Economics Exam

Front 1

Define unemployment

Back 1

Those of working age who are without work, but are actively seeking work

Front 2

Define labour force

Back 2

Those working + those registered as available for work

Front 3

X3 types of Unemployment

Back 3

1. Frictional - people between jobs

2. Seasons

3. Cyclical - fluctuations that are part of a pattern longer than a year

4. Structural - structure of unemployment changes e.g. change of industries

Front 4

Classical theory of unemployment vs Keynesian?

Back 4

No persistent unemployment, wages adjust automatically vs Wages don't adjust automatically

Front 5

As average real wage rates fall, demand for labour will?

Back 5

Increase, firms find it cheaper to hire

Front 6

As average real wage rates rise, supply of labour will..?

Back 6

Rise

Front 7

Actual unemployment rises and falls under natural rate of unemployment when?

Back 7

Rises above in recession falls below in recession

Front 8

Keynesian Economics says that during unemployment..

Back 8

Markets can remain out of equilibrium for a long period and during low periods of private demand, govt should intervene to stimulate economy.

Front 9

What is Hysteresis?

Back 9

Short term unemployment becomes persistent. Skills depreciate over time and become obsolete when re-enetering labour market

Front 10

Government intervention for unemployment tends to be demand or supply side?

Back 10

Supply.

Front 11

X3 types of Gov policy for getting unemployed back into labour market?

Back 11

1. Incentive reinforcement - tax credits, in work benefits, time limits of benefits, benefit reduction/conditions.

2. Employment assistance - Placements, job search, job subsidies

3. Human capital investment - up skilling, vocational train and basic education

Front 12

Action plan for Jobs (2012) focused on?

Back 12

1. Attracting multinational firms

2. Access to finance for new Irish firms

3. Support for emerging sectors e.g. ICT, big data, green energy

4. Funding research

Front 13

Action plan for jobs 2015?

Back 13

382 actions across 16 departments and 60 states agencies. Policy areas:

1. Skills - ICT grads increase by 60%

2. Innovation - dbling patents

3. Start ups - tax incentives

4. Reduce red tape

5. Exports - enterprise Ireland and IDA

6. Enhance competitiveness

7. Domestic economy - job creation

8. Funding regional enterprise

Front 14

Define Inflation

Back 14

The percentage change year on year in the overall price level

Front 15

ECB target inflation rate?

Back 15

2%

Front 16

Current overall Eurozone inflation rate?

Back 16

0.3%

Front 17

CPI is..?

Back 17

Consumer Price Index - analysis of consmers' typical purchasing goods, a "basket of goods" including necessary weighting

Front 18

Why measure inflation?

Back 18

Benchmarking, social welfare, determine value of money, used in GDP calculations

Front 19

What is the official measure of consumer price inflation for Eurozone monetary policy?

Back 19

Harmonised Index of Consumer Prices (HICP)

Front 20

What is demand-pull inflation?

Back 20

Price increases caused by persistent rises in aggregate demand

Front 21

What is cost-push inflation?

Back 21

Price increases caused by persistent rises in cost of production e.g. higher wages, supply shock

Front 22

X3 costs of inflation?

Back 22

1. Inflation erodes the purchasing power of money

2. Lack of investment - domestic currency less valuable globally

3. Menu costs and shoe-leather costs

Front 23

How to tackle inflation?

Back 23

Stricter monetary policy - money more expensive, increase in interest rate, control growth of economy

Front 24

Demand-side policies for tackling inflation?

Back 24

Monetary policy - decrease supply of money, ECB mandate

Fiscal policy - Reduce domestic demand (cut wage levels, gov. spending etc.)

Front 25

Supply-side policies for tackling inflation?

Back 25

Enhance cost efficiencies, competition, productivity

Front 26

What is the Quantity Theory of Money?

Back 26

Classical theory - an increase in the money supply leads to an immediate proportionate increase in prices

Front 27

What is velocity in relation to economics

Back 27

The rate at which money circulates

Front 28

According to Keynes why does an increase in money supply during a recession not result in inflation?

Back 28

1. Inflation already low due to no price or wage pressures

2. Plenty of spare capital

3. Increase in money supply will stimulate economy

Front 29

Equation for quantity theory of money

Back 29

MV x PY

Front 30

Monetarists (e.g. Friedman) views on inflation?

Back 30

Can stimulate economy in short run, inflationary in long run

Front 31

Costs of deflation?

Back 31

1. Consumers put off purchasing until later

2. People form expectations of future deflation

3. Economy gets stuck in a deflationary spiral

4. Unemployment

5. Oversupply of goods and services

Front 32

How to tackle deflation?

Back 32

Make money cheaper

1. Lower interest rate

2. Quantitative easing

Front 33

In Jan 2015 ECB announced QE programme of how much?

Back 33

€60B per month until at least Sep 2016 to achieve 2% inflation target. ECB will buy govt bonds alongside private financial bonds

Front 34

Three features of money?

Back 34

1. Medium of exchange

2. Store of wealth

3. Unit of account

Front 35

Three motives for demanding money?

Back 35

1. Transaction demand - determined by income

2. Precautionary demand - Y + interest rates

3. Speculative demand - interest rates + expectations

Front 36

What is maturity transformation?

Back 36

Maturity - Borrowers want to repay over long period of time, depositors want to be able to withdraw etc. but large number of depositors not wanting to withdraw at same time

Front 37

Three ways banks get money?

Back 37

1. Deposits

2. Borrowing money

3. Owners own investment - banks capital

Front 38

What is a banks leverage?

Back 38

Use of borrowed money to supplement owners funds

Front 39

What is the prime objective of the ECB?

Back 39

To maintain inflation rates at 2%

Front 40

How does the ECB differ from Federal reserve?

Back 40

FR additionally to maintaining interest rates, promotes sustainable growth

Front 41

Other responsibilities of the ECB besides inflation

Back 41

1. Manage money supply

2. Setting reserve requirement for banks

3. Lender of last resort

4. Regulator of commercial banks

Front 42

What is monetary policy?

Back 42

The use of money supply, credit and interest rates to achieve economic objectives

Front 43

MROs are? (in relation to ECB)

Back 43

Main refinancing operations - short term, form bulk of liquidity to banking system.

Front 44

Longer refinancing operator?

Back 44

3 month maturity, longer term maturity to banks

Front 45

When is QE used?

Back 45

When short term interest rates are pushed to zero lower bound

Front 46

What is transfer pricing?

Back 46

Intermediate goods produced overseas but sold through Ireland to avoid tax

Front 47

If demand is totally inelastic PED = ?

Back 47

PED = 0