MACRO Economics defintions MACRO

Wants

Something that is not essential for existence

Needs

Something that is essential for existence

Opportunity cost

The next best alternative for gone never in terms of money

Basic economic problem

Scarcity of resources, unlimited wants and the need to make choices leading to and opportunity cost

What are the four FOPS

Land: natural resources

Labour: work force

Capital: machinery

Entrepreneurship: ability to take risks make decisions and organise fops

Consumer goods

Consumer durables and non durables

Economic gods

Goods that use up scarce resources

Free good

Does not use up scarce resources

Capital goods

Goods used to produce other goods

Productivity

Output per FOP per time period

Economy

Geographical are that tries to solve BEP by figuring out what to produce, how to produce it and for whom

GDP

Total value of final goods and services produced within and economy

Intermediate goods

Components or semi finished goods

Wealth affect

When the value of physical and financial assets fall or rise making econ agents feel poorer or richer so they spend less

GNP

Funds entering the economy from locals FOPS working abroad minus the money sent out by the foreign FOPS working within the economy

Nominal GDP

GDP not adjusted for inflation

Real GDP

GDP adjusted for inflation in actual goods and services

Market mechanism

(Invisible hand): this is when market forces (supply and demand) interact to bring about resource allocation and determine the kinds of goods sold eg price of apples increases farms produce more apples at expense of carrots

Transfer payment

A payment made for which there is no corresponding increase in real GDP

Subsidy

Payment made by gov to firms to encourage them to produce a particular good or service reduces COP and increases supply

Indirect taxes

Taxes on consumer spending they have the effect of increasing COP and shift supply left

Cetrius parabus

All other things being constant

What are the aims of the government

1. maximise national welfare

2. Low unemployment

3. Low inflation

4. Sustainable economic growth

5. Balance of payments exports > imports

Smaller aims

Redistribute wealth and income

Reduce budget deficit

Green green policies

Real disposable income

Income after taxes and benefits adjusted for inflation

Average propensity to consume

Total consumption as a proportion of total income

Marginal propensity to consume

Amount spent compared to amount earned per additional pound

Marginal propensity saved

Amount saved per additional pound earned

Marginal propensity to tax

Amount spent on taxes per additional pound earned

Marginal propensity to import

Amount spent on imports per additional pound earned

Market capitalisation

Value of the firms as determined by the stock market where market forces determine share prices (market capitalisation can fluctuate despite there being no change in assets possessed by the company

Consumption

Spending on consumer durables and non durables

Investment

An increase in an economy’s capital stock both human and physical

Labour productivity

Output per worker per Time period

Protectionism

Use of trade barriers (eg: tariffs, quotas etc) to reduce imports by making them more expensive

Inflation

Persistent increase in GPL

describe the following time periods

-Momentary period

-short run

-long run

-the very long run

1. (Fixed supply) this is immediate period so all FOPS are fixed

2. (Inelastic supply) this is the time period in which at least one FOP is fixed

3. (Elastic supply) this is the Time period where all FOPS are variable

4. State of tech changes these time periods differ from industry to industry (eg: a bakery SR may be a week but for a nuclear power plant it would be a year)

Unit labour costs

Labour costs per unit of output produced where labour costs are the total cost associated with hiring a worker

Wage price spiral

When prices increases workers ask for higher wages which increase COP which increases inflation again workers ask for higher wages (vicious cycle)