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Macroeconomics, Nominal, Lower interest rates, Increase interest rates,…

- - - - Equality = same economic outcomes for everyone (ex: same salary, regardless position)
      - Equity = Fairness
    - - Wealth Inequality = different amount of assets households own
      - Income inequality = Unequal distribution of income (rent,wages,interest,profit)
    - - Absolute poverty = where individuals cannot afford to acquire the basic necessities for a
        healthy and safe existence
      - Relative poverty = household income is a certain percentage less than the median
        household income in the economy
  - - - Progressive (direct tax)
        
        Regressive (indirect tax)
        
        Proportional
        
        Progressive
        taxation
        
        A progressive tax system redistributes
        from those with higher income to those with lower income and reduces income
        inequality
        
        Redistribution often starts with the
        provision of free education and healthcare using tax revenues
        
        As income rises, the same percentage of
        income is paid in tax
        
        As income rises, a smaller percentage of
        income is paid in tax
        
        As income rises, a larger percentage of income is paid in tax (called the marginal tax rate)
      - (total taxes paid/total income) x 100
- - - - difficulties in measuring unemployment
        
        include underemployed (highly skilled do low skilled jobs)
        
        exclude ppl on retaining programmes who lost their job & early retired ppl
        
        include underemployed (part-time counts as full-time)
        
        include unemployed ppl that may be working illegally
        
        exclude discouraged workers who gives up
      - Types of unemployment
        
        seasonal = demand for labour changes based on seasons
        
        frictional = workers are between jobs ( short-term, voluntarily left previous job in search of another)
        
        structural = mismatch between jobs and skills
        
        labour market rigidities
        
        demand for particular labour skills
        
        change location of jobs
        
        cyclical = caused by fall in AD in economy
      - Unemployment rate = (unemployed/labour force) x 100
      - costs of unemployment
        
        Economic costs
        
        govt costs to deal with social problems caused by unemployment
        
        change in skill level in the economy
        
        govt costs for unemployment benefits
        
        loss of output/production
        
        loss of tax revenue
        
        loss of income for the unemployed
        
        loss of real GDP
        
        Personal & social costs
        
        mental stability
        
        health issues
        
        crime, vandalism, homelessness
        
        loss of income
        
        stress & suicide
  - - - there is a fall in the average price level of goods/services
      - Impacts
        
        Opposite of inflation distribution effects
        
        increase in real value of debt
        
        policy ineffectiveness as people expects prices to fall and spend less, monetary policy also cant be applied if interest rate is 0
        
        risk of bankruptcy and financial crisis
        
        uncertainty
        
        inefficient resource allocation as prices do not fall uniformly
    - - sustained increase in the average price level of goods/services in an economy
      - measure using CPI where average PL measure by checking price of a 'basket' which turns into index
        
        Weighted price index: (Cost of basket in year X / Cost of basket in base year) x 100
        
        Formula rate of inflation = (final value of index - initial value of index)/initial value of index x 100
        
        +ve value indicates inflation
        -ve value indicates deflation
        
        Limitations
        
        does not capture the quality of the products in the basket
        
        Different rates of inflation depending on regional or cultural factors
        
        CPI provides a level of inflation for the average basket and the basket of many households is not
        the average basket
        
        goods sold during discounts/sales is sold at lower prices that the price used in CPI
        
        a fixed basket doesn't account for new products introduced
        
        difficult for international comparisons as diff countries has diff types of goods, weights and calculation method.
      - Causes
        
        Demand pull inflation = excess demand in economy
        
        Cost push inflation = increases in the cost of production (SRAS)
      - Impact
        
        Consumers
        
        Decrease in purchasing power/real value
        
        savers may become worse off as they receive rateof interest equal to rate of inflation
        
        lenders are worse off as real value of loaned becomes lower even charging an interest at the rate of infation
        
        Borrowers are worse off as money borrowed has less value that the initial borrowing
        
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        Government
        
        international competitiveness reduced as export falls
        
        Lower real GDP due to uncertainty for investment and lower savings
        
        allocative inefficiency as signaling does not work effectively
        
        Producers
        
        Rapid price changes create uncertainty and delay investment
        
        Price changes force firms to change their menu prices
        
        Workers
        
        those receive fixed income is worse off
        
        Fall in real income as increase in income is not keeping up with inflation
      - Hyperinflation: High rates of inflation
        
        Caused by increase in money supply due to printing money
        
        causes inflationary spiral: inflation sets in a motion of events that worsen the inflation
    - - the average price level is still rising, but at a lower rate than before
    - - Short-run (increment of AD)
      - Long-run (automatic adjustment)
        
        therefore, in the longer run it is no longer a negative relationship
      - inverse relationship between inflation and unemployment
  - - - AD-AS
        
        increase in AD/SRAS
      - PPC
    - - AD-AS
        
        caused by any improvements determinants LRAS
      - PPC
    - - Living
        standards
        
        The
        Environment
        
        Income distribution
        
        Pros
        
        Decrease absolute poverty
        
        Higher employment, mora tax revenue for welfare distribution
        
        Cons
        
        Lack of Equity (rich richer & poor poorer)
        
        Pros
        
        improvement in eco-friendly technologies
        
        Cons
        
        negative externalities of production cause environmental damage
        
        resources decrease quickly
        
        Pros
        
        Increased incomes
        
        Increased employment
        
        Cons
        
        Rising aggregate demand causes demand pull inflation and PP of people with fixed incomes may fall
        
        greater consumption of demerit
        goods
        
        Greater output requires workers to work overtime and decrease their well-being
    - - Physical capital - spending on machines,equipment,road etc
        
