AQA Year 13 Macroeconomics Flashcards

Flashcards covering key concepts from the AQA Year 13 Macroeconomics curriculum.

What are the characteristics of money?

Acceptable to all, portable, durable, easily divisible, not able to be counterfeited, and scarce in supply.

What is Narrow Money (M1)?

The most liquid components of the money supply, including physical currency and checking deposits in banks.

What does Broad Money include?

Savings accounts, time deposits, and other forms of near-money assets.

What is the money market?

A market for short-term, highly liquid debt securities like Treasury bills and commercial paper.

What is the capital market?

A market for long-term debt and equity securities, including stocks, bonds, and real estate investments.

What is the foreign exchange market?

A market where currencies are bought and sold to facilitate international trade and investment.

What are some types of financial assets?

Stocks, bonds, mutual funds, exchange-traded funds (ETFs), and derivatives.

What are the four functions of money?

Medium of exchange, unit of account, store of value, and standard for deferred payment.

What is the main goal of a financial market?

To match buyers and sellers to efficiently allocate financial capital to its most productive uses, helping to increase economic growth.

What are some key roles of financial markets?

Facilitating saving, lending to businesses/consumers, allocating funds to productive uses, facilitating the exchange of goods/services, providing forward markets, and providing a market for equities.

What is the relationship between bond prices and yields?

Inverse relationship.

What is equity?

Ownership in a company, entitling shareholders to a proportional share of profits and voting rights.

What is debt?

Borrowing money that must be repaid with interest over a specified period.

What do commercial banks do?

Provide traditional banking services such as accepting deposits, making loans, and offering checking and savings accounts.

What do investment banks do?

Specialize in underwriting securities, M&A advisory, trading, research, and asset management, operating in capital markets.

What are the functions of a commercial bank?

Accepting deposits, providing loans, payment services, safekeeping of valuables, and currency exchange.

How do banks create credit?

By agreeing to loans to businesses and households, crediting their bank account with a deposit of the size of the loan.

What is the fractional reserve system?

Banks create credit by using the fractional reserve system, where they hold only a fraction of their deposits as reserves and lend out the rest.

What is the money multiplier effect?

When banks lend out a portion of deposited funds, these funds are deposited in other banks, creating a chain reaction of lending and increasing the money supply.

What are assets on a commercial bank's balance sheet?

Cash and Reserves, Loans and Advances, and Investments.

What are liabilities on a commercial bank's balance sheet?

Deposits, Borrowings, and Capital.

What are the objectives of commercial banks?

Liquidity vs. Profitability and Profitability vs. Security.

What is the base rate?

Main interest rate set by a nation’s central bank; the rate of interest charged to commercial banks if they must borrow from the central bank.

What is the role of a central bank?

The central bank makes decisions on base rates & QE to meet its remit.

What are bank reserve requirements?

The central bank can change the amount of money banks must have in reserve to ensure banks have enough liquidity to meet customer needs.

What is the lender of last resort?

The role central banks play in times of financial distress by providing emergency loans to prevent collapse and limit systemic risk.

What are the main roles of a central bank?

Monetary policy, financial stability, managing the currency, lender of last resort, financial supervision, and research.

What are the names of the UK Regulation of the financial sector?

The Prudential Regulation Authority (PRA), The Financial Policy Committee (FPC), and The Financial Conduct Authority (FCA)

What are the responsibilities of the FCA?

Regulation and supervision, consumer protection, and market supervision.

What is the remit of the PRA?

Prudential supervision, setting and enforcing prudential standards.

What is the role of the FPC?

Identifying systemic risks, setting policy tools, and stress testing.

Why is financial regulation important?

Preventing systemic risk, protecting consumers, ensuring fair competition, and promoting financial stability.

Why do commercial banks fail?

Run on the bank, credit crunch, and toxic debt.

What are liquidity ratios?

Used to assess a bank's ability to meet its short-term financial obligations.

