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Economics (Macro (2.6 Macroeconomic Objectives and Policies (Macro…

- - - - Economic growth
        
        Economic growth is the rate of change of output. It is an increase in the long term productive potential of the country
        
        Gross domestric produce is the standard measure of output, it is the total value of goods and services produced in a country in a year.
        
        GDP per capita GDP/Popuation
        
        real GDP strips out the effect of inflation
      - Inflation
      - Employment
      - Balance of Payments
        
        The Balance of payments is a record of all financial transactions
        
        The current account consists of the Trade balance of goods and services, the Net primary income (flow of income from assets and dividends), and Net Secondary income (debt and aid)
  - - - Injections are monetary additions to the economy
        
        Government spending
        
        Investment
        
        Exports
      - withdrawals or leakages are where money is removed from the economy
        
        Taxes
        
        Savings
        
        imports
    - - value of multiplier is caused by peoples marginal propensity to consume MPC
      - multiplier is caused by injections
      - Marginal propensities
        
        Marginal propensity to consume MPC is the increase in consumption following an increase in income
        
        Marginal propensity to save MPS is the increase in saving following an increase in income
        
        Marginal propensity to tax MPT is the increase in taxation following an increase in income
        
        Marginal propensity to import MPM is the increase in imports following an increase in income
        
        Marginal propensity to withdraw MPW is the increase in leakages following an increase in income
        
        MPW = MPS + MPT + MPM
      - Multiplier = 1/(1-MPC) = 1/MPW
  - - - Growth (gdp)
      - Low and sustainable inflation
      - Low unemployment
      - sustainable BoP
      - Environmental protection
      - Less Inequality
    - - Monetary policy
        
        Interest rates
        
        Lower interest rates > more spending and more/cheaper to borrow
        
        higher interest rates > less spending and more costly to borrow/less borrowing
        
        Quantitative easing
        
        When the government assets in exchange for money in order to increase money supply
        
        when the gov does this, the extra money in economy is an injection and will be effected by the multiplier
        
        MPC - Monetary Policy Commitee
      - Fiscal policy
        
        Tax
        
        Tax decrease > more spending and more investment and less gov rev
        
        Tax increase > less spending and less investment and more gov revenue
        
        EVAL: if tax increase to much, then they will make less rev because businesses would make less revenue because they arent doing as well
        
        Government spending
        
        increase AD [C+I+G+(x-m)]
        
        Multiplier effect
    - - Market based polcies are polcies which are designed to remove anything that prevents the free market system working efficiently
        
        Increase incentives by reducing benefits and taxes
        
        Promote competition
        
        Privatisation is when a national company is sold to the private sector
        
        deregulation is when restrictions on business which restrict entry to the market are reduced
        
        Reform the labour market
        
        Increase retirement age
        
        make unions weaker
        
        lower minimum wage
        
        reduction of benefits
        
        Improve skills and quality of the labour force
        
        increase in high skilled migrants
      - Interventionist policies are policies designed to correct market failure
        
        Promote competition
        
        Competition policy is used to prevent monopolies in the market and make cartels and price fixing agreements illegal.
        
        Improve skills and quality of the labour force
        
        increase spending on education and training
        
        introduce regulation that forces firms to continuously train their own staff
        
        Improve infrastructure
        
        offer subsidies to firms that invest in infrastructure
        
        Government spending on infrastructure directly
    - - Economic growth vs protection of the environment
      - Economic growth vs BoP
      - Unemployment vs Inflation (debatable)
      - Expansionary policy vs inflation
      - deflationary policy vs employment and economic growth
- - - - Things that affect rational consumer behaviour
        
        Influenced by social norms
        
        Habitual behaviour
        
        includes addicitons
        
        laziness to switch
        
        weakness at computation
        
        dont realise some goods are cheaper
        
        cant be asked to figure out how to maximise purchasing power
      - Rational consumer behaviour dictates that consumer will maximise their satisfaction and utlity
    - - PED
        
        Price elasticity of demand is the responsiveness of demand to a change in the priuce of a good
        
        %Change in Quanity Demanded/%Change in price
        
        Elastic is when PED>1, Inelastic is when PED<1
        
        PED value is always negative so we ignore the sign
      - YED
        
        %Change in quantity demanded/%Change in income
        
        Income elasticity of demand is the responsiveness of demand to a change in income
        
