MACROECONOMICS

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MACROECONOMICS by Mind Map: MACROECONOMICS

1. Chapter 2

1.1. Economic Growth

1.1.1. 2.1: Introduction

1.1.1.1. GDP is measured quarterly as well as on an annual basis

1.1.1.2. National output = National expenditure = National income

1.1.1.3. GNP = GDP + net property income from abroad

1.1.1.4. Income is not the same as wealth

1.1.2. 2.2: Real and nominal values

1.1.2.1. Real

1.1.2.1.1. inflation adjusted

1.1.2.2. Nominal

1.1.2.2.1. expressed using current prices

1.1.3. 2.3: Ecomomic Growth

1.1.3.1. Short Term

1.1.3.1.1. in terms of actual output

1.1.3.1.2. movement inside the PPF

1.1.3.2. Long Term

1.1.3.2.1. in terms of potential output

1.1.3.2.2. improved by use of supply side policies

1.1.3.2.3. shift of the PPF

1.1.3.3. Recession

1.1.3.3.1. this occurs when real GDP falls for 2 consecutive quarters

1.1.3.4. Boom

1.1.3.4.1. when RNO grows faster than trend output

1.1.4. 2.4: Aggregate demand and aggregate supply analysis

1.1.4.1. Aggregate demand

1.1.4.1.1. Fiscal & Monetary policies

1.1.4.1.2. C+G+I+(X-M)

1.1.4.1.3. A deviation of AD from LRAS gives an output gap

1.1.4.2. Aggregate supply

1.1.4.2.1. Supply-side policies

1.1.4.2.2. refers to the total level of output supplied within an economy at any given price level

1.1.5. 2.5: GDP per capita

1.1.5.1. is the total GDP of a country divided by the population of a country

1.1.5.1.1. this raises standards of living in an economy

1.1.5.1.2. however this does not take into account inequality

1.1.6. 2.6: Index numbers

1.1.6.1. number in current year divided by number in base year

1.1.6.1.1. this allows for a contrast between one year and another

2. Chapter 4

2.1. Inflation

2.1.1. 4.1: Introduction

2.1.1.1. the general and sustained rise in the price level over time

2.1.1.2. Demand pull inflation

2.1.1.2.1. occurs due to a rise in the level of aggregate demand above trend (i.e. a positive output gap)

2.1.1.3. Cost push inflation

2.1.1.3.1. occurs when costs of production increase

2.1.2. 4.2: Measuring inflation

2.1.2.1. CPI

2.1.2.1.1. Consumer price index

2.1.2.2. RPI

2.1.2.3. measures the average price of a general basket of goods.

2.1.3. 4,3: The causes of inflation

2.1.3.1. Cost push inflation

2.1.3.1.1. Supply side of the economy

2.1.3.2. Demand pull inflation

2.1.3.2.1. Demand side of the economy

2.1.4. 4.4: Why is inflation a problem?

2.1.4.1. those on fixed incomes such as pensioners suffer as prices increase but their income cannot

2.1.4.2. favours those who borrow and damages people's savings (devalues them)

2.1.4.3. inflation leads to demands for higher wages --> giving cost push inflation

2.1.4.4. inflation gives higher prices in our economy making our economy less competitive globally

2.1.4.5. can reduce efficiency of the price signals in a market, meaning that producers cannot be allocatively efficient

2.1.5. 4.5: Curing inflation

2.1.5.1. Demand pull inflation

2.1.5.1.1. can be suppressed by reducing pressure on the economy of aggregate demand

2.1.5.2. Cost push inflation

2.1.5.2.1. improving the supply side of the economy

2.1.6. 4.6: Deflation

2.1.6.1. negative inflation

2.1.6.1.1. consumers and producers that are in debt get into difficulty

2.1.6.1.2. consumers may defer their purchases until a later date causing a deflationary spiral

2.1.6.1.3. firms would be disinclined to hold onto stocks of raw materials because they would be losing value

2.1.7. 4.7: Factors that affect the rate of inflation in the real world.

2.1.7.1. Wage growth

2.1.7.2. Exchange rate

2.1.7.3. Immigration

2.1.7.4. I.T.

2.1.7.5. Globalisation

2.1.7.6. The bank of england

2.1.7.7. Increased competition

3. Chapter 7

3.1. Factors affecting Aggregate Demand

3.1.1. Consumer Spending

3.1.1.1. Affected by...

3.1.1.1.1. Inflation (higher prices)

3.1.1.1.2. Higher taxation

3.1.1.1.3. Higher Unemployment

3.1.1.1.4. Decline in house value

3.1.1.1.5. Higher Interest rates

3.1.1.1.6. Low Confidence

3.1.2. Investment

3.1.2.1. Affected by...

3.1.2.1.1. Consumer spending

3.1.2.1.2. Taxation

3.1.2.1.3. Regulation

3.1.2.1.4. Government Spending

3.1.2.1.5. Interest Rates

3.1.3. Government Spending

3.1.3.1. Confidence in Business

3.1.3.2. National Debt

3.1.3.3. Lack of Investment

3.1.3.3.1. Government has to pay the difference to companies to prevent them failing due to lack of funding.

4. Chapter 3

4.1. Unemployment

4.1.1. 3.1: Defining Unemployment

4.1.1.1. someone is officially unemployed if they are in the population of working age, out of work and actively seeking employment

4.1.1.2. measured in:

4.1.1.2.1. claimant count

4.1.1.2.2. labour force survey

4.1.2. 3.2: The causes of unemployment

4.1.2.1. cyclical unemployment

4.1.2.1.1. occurs when the economy is in a negative output gap

4.1.2.1.2. can be reduced using demand side policies to amend the output gap

4.1.2.2. structural unemployment

4.1.2.2.1. due to a change in the structure of the economy creating a mismatch between the workers and the skills required for vacancies

