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MACROECONOMICS by Mind Map: MACROECONOMICS
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MACROECONOMICS

Chapter 2

Economic Growth

2.1: Introduction, GDP is measured quarterly as well as on an annual basis, National output = National expenditure = National income, GNP = GDP + net property income from abroad, Income is not the same as wealth

2.2: Real and nominal values, Real, inflation adjusted, Nominal, expressed using current prices

2.3: Ecomomic Growth, Short Term, in terms of actual output, Real National Output, total value of all goods and services produced in an economy, movement inside the PPF, Long Term, in terms of potential output, productive capacity, improved by use of supply side policies, however sufficient demand is also required, shift of the PPF, Recession, this occurs when real GDP falls for 2 consecutive quarters, Boom, when RNO grows faster than trend output

2.4: Aggregate demand and aggregate supply analysis, Aggregate demand, Fiscal & Monetary policies, C+G+I+(X-M), A deviation of AD from LRAS gives an output gap, Aggregate supply, Supply-side policies, refers to the total level of output supplied within an economy at any given price level

2.5: GDP per capita, is the total GDP of a country divided by the population of a country, this raises standards of living in an economy, however this does not take into account inequality

2.6: Index numbers, number in current year divided by number in base year, this allows for a contrast between one year and another

Chapter 4

Inflation

4.1: Introduction, the general and sustained rise in the price level over time, Demand pull inflation, occurs due to a rise in the level of aggregate demand above trend (i.e. a positive output gap), Cost push inflation, occurs when costs of production increase, firms may then pass on this extra cost to consumers

4.2: Measuring inflation, CPI, Consumer price index, RPI, measures the average price of a general basket of goods.

4,3: The causes of inflation, Cost push inflation, Supply side of the economy, due to increase in costs of production, e.g. wage increase, raw material price fluctuation, Demand pull inflation, Demand side of the economy, due to growth of the economy (AD)

4.4: Why is inflation a problem?, those on fixed incomes such as pensioners suffer as prices increase but their income cannot, favours those who borrow and damages people's savings (devalues them), inflation leads to demands for higher wages --> giving cost push inflation, inflation gives higher prices in our economy making our economy less competitive globally, can reduce efficiency of the price signals in a market, meaning that producers cannot be allocatively efficient

4.5: Curing inflation, Demand pull inflation, can be suppressed by reducing pressure on the economy of aggregate demand, i.e. by tightening fiscal and monetary policy, Cost push inflation, improving the supply side of the economy, i.e. by improving productivity through application of supply side policies, Investment, Education & training, Reduce union power, Increase immigration, Restrain public sector pay, improve productivity

4.6: Deflation, negative inflation, consumers and producers that are in debt get into difficulty, income falls but debt payments remain the same making it harder to pay the bills, consumers may defer their purchases until a later date causing a deflationary spiral, firms would be disinclined to hold onto stocks of raw materials because they would be losing value

4.7: Factors that affect the rate of inflation in the real world., Wage growth, Exchange rate, Immigration, I.T., Globalisation, The bank of england, Increased competition

Chapter 7

Factors affecting Aggregate Demand

Consumer Spending, Affected by..., Inflation (higher prices), Higher taxation, Less Disposable Income, Higher Unemployment, Less Disposable Income, Decline in house value, Higher Interest rates, More incentive to save, Low Confidence

Investment, Affected by..., Consumer spending, Taxation, Regulation, Government Spending, Interest Rates, Affects how appealing loans are

Government Spending, Confidence in Business, National Debt, Lack of Investment, Government has to pay the difference to companies to prevent them failing due to lack of funding.

Chapter 3

Unemployment

3.1: Defining Unemployment, someone is officially unemployed if they are in the population of working age, out of work and actively seeking employment, measured in:, claimant count, labour force survey

3.2: The causes of unemployment, cyclical unemployment, occurs when the economy is in a negative output gap, can be reduced using demand side policies to amend the output gap, structural unemployment, due to a change in the structure of the economy creating a mismatch between the workers and the skills required for vacancies, workers who are structurally unemployed may lack the necessary skills to move into new developing sectors or they may be in a location without appropriate jobs, can be reduced by promoting occupational and geographical mobility, frictional unemployment, no matter how high the demand for workers is there will always be a quantity of workers who are in between jobs, seasonal unemployment, results from regular fluctuations in weather conditions or demand and particularly affects:, tourism, agriculture, construction, classical unemployment, when real wage is above the equilibrium of the labour market, this may be due to the existence of a minimum wage which in effect "prices workers out of jobs"