What is the Cash Reserve Ratio (CRR)?

Mandates that banks maintain a certain percentage of their total deposits in the form of cash or deposits with the central bank.

What is the Capital Adequacy Ratio?

Measures the proportion of a bank's risk-weighted assets to its total capital, expressed as a percentage.

What is asymmetric information in financial markets?

One party in a transaction has more information than the other, leading to adverse selection and moral hazard.

What are some examples of externalities in the financial sector?

Negative externalities such as systemic risk and positive externalities such as efficient capital allocation.

What is moral hazard in the financial sector?

The risk that one party may take on excessive risks because they believe they are protected from the full consequences of their actions.

What is market rigging?

The manipulation of financial markets to gain unfair advantages.

What is a financial crisis?

A major shock to financial markets, associated typically with falling asset prices and insolvency amongst debtors which ramifies throughout the financial system, disrupting the market’s capacity to allocate financial capital.

What is speculation in financial markets?

Buying assets with the expectation of profiting from price increases, rather than from the asset's intrinsic value.

What are market bubbles?

When asset prices rise significantly above their fundamental values due to speculation and irrational exuberance.

What is globalisation?

The deepening of relationships between countries, reflected in an increasing level of cross-border trade and investment and migration.

What are characteristics of globalisation?

Increased trade, more capital transfers, global branding, greater specialisation, labour migration, shifting economic power, de-industrialisation, increased global media presence, and increasing interdependency.

What are the benefits of globalisation?

Economies of scale, more cost-reducing innovation, lower consumer prices/better quality, faster economic growth, freer movement of labour, and increased awareness.

What are the costs of globalisation?

Rising inequality, environmental costs, macroeconomic fragility, trade imbalances, job displacement, tax avoidance, and brain drains.

What is de-globalisation?

A reversal of the process of globalisation

What are some causes of de-globalisation?

Protectionism, economic shocks, changing trade agreements, environmental concerns, health crises and economic nationalism

How does globalisation impact developed countries?

Increased access to foreign markets, attraction of foreign investment, and improved productivity and innovation.

How does globalisation impact developing countries?

Increased access to global markets, increase in foreign investment, and increased access to knowledge and technology but also has costs such as economic dependence and environmental degradation.

What are Multi or trans-national corporations (MNCs/TNCs)?

Companies that operate in more than one country.

What is a global value chain (GVC)?

The interconnected network of activities involved in the production and delivery of goods and services that are performed by multiple firms, operating in different countries.

How do MNCs affect globalisation?

They relocate manufacturing to countries with lower unit labour costs and contribute to FDI, with a large proportion of global trade conducted within multinational enterprises or their subsidiaries.

What are the benefits of MNCs for a country?

Employment opportunities, investment, technology, expertise, innovation, knowledge and skills transfer, and tax revenue.

What are the costs of MNCs for a country?

Displacement of local businesses, dependence on foreign investment, exploitation of cheap labour, and tax avoidance.

Why do countries engage in international trade?

To increase the availability of resources, goods and services, to increase choice for consumers, and to increase efficiency/reduce costs/reduce prices

What is absolute advantage?

A country produces a good at a lower direct cost, i.e., a country using the same factors of production can produce more of a product.

What is comparative advantage?

When one country can produce a good or service at a lower opportunity cost than another country.

What is competitive advantage?

When your country/business has access to technology or innovations that allow cheaper and/or more efficient production of goods.

What are the underlying assumptions of comparative advantage?

No transport costs, no barriers to trade, homogenous goods, no economies of scale, no environmental costs, perfect knowledge, factor mobility between uses, all resources fully employed and all goods and services sold.

What is the pattern of trade?

The mix of goods, services, partners a country trades with.

What is intra-regional trade?

Trade between countries in the same region.

What is gravity theory of trade?

Countries tend to trade most with other nations in closest proximity.

What factors influence the pattern of trade?

