5047654
Description
Mind Map by Rocio Naval, updated more than 1 year ago
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Created by Rocio Naval
over 8 years ago
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|
Macroeconomics
- Gross National Product
(GNP = GNI)
- GNP = GNI = GDP + net property from abroad (or minus net property income paid abroad)
- GNP = GNI = GDP + net property from abroad (or minus net property income paid abroad)
- CIRCULAR FLOW OF INCOME
- NATIONAL INCOME = NATIONAL OUTPUT = NATIONAL EXPENDITURE
- NATIONAL INCOME = NATIONAL OUTPUT = NATIONAL EXPENDITURE
- Y =
National
Income;
C
=
Domestic
Consumption;
S
=
Savings;
M
=
Imports;
T
=
Taxation;
I
=
Investment;
X
=
Exports;
G
=
Government
Spending
- Net National Product (NNP)
- NNP = GNP minus capital consumption
- NNP = GNP minus capital consumption
- AD/AS
- AD=C+I+G+(X-M)
- AD shift right:: reduction in income tax, therefore
consumption increases, reduction in interest rates
boosting consumer spending and corporate
investment, increase in government spending, business
boosting export sales
- AD shift left: decrease in consumption due to saving
more or increase in interest rates or income tax,
increase in interest rates thus less attractive so less
investment, reduction in government spending, fall in
exports from ex. appreciation of exchange rate
- AD shift right:: reduction in income tax, therefore
consumption increases, reduction in interest rates
boosting consumer spending and corporate
investment, increase in government spending, business
boosting export sales
- SRAS (upward sloping) dependent on
indirect tax, wage costs,
raw material and import
costs, weather conditions
- LRAS (vertical) determined by
quantity and quality of resources
and factors of production
- Classical/neo-classical: vertical
due to belief that economy will be
restored in the long run
- Keynesian: horizontal until full
employment (Yfe) is restored then
vertical
- Classical/neo-classical: vertical
due to belief that economy will be
restored in the long run
- AD=C+I+G+(X-M)
- objectives: low levels of unemployment or perhaps
full employment, price stability - low and stable
rates of inflation, a satisfactory balance of
payments, high levels of economic growth, a
satisfactory distribution of income
- UNEMPLOYMENT
- consequences on economy: loss of
output, loss of tax revenue, increase
in government expenditure, loss of
profits; consequences on firms:
lower demand, reduction in
productivity; consequences on
individuals: lower living standards
- Frictional unemployment: when a time lag exists
between someone changing jobs; casual and
seasonal unemployment
- Structural unemployment: when a structural decline takes
place in certain industries which are no longer capable of
competing in their markets; technological unemployment
- Cyclical or demand deficient unemployment:
when the cyclical nature of the macro
economy is moving downwards so labour is
not required in large amounts
- reducing unemployment
using expansionary
monetary and/or fiscal
policy: cutting interest
rates, Increasing
government expenditure,
cutting taxes
- consequences on economy: loss of
output, loss of tax revenue, increase
in government expenditure, loss of
profits; consequences on firms:
lower demand, reduction in
productivity; consequences on
individuals: lower living standards
- INFLATION: PERSISTENT INCREASE IN GENERAL PRICE LEVEL
- measuring inflation using a consumer price index: the use of a
survey to decide on the weights to be used -> The recording of
price changes -> Each price is then multiplied by its weight
- problems with measuring inflation: changes in the
quality of a good or service, special offers, change
of expenditure patterns, sampling errors (ex.
deviation from averages)
- problems with measuring inflation: changes in the
quality of a good or service, special offers, change
of expenditure patterns, sampling errors (ex.
deviation from averages)
- period of inflation dependent on: rate at
which prices rise, whether rate accelerates
or not, whether rate is that which was
expected, rates compared to other
countries
- CONSEQUENCES OF INFLATION
- ANTICIPATED INFLATION
- Menu costs (costs to the firms)
- Shoe-leather costs (costs to the individual)
- Distortions to the tax system
- If tax thresholds are not increased in line with
inflation, then FISCAL DRAG arises. This is when
people are dragged into higher tax bands, or
dragged over the threshold for starting to pay
tax.
- If tax thresholds are not increased in line with
inflation, then FISCAL DRAG arises. This is when
people are dragged into higher tax bands, or
dragged over the threshold for starting to pay
tax.
- Menu costs (costs to the firms)
- UNANTICIPATED INFLATION
- Uncertainty (affects investment plans, etc)
- Wage distortions (worse-off hit harder than better-off)
- Resource costs (relative and general price increase -> eventual allocative inefficiency)
- Redistribution (arbitrary and unfair redistribution of income)
- BOP/Competitiveness (BOP worsens -> discouragement of capital and financial investments)
- Uncertainty (affects investment plans, etc)
- ANTICIPATED INFLATION
- measuring inflation using a consumer price index: the use of a
survey to decide on the weights to be used -> The recording of
price changes -> Each price is then multiplied by its weight
- FISCAL POLICY
- Fiscal policy is the use of government
expenditure and taxation to manage the
economy. It can be employed: to boost the level
of economic activity if there is a shortage of
demand which is causing a deflationary gap. In
this case, it is called reflationary policy; to
reduce the level of economic activity if too
much demand in the economy is causing an
inflationary gap . In this case, a deflationary
policy is appropriate; as a supply-side policy
,used to improve incentives, e.g. through tax
cuts, or to improve the quality of resources,
such as increased government expenditure on
health and education.
- The budget is essentially the relationship
between government spending on the one hand
and government income or taxation on the other
hand.
- Types of government expenditure:
Government final consumption
expenditure on goods and services,
Gross fixed capital formation (or
government investment), Transfer
payments
- Types of government expenditure:
Government final consumption
expenditure on goods and services,
Gross fixed capital formation (or
government investment), Transfer
payments
- Reflationary or Expansionary Fiscal Policy
- IN TIMES OF RECESSION: Cutting
the lower, basic or higher rates
of tax; Increasing tax-free
allowances; Increasing the level of
government expenditure
- AD SHIFT RIGHT
- AD SHIFT RIGHT
- IN TIMES OF RECESSION: Cutting
the lower, basic or higher rates
of tax; Increasing tax-free
allowances; Increasing the level of
government expenditure
- Deflationary Fiscal Policy
- IN TIMES OF ECONOMIC BOOM:
Increasing the lower, basic or
higher rates of tax; Reducing the
level of personal allowances;
Reducing the level of government
expenditure
- AD SHIFT LEFT
- AD SHIFT LEFT
- IN TIMES OF ECONOMIC BOOM:
Increasing the lower, basic or
higher rates of tax; Reducing the
level of personal allowances;
Reducing the level of government
expenditure
- Fiscal policy is the use of government
expenditure and taxation to manage the
economy. It can be employed: to boost the level
of economic activity if there is a shortage of
demand which is causing a deflationary gap. In
this case, it is called reflationary policy; to
reduce the level of economic activity if too
much demand in the economy is causing an
inflationary gap . In this case, a deflationary
policy is appropriate; as a supply-side policy
,used to improve incentives, e.g. through tax
cuts, or to improve the quality of resources,
such as increased government expenditure on
health and education.
- MONETARY POLICY
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