy for the Policy makers? |
Determine how policy options & control mechanisms can help them achieve economic objectives. |
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What 3 areas of the economy does the policy cover? |
1. National 2. Regional 3. Global |
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What are the 4 objectives for many Industrial organisations? |
1. Full employment 2. Real economic growth 3. Price stability & limited inflation 4. Balance between exports & imports to manage Balance Payments |
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What does GDP stand for? |
Gross Domestic Product |
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What is GDP? |
Total Market Value of final Goods & Services produced, in a country, in a given period. |
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What is Sum of Value? |
Total Output of goods & services during the year |
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When is sum of value used? |
Added at every stage of production. |
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How is Sum of value measured? |
At purchase price |
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How is the Purchase Price calculated? |
1 Consumption + 2 Investment + 3 Gov. Spending + 4 Exports - Imports |
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What is Consumption 1? |
Based on Private consumption (Household) |
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What are the 3 Factors that determine whether Private consumption is included in sum of value? |
1. Level of household income 2. Rate of tax 3. Portion of saved household income |
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What was John Maynard Keynes "paradox of thrift"? |
More people save, less will aggregate consumption in economy. |
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What is the Investment part in the sum of value? |
Organisations & households in Capital items =Classified as Savings |
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What are the 3 ways level of Investment is determined? |
1. Level confidence in economy 2. Interest rates 3. Availability of bank loans & other sources of finance |
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What is 3. Government spending in the sum of value? |
Covers all government consumption & investment |
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What is GDP mainly made up of? |
Government spending |
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What is 4. Balance of Payments in sum of value? |
Exports-imports |
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What if exports are more than imports? |
Favourable balance payments. Surplus. |
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What are the Other Factors in calculating GDP? X3 |
1. Confidence 2. Capital 3. Exchange rates |
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What is the Business Trade Cycle? |
Classic example of economies showing fluctuations in economic activity, over a period of years, with an underlying upward trend. |
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What are the 4 Phases of the Business Cycle? |
1. Recession 2. Depression 3. Recovery 4. Boom |
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What phase does government policy try to avoid? |
Boom |
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What is Recession? |
Decline in country's GDP for 2 or more consecutive quarters |
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What does Keynes believe reason is for Recession? |
Lack of demand in the economy |
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What is the "supply side"? |
Claim that increased demand in economy doesnt always lead to higher GDP if sufficient productive capacity meet demand. |
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What does Recession fall between? |
Peak & Trough |
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What is the Depression Phase? |
Severe economic downturn, usually lasting several years. |
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What is the main cause for Depression? |
Loss of confidence in the economy |
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What is the Recovery Phase? |
When consumer confidence returns. Businesses begin to retool, restock & employ more. |
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What can cause Recovery phase? |
Triggered by "good news" of events. |
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What is Boom Phase? |
Capacity & Labour become fully utilised. |
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What is the Governments Key Economic Objective? |
Maintain low level price of inflation. |
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What is Price Inflation? |
Rates of increase in general level of prices as a whole or economy. |
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What is 1. Consumer Price Index CPI? |
Measuring price inflation |
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What is 2. Retail Price Index? |
CPI & Housing costs |
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What is 3. Producer Price Index PPI? |
Measures 2 sets of inflation for manufacturing industry |
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What is 4. Input Price Index IPI? |
Cost of raw materials & direct overheads |
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What is Output Price Index OPI? |
Sales prices at factory gate |
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What 3 Indexes impacts and increases another when it increases? |
Rise in IPI, increase in OPI, increase in CPI |
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What is Unemployment as an Economic Issue? |
Amount of Joblessness in the economy. A person willing & able to work but cannot find employment. |
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What is Unemployment rate based on? |
Unemployed percentage of those in Labour workforce |
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What are the 3 things that make up Household population over 16 & over? |
1. Employed 2. Unemployed 3. Economically inactive |
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What is "Hidden unemployment"? |
Unemployed people not included in statistics. Not registered as unemployed, receive benefits. |
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What is "Under employment"? |