        Negative = inferior good | Positive = normal good
      - XED
        
        Cross elasticity of demand is the responsiveness of demand for one product (A) to the change in price of another (B)
        
        %Change in quantity demanded of A/%Change in price of B
        
        Negative = complements | Positive = substitute | Zero = Monopoly
      - PES
        
        Price elasticity of supply is the responsiveness of supply to a change in the price of a good
        
        %Change in quantity supplied/%Change in price
        
        It is always positive
        
        its always positive because of the profit incentive
        
        It will be inelastic if there is no/not much spare capacity, training time, lack of land, etc
    - - price inelastic demand causes the burden of the tax to fall on the consumer
      - price elastic demand causes the burden of the tax to fall on the producer
      - price inelastic demand causes mainly the consumer to gain from a subsidy (the price drops alot)
      - price elastic demand causes mainly the produce to gain from a subsidy
    - - A consumer surplus is the difference between the price the consumer is willing to pay and the price they actually pay.
      - A producer surplus is the difference between the price the supplier is willing to produce their product at and the price they actually produce at.
  - - - Private costs/benefits are costs/benefits to an individual firm
        
        The supply curve represents the private costs
        
        The demand curve represents the private benefits
      - Social costs/benefits are costs/benefits of society as a whole
      - External costs/benefits are costs/benefits that effect a third party
        
        Difference between private costs/benefits and the social costs/benefits
        
        EG Climate change, free rider effect
    - - There is no incentive to make public goods because of the free rider effect, so no profit
    - - asymetric information is when one party knows more than the other
  - - - Max and min prices
      - Taxes/subsidies
      - Provision of public goods
        
        a public good is one that is non rivalrous and non excludable
      - Provision of information
    - - distortion of price signals
      - Unintended consequences
      - administrative costs
      - information gaps
- - - - Relative poverty is about people's income in compared to others in their area
        
        In Britian it is considered income of less than 60% of median household income
        
        another definition of relative poverty is those who cannot afford to buy goods which they need to not be considered poor according to social norms
        
        eg an electric fridge, or mobile phone
        
        Caused by higher salaries for the wealthier and changes in government spending and taxation
        
        In Britain de industrialisation has increased the number of service sector jobs, which tend to be lower paid
        
        in britain there has been a growth in underemployment, zero-hour contracts, part-time jobs and temporary jobs. This means lower wages for workers
        
        In britain there has been a decline in trade unions which means wages have not increased as much
        
        In britain state benefits have fallen and taxes have become more regressive
        
        long term and structual unemployment has rissen in Britain
      - the poverty line is the minimum level of income deemed necessary to achieve an adequate standard of living in a given country.
      - the poverty trap affects people on low incomes, when the tax and benefits system creates a disincentive to look for work or work longer hours
      - Absolute poverty is when people are unable to afford sufficient necessities to maintain life
        
        eg struggle to obtain food, safe water, sanitation facilities, shelter, education
        
        tends to fall as gdp rises
    - - Income is a flow of earnings whereas wealth is a stock of assets
        
        Wealth is more unevenly distributed because it can generate more wealth and it can be passed down through generations as inheritance
      - the Lorenz curve shows the cumulative percentage of the population plotted against the cumulative percentage of income that those people have
      - The Gini coefficient is the ratio of the area between the 45 degree line and the lorenz curve divided by the whole triangle under the 45 degree curve
        
        It is between 1 and 0, the bigger it is the more unequal the country
        
        A/(A+B)
      - Causes of wealth and income inequality
        
        Within countries
        
        Some workers earn more than others - different skills, longer hours etc.
        
        Wealth levels, people who are already wealthy find it easierto gain wealth
        
        Chance, eg buying a house and then, because of the area its in, having its value increase.
        
        Age, older people have had more time to accumulate wealth
        
        Between countries
        
        Some countries are held back by wars, droughts, famines, earth quakes
        
        developed countries tend to favour traiding with each other, making it harder for developed countries
      - The Kuznets hypothesis says that as society develops and moves from agriculture to industry, inequality increases as the wages of industrial workers rises faster than farms. Then, when wealth is redistributed through taxation and government spending and so inequality falls
  - - - HDI is a measure of economic development based on three factors, Health, Education, and income
      - HDI or Multidimensional Poverty Index measures the % of the population that is multidimensional poor, they are all three health, education and income
      - IHDI The Inequality-adjusted Human Development Index is the HDI but with another factor, inequality