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Macroeconomics by Mind Map: Macroeconomics

1. Economic growth

1.1. Definition

1.1.1. Long term EXAM!! Increase potential level of real output the economy can produce over a period of time can only occur if production capacity increases Supply side policies If too fast Accelerated inflation

1.1.2. Short term increasing national output - done by supply side Actual GDP

1.2. Actual output and trend output gives us inside into the future

1.2.1. Actual output Nationa expenditure/ national income/ national output GDP total production within domestic boundaries Published each quarter

1.3. Foreign companies

1.3.1. UK receives money in the form of Intrest Profit Dividens IPD Can also flow out of UK Balance is called

1.4. Wealth vs income

1.4.1. Can be measured by GDP best for looking at domestic economy GNP (GDP +NPIFA) Total return from domestic and overseas return

1.4.2. Wealth assets how much you have

1.4.3. Income returns from all assets


1.5. Real vs Nominal

1.5.1. Real corrected for inflation value - inflation

1.5.2. Nominal how current prices change (money terms)

1.6. Graphs

1.6.1. Long term growth PPF outwards Increasing supplies

1.6.2. Short term growth Within PPF to the boundary Increase capacity utilisation

1.6.3. Capital vs consumer goods More consumer goods increase short term growth Less long term growth Capital good Less short term growth more long term growth Choice Intertemporal choice

1.7. GDP vs GDP growth

1.7.1. GDP growth % change negative ouput gap When GDP growth falls

1.7.2. GDP per capita Used for quality of life GDP divided by number of people

1.8. Index number

1.8.1. number of current year/ number of base year x100

1.8.2. way of seeing change easier

1.9. Aggregate demand

1.9.1. affected by Consumers Investment by firms Government spending Exports - imports

1.9.2. LRAS Shows the long term growth

2. Unemployment

2.1. Definition

2.1.1. Some one who is does not have a job, but who bhas been activly seeking work for a period of 4 or more weeks, who are in the population working age

2.2. How is it measured

2.2.1. Labour Force Survey

2.2.2. Claimant count number of people who are claiming unemployment benifits

2.3. Push figures down

2.3.1. There is a 2 week lag period

2.3.2. People under the age of 18 cannot claim unemployment benefits

2.3.3. Training schemes

2.3.4. people who seek part-time work , cannot claim unemployment benefits

2.4. Push figures up

2.4.1. Benefits cheats

2.4.2. People can claim unemployment benefits while switching jobs

2.5. Causes for unemployment

2.5.1. cyclical Reccesion

2.5.2. structural Changing sectors

2.5.3. frictional Temporary In between jobs

2.5.4. classical minimum wage Push minimum wage up Unions

2.6. Cures of unemployment

2.6.1. Different causes require different cures Cyclical Demand side policies structural Supply side Information job help centers decrease union power and minimum wage

2.7. Costs of unemployment

2.7.1. loss of individual income

2.7.2. loss of skills

2.7.3. government have to spend of benefits

2.7.4. loss of tax revenue

2.8. PPF

2.8.1. point inside the PPF

3. Current account

3.1. What?

3.1.1. Balance of payments if negative imports greater than exports UK if positive exports greater than imports

3.2. What affects it?

3.2.1. Demand side As actual growth increases imports increase Reccesion imports will decrease

3.3. Measured

3.3.1. BALANCE OF TRADE IN GOODS manufactured goods negative in UK

3.3.2. BALANCE OF TRADE IN SERVICES services tourism

3.3.3. NET INCOME INFLOWS intrest profits

3.3.4. NET TRANSFERS foreign workers forgein aide

4. Marcroeconomic Performance

4.1. Supply side polices

4.1.1. Try to grow trend form 2.25% Invest in capitol goods R&D Innovation Skills, Education and training Competition Lower income tax (insentives people to supply more labour Immigration More women participating in labour market Population Growth Reduced union power

4.2. Trend graph

4.2.1. Positive output gap Rising demand for goods companies utilise more capacity Unemployment falls Inflation rises

4.2.2. Negative output gap Fall in demand for goods prices drop Unemployment rises Inflation falls

4.2.3. Output gap When there is a difference between the actual output and Trend output

4.3. Circular flow of income

4.3.1. Shows the flow of income in an economy as a whole with the inputs and leakages.

4.3.2. Often shown with "HOUSEHOLDS" and "FIRMS"

4.3.3. Injections Government Spending Exports Investments

4.3.4. Withdrawals Imports Savings Taxes

4.4. Output gap pursues

4.4.1. Positive output gap Pursue Deflation/contractionary policies Taxes Rise Government Spending Falls Intrest rates Rise

4.4.2. Negative output gap Pursue Reinflation/ expansionary policies Taxes Falls Government Spending Falls Intrest rates Falls

4.4.3. Fiscel policy Governement Spending Taxes

4.4.4. Monatary policy Intrest rates

5. Inflation

5.1. What?

5.1.1. General and sustained price level increase

5.1.2. Rate of inflation % change in a year

5.1.3. Measured CPI -RPI

5.2. Measuring it

5.2.1. CPI Less volatile less goods includes cars though Measured weight of price of basket of goods official method in UK

5.2.2. RPI Different basket of goods than CPI Higher Includes housing

5.3. Causes

5.3.1. Demand-Pull AD is greater than supply and trend growth Positive output gap To large demand for capasity Unemployment down wages must increase to attract wages

5.3.2. Cost Push Cost increase prices Price of raw materials increase falling exchange rate firms try to maintain high profit margins

5.4. Why bad?

5.4.1. Huge impact on low income families Pensions etc

5.4.2. Favours borrowers not savers erodes debt

5.4.3. Workers expect higher wages

5.4.4. Uk becomes less competitive

5.4.5. Reduced investment

5.5. Cures

5.5.1. Demand pull tighten fiscal policy increase taxes decrease gov spending increase interest rates people save more

5.5.2. Cost push supply side increase decrease


5.6.1. causes decrease AD high level of spare capacity value of dept increase defer purchases wait for prices to drop further

5.6.2. WHAT? Sustained reduction of the price level of goods and services in an economy.

6. Factors affecting consumption and saving

6.1. Consumption

6.1.1. Unemployment -> reduce income -> reduce spending

6.1.2. Tax cuts for companies and consumers

6.1.3. Intrest rates

6.1.4. inflation

6.1.5. confidence

6.2. Investment

6.2.1. confidence if outlook is beak companies will not invest in growing

6.2.2. intrest rates either be good or bad for borrowing money

6.2.3. government subsidies

6.2.4. Recession Companies have less available income can't invest in such circumstances

6.3. Government spending

6.3.1. Unemployment levels Benefits

6.3.2. AD

6.3.3. Economic growth

6.3.4. Inflation

6.3.5. Budget deficit $21.4billion have to spend less to prevent this form increasing further

6.4. Saving

6.4.1. Fear People are afraid that the banks will collapse and their money will be lost When people are scared they spend less and therefor save more

6.4.2. Doubt People do not believe that the system works

6.4.3. Income Low income less money to save

6.4.4. Output gap if negative, people save more as they are scared to spend if positive, people save less.

6.4.5. Intrest rates low interest rates saving decreases high interest rates saving increases

6.4.6. Ease People are more likely to save if it is easy direct debit/standing orders