IB Economics: Macroeconomics

22 flashcards · Economics · by 5umrr

1. Economic growth

   An increase in the amount of goods and services produced by an economy over a period of time.

2. Boom

   a time of fast economic growth low employment inflation low poverty

3. Downturn

   slower growth decreasing employment lower inflation

4. Recession

   decrease in positive econ growth for 2 consecutive quarter (6 month)

5. Depression

   a recession that is especially long and severe

6. Recovery

   a rise in business activity after a recession or depression

7. Limitations of GDP

   1. inflation (same disposable income) 2. population changes 3. statistical errors 4. hidden economy (unrecorded transaction) 5. living standard (measure production not quality of lives) 6. external costs (environmental)

8. Causes of economic growth

   1. an increase in available resources 2. a technological improvement 3. a change in regulation 4. more investments 5. more consumer confidence

9. Stagflation

   a period of slow economic growth and high unemployment (stagnation) while prices rise (inflation)

10. CPI formula

    100 x (cost of basket in current year/cost of basket in base year) consumer price index

11. Inflation

    A general and progressive increase in average price level

12. Impact of Inflation

    1. price increase 2. wage increase (no change in disposable income) 3. less export demand (due to higher export price) 4. less unemployment 5. less investment (uncertainty, consumer and business confidence)

13. Interest rate and Inflation

    more inflation since the low interest rates allow more investments

14. Unemployment

    Measures the number of people who are willing and able to work, but do not have a job during a period of time.

15. Cylindrical/Demand deficient unemployment

    ppl laid off due to business failing

16. Structural Unemployment

    structure change in economy 1. Sectorial - declining industry 2. Technological - machines replace humans 3. Regional - industrial activity declining

17. Frictional Unemployment

    short-term unemployment that arises from the process of matching workers with jobs considered frictional unemployment until 8 weeks

18. Impact of Unemployment

    1. Efficiency 2. Unutilized resources 3. Discouraged workers 4. Govt having to spend more on benefits (less revenue) 5. Less consumer and business confidence

19. Current account

    in the balance of payments, records transactions of the export or import of goods and services

20. Current Account formula

    (X-M) + net current transfer + net income

21. Exchange rate

    the price of one currency in terms of another in floating exchange rate

22. Reasons for C.A. deficit/surplus

    1. quality of domestic goods 2. price of domestic goods 3. quality of foreign goods 4. price of foreign goods 5. exchange rates of both countries