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34 Cards in this Set
- Front
- Back
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what are the four government macroeconmic objectives?
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unemployment, inflation, economic growth & balance of payments
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what is economic growth?
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growth in the productive potential of the economy, measured in real gdp
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what is inflation?
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a general rise in prices
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what is unemployment?
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the number of people out of work
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what is the balance of payments account?
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a record of all financial dealings over a period of time between economic agents of one country and all other countires
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what is the economic cycle?
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fluctuations in the rate of growth of output, also known as trade or business cycle
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what are the four stages of the economic cycle?
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peak/boom; downturn; recession/slump; recovery/expansion
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what is the circular flow of income?
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a model of the economy which shows the flow of goods, services and factors and their payments around the economy
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what is an injection?
what is a withdrawl? |
injection inflow into the circular flow not generated by households, investment or government; withdrawl outflow from the circular flow, spending by households that does not flow back to domestic firms
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define consumption
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spending on consumer goods and services over time
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define saving
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what is not spent out of income
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what factors influence the level of consumption?
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income; wealth; inflation; rate of interest; availability of credit; expectations; composition of households
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define investment
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the addition to capital stock
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what factors will shift the planned investment schedule?
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cost of capital goods; technological change; expectations; government policy
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what is the accelerator theory?
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the level of planned investment varies with the rate of change of income/output
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what is the 'rate of return'?
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refers to the profitability of an investment project; also known as marginal effciency of capital (MEC)
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what factors influence the level of imports and exports?
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price; exchange rate; world and UK income; non-price factors
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what is AD?
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aggregate demand = C + I + G +(X-M)
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what is AS?
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total level of output in the whole economy at a given price level
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what causes AD to shift?
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consumption, investment, government spending, exports, imports
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what is the multiplier effect?
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an increase in investment or any other automomous expenditure will lead to an even greater increase in income
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what causes short run shifts in AS?
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wage rates; raw material prices; taxation
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the long run AS curve can also be described as?
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the PPF, shows the level of full capacity output of the economy
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what causes the LRAS to shift?
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education & training; investment in capital equipment; technological advances; increased world specialisation through world trade; improved working practices (productivity); changes in government policy
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what are the different types of unemployment?
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frictional; seasonal; structural; cyclical
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what are the causes of inflation?
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demand-pull; cost-push
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what is included in the Current Account of the balance of payments?
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the trade in goods; services and income & current transfers
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why would the current account balance change?
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trade in goods & services - exchange rates, domestic prices, goods non-homogenous, change in domestic or world AD; income and current transfers
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when is the current account deficit or surplus a problem?
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depends on the size of the deficit/surplus in relation to national income
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what is fiscal policy?
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use of taxation, government spending and borrowing
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what is monetary policy?
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use of interest rates and money supply
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what is supply-side policy?
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designed to increase the productive potential of the economy; shifts LRAS to the right
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what is exchange rate policy?
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using the currency to influence demand, inflation etc.
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how do exchange rates affect the economy?
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inflation - affects X and M prices; growth - if AD falls investment will also fall; unemployment - risng exchange rate leads to an increas in unemployment; current balance increasing exchange rates will worsen the defict
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