Absolute and comparative advantages, factor endowments, trading blocs and trade agreements, globalisation, trade liberalisation, protectionism & FDI flows, changes in world incomes and growth rates, exchange rate movements, and de-industrialisation & the pace of economic development.

What is primary product dependency?

Where a country's economy heavily relies on the export of raw materials or primary products.

Types of restrictions on trade?

Tariff, Quota, Subsidies and Non-tariff barrier.

What are some non-tariff barriers (NTBs)?

Import quotas, tough environmental and product standard rules, trade embargoes and export subsidies.

What are some reasons for restrictions on trade?

Protecting domestic industries, safeguarding national security, diversifying an economy, the infant industry argument, sunset industry argument, anti-dumping measures, and environmental and health concerns.

What are some issues with free trade policies?

Job losses and income inequality

What are some problems with protectionism?

Higher prices, less choice, limits trade

What is a trading bloc?

Regional economic groupings/regional trade agreements (RTAs) i.e. groups of countries that trade more freely amongst themselves but may set barriers against non-members.

What are Rules of Origin in a free trade area?

Negotiating and establishing the rules of origin is complex and adds to the costs of firms that trade.

What is trade creation?

The removal of tariffs between members increases trade between businesses within the bloc. Includes more gains from specialisation and trade and greater exploitation of the bloc's countries' comparative advantage.

What is trade diversion?

The CET means trade may pivot away from the global lowest- cost producers to the lowest cost producer within the bloc

Examples of different types of trading blocs?

Preferential Trading Area (PTA), Free trade area/agreement (FTA), Customs union and, Single (common) market

What are the Costs of EU membership for UK?

Membership Fees, Loss of Sovereignty, Immigration and Freedom of Movement, Reduction in trade deals and Regulatory Burden

What are Trading blocs advantages?

Increased Trade, Efficiency Gains and Political Cooperation.

What are Trading blocs disadvantages?

Compliantly with different rules, loss of some sovereignty and trade diversion.

What are the World Trade Organisation key functions?

Negotiation, Dispute Settlement and Technical Assistance

What are the Challenges faced by the WTO?

Multilateral Negotiations Gridlock, differing development goals and the rise of bilateral and regional agreements

What dose the Balance of Payments account record?

All the flows of money between the residents of that country and the rest of the world

What are the key components of the Balance of Payments account?

Current account, capital account and financial account.

What dose the current account includes?

Trade Balance and Financial account

Explain balance between accounts?

As a set of accounts all debits must be matched with credits.

What dose a Current account records?

The transactions related to a country's trade in goods, services, primary and secondary income.

What is a Current account deficit?

When the value of exports of goods and services, investment incomes and transfer inflows is lower than spending on imported goods and services, investment income outflow and outward transfers.

How can you finance a Current account deficit?

Can be done by attracting inflows of FDI, portfolio investments, hot money, savings which may need higher interest rates or better rates of return

What are the Long and Short term causes of a current account deficit?

Long term: structural issues and Short term cyclical: economic booms and depreciation of a currency

What are corrective procedures?

A countries current account deficit can be improved using deflationary and expenditure-switching policies.

What would a reduction the a current account would do?

Help with Trade performance and result in export-led growth.

What Policies to correct a trade surplus?

Reflation (boost AD, reduce S), revaluation of currency remove barriers to trade to increase imports

What is the Exchange rate?

The price of a currency in terms of another.

What dose lead the Supply and Demand of a Currency?

The Supply being Exports and the Demand being Imports

What are the Types of exchange rate systems?

Can be Fixed, Managed floating and Freely floating.

What causes Exchange Rate Volatility?

Causes uncertainty for businesses reducing exchange of international trade and investment.

State the Terms of Trade

Measures the rate of exchange of one product for another when two countries trade.

What is International competitiveness?

Sustained ability to sell goods and services profitably at competitive prices in a foreign country.

What reduces International competitiveness?

Larger trade deficit.

What would improve International competitiveness?

Stable macroeconomic environment.