Macroeconomics

what are the macroeconomic objectives

what are the macroeconomic objectives

•low inflation

•low unemployment

•increases in economic growth

•surpluses or equilibrium in the current account

•redistribution of income

•environmental protection

define economic growth

increases in the amounts of good and services produced per head of the population over a period of time

limitations for gdp as a measure of growth

•inflation

•statistical errors

•population changes

•the hidden economy

• does not account for external costs

deflation

level of aggregate demand is falling

demand pull inflation

inflation caused by too much demand in an economy

cost push inflation

inflation caused by rising business costs

impact of inflation on exports

firms may find it difficult to sell in overseas markets as export prices rise

impact inflation has on business and consumer confidence

this may make consumers anxious and for example are less willing to borrow money

structural unemployment

when the structure of an economy changes so some industries decline

cyclical unemployment

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

current balance

difference between total exports and total imports

balance of payments

record of all transactions relating to international trade

capital and financial account

part of balance of payments where all exports and imports are recorded

current account deficit

imports > exports

what are invisible goods

services

if a countries exchange rate gets stronger

S trong

P ound

I mports

C heaper

E xports

D earer

leakage

when an ongoing current account deficit occurs and consumers keep buying international goods and the money leaks out of the economy

government intervention to protect the environment

taxation

subsidise

regulation

fines

pollution permit

provision of parks

what do parks aim to do

preserve areas of natural beauty with nature wildlife and historic monuments

income inequality

differences in income that exist within the different groups of earners in an economy

lorenz curve

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

how can the government reduce inequality and poverty

progressive tax

benefits

investment in education and healthcare

fiscal deficit

government spending > government revenue (DEBT)

money supply

amount of money circulating an economy

base rate

rate of interest set by the government for lending to other banks. this will influence an economy

supply side policies

government measures designed to increase AS in an economy

what does supply side polices aim to increase

productive potential of an economy

examples of supply side polices

privatisation

deregulation

education and training

infrastructure

lower business taxes (encourage investment)

lower income tax (to incourage working)

what are the key trade offs of policies

unemployment and inflation

economic growth and inflation

economic growth and environmental

inflation and the balance of payments

reasons for globalisation

•fewer tarifs and quotas

•reduced cost of transport

•reduced cost of communication

•increased significance of MNC’s

impacts of globalisation

•rising living standards

•greater choice

•lower prices

•environmental impact

saturated market

market in which there is more of a product than people want to buy

offshoring

getting work done in another country to save money

FDI

when a company makes an investment in a foreign country

reasons for the emergence of MNCs

•to get economies of scale

•access cheap materials

•lower transport costs

•access consumers in different reigons

advantages of MNCs / FDIs

•creating jobs

•investing in infrastructure

•developing skills

•contributing to taxes

disadvantages of MNCs / FDI

•avoiding paying taxes

•moving profits abroad

•environmental damage

free trade

situation in which goods coming into or out of a country are not taxed

advantages of free trade

•lower prices

•increased choice

•wider markets for businesses

disadvantages of free trade

•increasing unemployment

•foreign competition harming native businesses

protectionism

approach used by government to protect domestic producers

reasons to use protectionism

prevent dumping

protect employment

protect infant industries

gain tariff revenue

protect consumers from unsafe products

reducing current account deficits

retaliation

methods of protection

tarifs

quotas

subsidies

example of a trade bloc

EU

demand and supply graph for tarif

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