Workers seeking employment under their skill level |
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What are the 5 Categories of Unemployment? |
1. Real wage unemployment -labour supply greater than demand 2. Frictional unemployment -Jobseekers not aware of available jobs. Right job right worker. 3. Seasonal-demand in certain seasons 4. Structural-skills no longer needed due to change 5. Cyclical-unemployment rate moves opposite direction to GDP rate |
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What 2 Phases cause GDP increase, unemployment declines? |
Recovery & Boom |
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What 2 Phases cause GDP decline, unemployment increases? |
Recession & Depression |
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What is Stagnation? |
Relatively long period of very low or no economic growth |
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What is Stagflation? |
Slow economic growth & relatively high unemployment, accompanied by rise in price (inflation) |
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When is economic growth considered Stagnate? |
Growth less than 2/3% |
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What is International Payments Disequilibrium? |
Occurs when Countrys "Balance of payments" is negative |
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What are the 3 Accounts considered in the Balance of Payments? |
1. Current Account 2. Financial accounts 3. Capital account |
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What are blance in payments referred to for goods? |
Visibles |
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What are the balance of paymentscreferred to for services? |
Invisibles |
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What is the Current account used for? |
Payments in goods and services Exports-imports |
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What are the Financial accounts for? |
Net payments to and from other countries for investment purposes |
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What is the Capital account for? |
Summary of Capital transfers in balance of payments account |
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What does the Current account deficit imply? |
Country is importing more goods & services than it is exporting. |
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What does Surplus imply? |
More exports than imports |
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What are the 2 Primary types of Economic Policies? |
1. Monetary Policy & 2. Fiscal Policy |
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What is Monetary Policy? |
Government or Central Banks actions designed to achieve economic objectives, using Monetary instruments |
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What is the "Multiplier Effect" in Monetary Policy? |
Selling government bonds & securities to remove money from the economy |
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What is Fiscal Policy? |
Action by government to achieve economic objectives through Taxation, public spending & budget deficit/surplus. |
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What are the 2 key elements in Fiscal Policy? |
1. Government Expenditure 2. Government Revenues |
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What are the 3 things Budget is based on? |
1. Annual budget 2. Surplus or deficit 3. Use of public expenditure & taxation to regulate demand |
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What are Keynesians? |
Those who view Fiscal Policy as crucial in control of macro-economic activity |
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When are Fiscal tools used? |
Economy in Recession |
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Why are Fiscal tools used? |
Reflate economy through increase in government spending to increase level of demand. |
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What is the supply side approach? |
Creates conditions for Private sector to flourish = provide output required |
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What does the government enable for Private sector to flourish? X3 |
1. Lower tax 2. Lower government spending 3. Minimal government intervention |
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What must be the state of the economy for Private sector to flourish? |
State of equilibrium |
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Give 4 examples where Taxation is used for the Fiscal Policy? |
1. Higher taxes on certain goods (cigarettes & alcohol) 2. Raise barriers for undesirable goods (smoking & cars) 3. Windfall- tax on profits large organisations (oil, high supply, demand & speculative factors 4. Redistribute income & wealth |
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What are the 4 Forms of Taxation? |
1. Proportional 2. Progressive 3. Direct 4. Indirect |
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What is Proportional Taxation? |
Fixed |
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What is Progressive Taxation? |
Increases as wage band increases |
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What is Direct Taxation? |
Paid directly to government |
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What is Indirect Taxation? |
VAT Not paid directly to government but through supplier for eg. |
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What is Economic Welfare? |
Level of prosperity and living standards in an economy |
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What 3 things is Economic Welfare based on? |
1. Employment 2. GDP 3. Inflation |
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What is the Competition Policy? |
Increases efficiency of economy by stimulating competition. |
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What are the 4 Key Components for Competition Policy? |
1. Monopolies & Mergers legislation 2. Restrictive practices legislation 3. Deregulation in industries that restrict competition 4. Internal markets in public sector (Hospital & schools compete for gov. resources) |
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What is Privatisation? |
State-owned firms sold to Private sector (General public, direct to another company or management buyout) |
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What is Official Aid? |
Governments intervene through special aid schemes |
