Macroeconomics (IGCSE)

IGCSE Edexcel Economics Paper 2. I'd recommend doing these as flashcards and not written as they take forever lol

Budget Deficit

Amount by which government spending is greater than government revenue

Macroeconomics

Study of large economic systems

Microeconomics

Study of small economic systems

Macroeconomic Objectives (6)

Redistribution of income, reducing unemployment, protect environment, control inflation, economic growth, balance of payments

Economic growth

Increase the level of output by a nation

National income

Value of income, output or expenditure over a period of time

How is economic growth measured

GDP

Gross Domestic Product

Market Value of all final goods and services produced in a period

Limitations of GDP

Inflation, Population changes, statistical errors, value of home produced goods, hidden economy, living standards may differ, external costs

Order of the economic cycle

Boom, downturn, recession, recovery

Boom

Peak of economic cycle where GDP grows the fastest

Downturn

After a boom, where the economy still grows but at a slower rate, demand falls

Recession

Temporary economic decline where trade and industrial activity are reduced, identified by a fall in GDP in two successive quarters

Recovery

Where GDP begins to rise again

Depression

Bottom of the economic cycle where GDP falls and unemployment increases

Positive impacts of economic growth

Unemployment falls, Standards of living rise, Poverty falls, Productive potential increases

Negative impacts of economic growth

inflation increases, bad for environment, economy overheats

Overheating

Demand rises too fast, causing prices and imports to rise

Unsustainable Growth

Economic growth that it is not possible to sustain without causing environmental issues

Aggregate demand

total demand in the economy including consumption, investment, government expenditure and exports minus imports

Deflation

period where aggregate demand falls

Inflation

rate at which prices rise, general and continuing rise in prices

consumer price index

measure of general price level excluding housing costs

retail price index

measure of general price level including house prices and council tax

methods of measuring the rate of inflation

retail price index, consumer price index

types of inflation

demand-pull inflation, cost-push inflation

demand-pull inflation

inflation caused by too ,much demand in the economy relative to supply

causes for demand-pull inflation

rising consumer spending, increases in government spending, rising demand for resources, booming demand for exports

cost-push inflation

inflation caused by rising business costs

interest rates

price paid to lenders for borrowed money

monetarists

economists who believe there is a strong link between growth in money supply and inflation

purchasing power of money

amount of goods and services that can be bought with a fixed sum of money

impact of inflation on prices

prices rise, purchasing power falls, living standards fall

impact of inflation on wages

prices rise, workers increase wage, firms raise prices, wage/prices spiral develops, causing conflict between trade unions and employers

impact of inflation on exports

prices of exports rise, demand for exports falls, negatively affects BoP, job losses for overseas firms

impact of inflation on unemployment

aggregate demand rises, firms increase output, recruiting more workers, increasing employment

impact of inflation on menu costs

firms increase prices frequently, telling customers, increasing menu costs

impact of inflation on shoe leather costs

prices change frequently, firms spend more time looking for best value for money, increasing shoe leather costs

impact of inflation on uncertainty

increases uncertainty, decreases investment

impact of inflation on business and consumer confidence

makes consumers more conscious, saving more, demand falls, economic growth falls

impact of inflation on investment

uncertainty increases, investment falls, decreases economic growth and employment

menu costs

costs to firms of having to make repeated price changes

shoe leather costs

costs to firms and consumers of searching for new suppliers when inflation is high

hyperinflation

very high levels of inflation; rising prices get out of control

transactions

payment, or the process of making one

unemployment

when those who have actively been seeking work in the last 4 weeks are unable to find a job and are available to start in the next 2 weeks or those out of work who have found a job and are waiting to start within the next two weeks

cyclical unemployment

unemployment caused by falling demand as a result of a downturn in the economic cycle

laying off

where there is no work for someone to do so they are laid off

structural unemployment

unemployment caused by changes in the structure of an economy such as the decline in an industry

sectorial unemployment

people are laid off because the industry is in decline

technological unemployment

jobs that were done by people are now done by machines

regional unemployment

unemployment varies by region

seasonal unemployment

seasonal workers are laid off due to the season ending

frictional unemployment

unemployment between jobs for a short period of time

voluntary unemployment

unemployment resulting from people choosing not to work

impact of unemployment on out\[ut

productive potential falls, output falls, living standards fall

impact of unemployment on scarce resources

waste of resources, lower national income, lower output

impact of unemployment on poverty

lower income, poverty increases

impact of unemployment on government spending

benefits increase, spending increases, opportunity cost incurred

impact of unemployment on tax revenue

lower income, lower spending, tax revenue falls, increases national debt

impact of unemployment on consumer confidence

incomes fall, less spending, less demand, lower spending, increased unemployment

impact of unemployment on business confidence

redundancy money paid, demotivated workers, less demand, sales fall, less revenue, less investment

balance of payments

record of all transactions relating to international trade

capital account

part of the BoP where savings, investments and currencies are recorded

current account

part of the BoP where exports and imports are recorded

exports

goods and services sold overseas

imports

goods and services bought from overseas

current account deficit

value of imports exceeds value of exports

current balance

difference between total exports and total imports

current account surplus

when the value of exports exceeds the value of imports

balance of trade (visible balance)

difference between visible exports and visible imports

invisible trade

trade in services

primary income

money received from the loan of production factors abroad

secondary income

government transfers to and from overseas agencies such as the EU

visible trade

trade between physical goods

Exchange rate

price of one currency in terms of another

impact of a stronger exchange rate on the current account

stronger exchange rate, exports more expensive, imports cheaper, less exports sold, more imports bought, negative impact on BoP

impact of current account surplus on exchange rate

demand for exports rises, demand for currency rises, strengthening exchange rate

reasons for a current account deficit

quality of domestic goods falls, quality of foreign goods rises, price of domestic goods rises, price of foreign goods falls

reasons for a current account surplus

quality of domestic goods rises, quality of foreign goods falls, price of domestic goods falls, price of foreign goods rises

impacts of a large and persistant current account deficit

leakages from the economy cause dependency on imports, inflation, low demand for exports, funding the deficit increases the national debt

business activities damaging the environment

mining, power generation, chemical processing, agriculture, construction

ways a business damages the environment

visual pollution, noise pollution, air pollution, water pollution

ways a government may intervene to protect the environment

taxation, subsidies, regulation, fines, pollution permits, park provision

income inequality

differences in income which exist between different groups of earners in society

lorenz curve

graphical representation of the degree of income or wealth inequality in a country

absolute poverty

where people do not have enough resources to meet all of their basic human needs

relative poverty

poverty that is defined relative to existing living standards for the average individual

why do governments want to reduce poverty and inequality

meeting basic needs, raising living standards, ethical reasons

how do governments intervene for reducing poverty and income inequality

progressive taxation, redistribution through benefits, investment in education and healthcare

progressive taxation

where the proportion of income paid in tax rises as the income of the taxpayer rises

regressive taxation

tax system that places the burden of the tax more heavily on the poor

policy instruments

tools governments use to implement policies, such as interest rates, rates of taxation, levels of government spending

budget

government’s spending and revenue plans for the next year

fiscal policy

decisions about government spending, taxation, levels of borrowing that affect aggregate demand in the economy

direct taxes

taxes levied on the income earned by firms and individuals

why do governments impose tax

to pay for public sector services, discourage certain activities, control aggregate demand, distribute wealth evenly

income tax

direct tax on amount earned by individual

social insurance tax

direct tax imposed in income for pensions, benefits and healthcare

corporation tax

direct tax levied on profits made by come companies