3.3: Curing unemployment, cyclical unemployment, use of demand side polices, increase G, decrease T, decrease I, loosen monetary and fiscal policies, structural unemployment, increase mobility, improve infrastructure, increase house building, increase skills through training, education, training courses, frictional unemployment, increase access to information, internet, job centres, seasonal unemployment, seasonal adjusted statistics, classical unemployment, decrease union power, decrease minimum wage

3.4: The costs of unemployment, loss of income to the individual, loss of skills of the individual, government has to pay benefits, loss of tax revenue to government, the whole economy loses forgone output

Chapter 1

Macroeconomics

1.1: Macroeconomic performance, An economy's ability to supply goods can be affected by, Investment in capital goods, Research & Development, Innovation, Skills, Education and Training, Competition, Lower Income Tax, More incentive to supply labour, Immigration, More women in the labour market, Population growth, Reduced Union Power, The UK's total output has grown by approx 2.5% per year since WW2, This is trend output, Actual output fluctuates around this value, This is due to, firms working overtime to respond to rising demand in boom periods, this increases the need for workers and so unemployment falls, firms leaving people redundant in times of recession, this means that demand for goods and services falls even more, so firms have to leave more people redundant... and so on, Trend vs Actual output terms, The lowest point below the trend line is the "trough", The highest point above the trend line is the "peak", After a trough the economy will move back towards trend: "recovery", A "boom" is when the economy continues to grow above the trend line, A positive output gap is achieved by producing more than trend, A negative output gap is achieved by producing less than trend, When an economy contracts from a peak to a trough this is called a "recession"

1.2: The conflict of objectives, Output gaps, where actual output is above or below trend, Positive output gaps, problems caused, Inflation, This is due to excess demand to producers who have to raise prices to choke off what the can't produce, Pressure on wages, due to higher prices of goods, Actual > Trend, Negative output gaps, problems caused, Unemployment, Falling output, Actual < Trend

1.3: The circular flow of income, The idea that, Firms pay households incomes, Households then spend this on goods and services, And so the firms reclaims it's money, Households supply firms with labour, This allows the firm to produce, The goods and services produced are then provided to households for sale, However in reality there are other "leaks" to the money flow, Households often save incomes, S, Investment in firms can be said to balance this out, Creating equilibrium again, If these are not equal the economy is said to be in disequilibrium, I, Households lose money through taxation, T, This money is reinvested by the government, Creating equilibrium, If these are not equal the economy is said to be in disequilibrium, G, Households also spend money on imports, M, This money is balanced through exports, Creating equilibrium, If these are not equal the economy is said to be in disequilibrium, X, Total injections (J), I, G, X, Total withdrawals (W), S, T, M

1.4: Macroeconomic performance, Governments have to follow a path that allows them to achieve, Economic growth, Low unemployment, Low inflation, They do this through demand side policies, Affecting the level of aggregate demand, In a situation with a positive output gap governments use a contractionary policy, They increase taxes, Government income is larger, Decrease government spending, Government expenditure is less, Pay off debts, Increase interest rates, People are more inclined to save rather than spend, Less aggregate demand, In a situation with a negative output gap governments use an expansionary policy, They decrease taxes, People have more money available (disposable income, Increase Government Spending, Decrease interest rates, Saving is less appealing, The Supply Side, Financial, Reducing income taxes, Reducing welfare benefits, Lower tariff barriers, Social, Break down trade unions, Improve transport, Privatisation, Deregulation, Investment, Increased education, R&D

Chapter 5

The Current Account

5.1: Introduction, A record of all trade, exports and imports between a country and the rest of the world, separated into goods services and unilateral transfers

5.2: Balance of payments, Exports of goods, - imports of goods, = Balance of trade in goods, Exports of services, - imports of services, = Balance of trade in services, Net income flows, + net transfers, = Current account balance

5.3: Factors affecting the current account balance, Short term, demand side of the economy, demand for imports, demand from abroad for goods or services in an economy, Long term, supply side of the economy, low level of productivity, lack of infrastructure, outside tax implications

5.4: The exchange rate, SPICED, Strong, Pound, Imports, Cheap, Exports, Dear, WPIDEC, Weak, Pound, Imports, Dear, Exports, Cheap

5.5: The current account and macroeconomic performance, AD = C + I + G + (X - M), a rise in net exports will increase AD, as will an increase in net imports decrease AD, The current account can be linked to inflation, a strongly negative current account may be due to high import prices giving cost push inflation

5.6: Improving the economy's external performance, external performance is ultimately down to underlying competitiveness, in order for a country to increase their competitiveness a country must invest in supply side policies to increase productivity