4.1.2.2.2. 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

4.1.2.2.3. can be reduced by promoting occupational and geographical mobility

4.1.2.3. frictional unemployment

4.1.2.3.1. no matter how high the demand for workers is there will always be a quantity of workers who are in between jobs

4.1.2.4. seasonal unemployment

4.1.2.4.1. results from regular fluctuations in weather conditions or demand and particularly affects:

4.1.2.5. classical unemployment

4.1.2.5.1. when real wage is above the equilibrium of the labour market

4.1.2.5.2. this may be due to the existence of a minimum wage which in effect "prices workers out of jobs"

4.1.3. 3.3: Curing unemployment

4.1.3.1. cyclical unemployment

4.1.3.1.1. use of demand side polices

4.1.3.1.2. loosen monetary and fiscal policies

4.1.3.2. structural unemployment

4.1.3.2.1. increase mobility

4.1.3.2.2. increase skills through training

4.1.3.3. frictional unemployment

4.1.3.3.1. increase access to information

4.1.3.4. seasonal unemployment

4.1.3.4.1. seasonal adjusted statistics

4.1.3.5. classical unemployment

4.1.3.5.1. decrease union power

4.1.3.5.2. decrease minimum wage

4.1.4. 3.4: The costs of unemployment

4.1.4.1. loss of income to the individual

4.1.4.2. loss of skills of the individual

4.1.4.3. government has to pay benefits

4.1.4.4. loss of tax revenue to government

4.1.4.5. the whole economy loses forgone output

5. Chapter 1

5.1. Macroeconomics

5.1.1. 1.1: Macroeconomic performance

5.1.1.1. An economy's ability to supply goods can be affected by

5.1.1.1.1. Investment in capital goods

5.1.1.1.2. Research & Development

5.1.1.1.3. Innovation

5.1.1.1.4. Skills, Education and Training

5.1.1.1.5. Competition

5.1.1.1.6. Lower Income Tax

5.1.1.1.7. Immigration

5.1.1.1.8. More women in the labour market

5.1.1.1.9. Population growth

5.1.1.1.10. Reduced Union Power

5.1.1.2. The UK's total output has grown by approx 2.5% per year since WW2

5.1.1.2.1. This is trend output

5.1.2. 1.2: The conflict of objectives

5.1.2.1. Output gaps

5.1.2.1.1. where actual output is above or below trend

5.1.3. 1.3: The circular flow of income

5.1.3.1. The idea that

5.1.3.1.1. Firms pay households incomes

5.1.3.1.2. Households supply firms with labour

5.1.3.2. However in reality there are other "leaks" to the money flow

5.1.3.2.1. Households often save incomes

5.1.3.2.2. Investment in firms can be said to balance this out

5.1.3.2.3. Households lose money through taxation

5.1.3.2.4. This money is reinvested by the government

5.1.3.2.5. Households also spend money on imports

5.1.3.2.6. This money is balanced through exports

5.1.3.2.7. Total injections (J)

5.1.3.2.8. Total withdrawals (W)

5.1.4. 1.4: Macroeconomic performance

5.1.4.1. Governments have to follow a path that allows them to achieve

5.1.4.1.1. Economic growth

5.1.4.1.2. Low unemployment

5.1.4.1.3. Low inflation

5.1.4.1.4. They do this through demand side policies

5.1.4.2. In a situation with a positive output gap governments use a contractionary policy

5.1.4.2.1. They increase taxes

5.1.4.2.2. Decrease government spending

5.1.4.2.3. Increase interest rates

5.1.4.3. In a situation with a negative output gap governments use an expansionary policy

5.1.4.3.1. They decrease taxes

5.1.4.3.2. Increase Government Spending

5.1.4.3.3. Decrease interest rates

5.1.4.4. The Supply Side

5.1.4.4.1. Financial

5.1.4.4.2. Social

5.1.4.4.3. Investment

6. Chapter 5

6.1. The Current Account

6.1.1. 5.1: Introduction

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

6.1.2. 5.2: Balance of payments

6.1.2.1. Exports of goods

6.1.2.2. - imports of goods

6.1.2.3. = Balance of trade in goods

6.1.2.4. Exports of services

6.1.2.5. - imports of services

6.1.2.6. = Balance of trade in services

6.1.2.7. Net income flows

6.1.2.8. + net transfers

6.1.2.9. = Current account balance

6.1.3. 5.3: Factors affecting the current account balance

6.1.3.1. Short term

6.1.3.1.1. demand side of the economy

6.1.3.2. Long term

6.1.3.2.1. supply side of the economy

6.1.4. 5.4: The exchange rate

6.1.4.1. SPICED

6.1.4.1.1. Strong

6.1.4.1.2. Pound

6.1.4.1.3. Imports

6.1.4.1.4. Cheap

6.1.4.1.5. Exports

6.1.4.1.6. Dear

6.1.4.2. WPIDEC

6.1.4.2.1. Weak

6.1.4.2.2. Pound

6.1.4.2.3. Imports

6.1.4.2.4. Dear

6.1.4.2.5. Exports

6.1.4.2.6. Cheap

6.1.5. 5.5: The current account and macroeconomic performance

6.1.5.1. AD = C + I + G + (X - M)

6.1.5.1.1. a rise in net exports will increase AD, as will an increase in net imports decrease AD

6.1.5.2. The current account can be linked to inflation

6.1.5.2.1. a strongly negative current account may be due to high import prices giving cost push inflation

6.1.6. 5.6: Improving the economy's external performance

6.1.6.1. 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