        Human capital - skills,abilities,knowledge and health condition of labor
        
        Natural capital (land) - under the land and natural resources
- - - - LEAKAGES
        
        Savings
        
        Taxes
        
        Import
      - INJECTIONS
        
        Government spending
        
        Export
        
        Investment
    - - Firm give households GOODS & SERVICES
        
        in return for revenues
      - in return for
        
        interest
        
        wages
        
        profit
        
        rent
  - - - Peak
      - Contraction
      - Expansion
      - Trough
- - - - potential GDP (Yp)
        
        period of time (long run) when price of resources is flexible and change along with changes in price level
        
        Automatic adjustment/self-adjusting/self-correcting
        
        to achieve full employment equilibrium
        
        Ye > Yp (inflationary gap)
        
        Ye < Yp (Recessionary gap)
        
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      - Keynesian Model
        
        have 3 different sections
        
        horizontal, vertical, and curve
      - Shifting LRAS
        
        Natural rate of employment
        
        Efficiency
        
        Fully utilise resources
        
        Technology
        
        Capable to increase level of output
        
        Quantities of resources
        
        Capable to increase level of output
        
        Institutional changes
        
        Efficiency
        
        Quality of resources
        
        Capable to increase level of output
    - - total supplied G&S at any PL
      - wages is rigid
        
        Subsidies
        
        Firm's cost of production
        
        Wages
        
        Firm's cost of production
        
        Indirect taxes
        
        Firm's cost of production
        
        Non labour resources
        
        Firm's cost of production
        
        Supply shocks
  - - - C+I+G+(X-M)
    - - Government spending
        
        Political
        
        Provision merit & public goods
        
        Subsidies
        
        Economic
        
        Expenditure to influence AD
      - Consumer spending
        
        Wealth
        
        Feel on wealth
        
        Personal Income taxes
        
        Disposable income & Purchasing Power (PP)
        
        Interest rate
        
        cost of borrowing
        
        Household Indebtedness
        
        Level of debt & monthly repayment & PP
        
        Consumer confidence
        
        Optimistic/Pessimistic economy future
        
        Expectation future PL
        
        Forecast on future price
      - Net Export
        
        Trade protection
        
        Level of trade protection of a country will influence export of another country
        
        National income abroad
        
        Level of national income of one country influence export of another country
        
        Exchange rate
        
        appreciation/depreciation
      - Investment spending
        
        Business taxes
        
        Taxes on profit & Net profit after tax
        
        Interest rate
        
        Cost of borrowing
        
        Corporate Indebtedness
        
        Level of debt & Monthly repayment
        
        Business Confidence
        
        Optimistic/Pessimistic economy
        
        Legal Changes
        
        Appropriate policy
        
        Technology
        
        Productivity
  - - - Fiscal policy
        
        For
        
        Low and stable rate of inflation
        
        Low unemployment
        
        Reduce business cycle fluctuations
        
        Stable economic environment for long term
        
        External balance
        
        Equitable income distribution
        
        Expansionary fiscal policy = to increase AD
        
        Contractionary fiscal policy = to decrease AD
        
        Pros
        
        Cons
        
        Less effective during recession
        
        Sustainable debt
        
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        Inability to fine tune economy
        
        Possibility of inflationary
        
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        Deal with rapid and escalating inflation
        
        Impact of government spending
        
        Able to target sector
        
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        Affect potential output
        
        Automatic stabilizers
        
        Unemployment benefit
        
        manipulate direct taxes and government spending to influence AD (C, I, G)
      - Monetary policy
        
        central bank influences interest rate that changes of AD (C and I)
        
        Increase in supply of money will decrease interest rate and vice versa
        
        Expansionary monetary policy = to increase AD
        
        Pros
        
        Cons
        
        less effective in recession
        
        conflict of government objectives
        
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        interest rate can be incremental
        
        interest rate is reversible
        
        Flexible
        
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        Contractionary monetary policy = to decrease AD
        
        Tools of Monetary policy
        
        Open market operation
        
        Minimum reserve requirement
        
        Minimum lending rates
        
        Quantitative easing
        
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    - - Market based policies
        
        For:
        
        Increase productive capacity of economy for long term growth
        
        Improve competition and efficiency
        
        Greater labor market flexibility by reducing labor cost and reduce unemployment
        
        Encourage investment in innovation by firm
        5.Reduce inflation to improve international competitiveness
        
        labour market reforms
        
        Abolishing minimum wage legislation = Reduce in labor cost thus higher profit
        
        Weakening labour union = Wage become equilibrium thus reduce in labor cost thus higher profit
        
        Reducing unemployment benefits = Encourage unemployed seek for job
        
        Reducing job security
        
        Incentive related policies
        
        Lowering personal income taxes = motivate people to work more
        
        Lowering taxes on capital gain and interest income = motivate saving for greater investment
        
        Lowering business taxes = Higher net profit after tax for more investment in R&D and tech innovations
        
        encouraging competition
        
        Privatisation = Transfer ownership from public to private sector
        
        Deregulation = elimination/reduction in economic and social regulation
        
        Contracting out = Private sector gain contractual agreement to provide goods and services
        
        Anti-monopoly = Breaking up large firm to increase competition
        
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      - Interventionist policies
        
        Investment in human capital
        
        Investment in new technology
        
        Investment in infrastructure
        
        Industrial policies
        
        Support for SME
        
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        Support for infant industries
        
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        Provision of merit goods/public goods lead higher efficiency & productivity
        
        Research and development (R&D)
        
        Contribute new or advanced capital goods
        
        Training & education
        
        Access and services of health care
        
        Increase quality of resources and productivity 2. Increase quality of resources and productivity
- - - - cost of good XX in currency 1/cost of good XX in currency 2
- - - - Increase rate decrease bank reserve
  - - - New electronical reserve create to buy enormous variety and quantity of assets