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Macroeconomics (Macroeconomic Objectives (Equity in the distribution of…

- - - - Sum of value of all goods and services produced in the economy
      - Income method: sum of all incomes earned in the economy
      - Expenditure method: sum of expenditures by all sectors in the economy
- - - - A shift along the AD curve occurs when the average price level changes
        
        A shift of the AD curve occurs when one of the AD components change
      - Consumption:
        
        Consumer confidence
        
        Interest Rates
        
        Wealth
        
        Disposable income
        
        Income Tax
        
        Household debt
      - Investment:
        
        Interest rates
        
        Business confidence
        
        Level of technology
        
        Business tax
        
        Level of corporate debt
      - Government Spending:
        
        Policy choices of the govt
      - Net Exports:
        
        Income of trading partners
        
        Value of home currency
        
        Value of foreign currencies
        
        Level of protectionism
  - - - Aggregate supply in the short run
    - - Neo-classical
      - Keynesian
      - What shifts LRAS?
        
        Changes in efficiency
        
        Technological development
        
        Changes in unemployment
        
        Institutional/governmental policy changes
- - - - Cyclical (demand-deficient)
        
        E.g. Eurozone crisis in 2013 - Low AD lead to unemployment rate of 11.5%
      - Frictional
      - Seasonal
      - Structural
    - - Refers to people of the working age actively looking for a job but who are without a job.
    - - Loss of real output (GDP)
      - Loss of income for unemployed workers
      - Loss of tax revenue for the government
      - Cost to the government through unemployment benefits
      - More unequal distribution of income
      - Greater social problems (crime, violence, drug use, homelessness).
      - Greater personal problems (Stress, family breakdowns can lead to depression or even suicide).
  - - - Non-inflationary growth
      - Increase in national income leads to greater living standards
      - Can improve technology - leading to greater advancements in medicine, transportation and entertainment - also leads to greater living standards
      - Higher tax revenues
    - - Effect on environment - greater output means more pollution.
      - Inflation Risk
      - May lead to greater income inequality
    - - An increase in the production of goods and services produced within an economy within a given time period.
  - - - Direct Taxes:
        
        Imposed on the income/wealth and a firm's profits
      - Indirect Taxes:
        
        Taxes imposed on the price of a good or service
      - Progressive Taxation:
        
        As income rises, people pay a higher proportion of their income as taxes
      - Regressive Taxes:
        
        Proportion of income paid in tax falls as your income increases because everyone pays the same amount (e.g. Indirect taxes as everyone pays the same $ in tax regardless of their income)
      - Proportional Taxes:
        
        Proportion of income paid in tax is the same for all income levels (e.g. 10% of income must be paid as tax)
  - - - Redistribution of income
        
        People who have fixed wages earn less "real" income
        
        Value of savings decrease
        
        Lenders and Debtors will be affected by the rate of inflation
      - Uncertainty in the Economy
      - Export competitiveness
    - - Demand Pull
      - Cost-push
    - - Uncertainty
      - Risk of deflationary spiral with high and increasing cyclical unemployment
      - Unemployment
- - - - Definition: Rely on intervention from the government to achieve growth in potential output and is usually favoured by Keynesian economists.
      - Types of interventionist policies:
        
        Investment in human capital (Education and Health Care)
        
        Investment in new technology
        
        Investment in Infrastructure
    - - Definition: A policy in which the market will operate on its own and without intervention to achieve an increase in supply.
      - Types of market-based policies:
        
        De-regulation
        
        Trade liberalisation
        
        Reducing Taxes
  - - - Definition: A government adjusting its spending levels or taxation rates to monitor the economy's aggregate demand.
      - Types of Fiscal Policy:
        
        Expansionary (to increase AD) --> decrease tax rates
        
        Contractionary (to decrease AD) --> increase tax rates
    - - Definition: How the central bank governs the supply of money and interest rates to increase/decrease aggregate demand.
      - Types of Monetary Policy:
        
        Expansionary (to increase AD) --> decrease inflation rate
        
        Contractionary (to decrease AD) --> increase inflation rate