Macroeconomics

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Post Keynesian 5 key concerns?
Money, Uncertainty, Efficiency, Effective demand and Income distribution.
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What are institutionalists concerned with?
Change in eco+legal system relationships, formation of institutes, relationship between power+social systems and effect of technical change on institutional structure.
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What are the three points of Austrian economics?
Not worried about A/B but process. Individualism not aggregate. Business cycle caused by excessive bank credit.
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Why is the AD curve sloping downwards?
Income effect, substitution effect, real balance effect.
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Why is the AS curve sloping upwards in the Keynesian view?
Assuming resource costs stable and high prices lead to higher profits, producing more will increase profitability.
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Why is the AS curve sloping upwards in the Classical view?
Prices rise, real wages don't keep up. Demand falls. Firms must increase nominal wages to make purchasing power stay stable. Increase costs in LR and prices only sticky in SR.
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Why is AD useful?
Shows how AD works diagrammatically and show how shifts cause changes in output and price.
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Why is AS useful?
Shows how AS shifts due to changes in capital, capacity and costs.
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What does the KCD show?
Planned expenditure of economy vs equilibrium. Firms react to planned expenditure. Follow consumer patterns.
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What does the original phillips curve state?
Unemployment and money wage rate relationship. As prices rise, unemployment falls as firms have incentive to produce more for higher profits. Unemployment can be reduced and output increased through rising inflation.
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What were the ideas of the people who made the EAPC?
Against gov maintaining full employment, adherents to NC model that the gov were problematic. Self regulating free market made optimal outcomes. Nominal variables such as prices and wages were accepted as real but PP stayed stable.
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What did Samuelson and Solow do?
Modified original curve to make it more linear. Money wage rate built on.
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Accelerating hypothesis background?
No permanent trade off between inflation and employment. Market would ensure unemployment was stable. Gov would simply lead to acerbating inflation. If u/e fell below NRu, income demands rise, leading to accelerating inflation.
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What does the EAPC show?
A - full employment. Expansionary monetary policy. B - Produce more so hire more. UE falls. C - Drain resources and demand higher wages. Consumption stops. Cycle repeats.
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Whats the conclusion of PC/EAPC?
In long run, inflation has little effect on employment and vice versa.
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What effects investment?
Business confidence. Strength of AD.
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What effects gov borrowing?
Ability. amount of debts. Restrictions on what its spent on.
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What effects exports?
Exchange rates, reputation and geography.
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What effects imports?
Exchange rates. SPICED
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What effects savings?
Cultural/social schemes - pensions. Interest rates.
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What effects taxes?
Too high - low income will use benefits. High income use tax havens. Laffer curve.
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Strengths of CFOI?
Shows flow of money and how it doesn't stay put. Shows consumer and worker nature of spending and saving.
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Weaknesses of CFOI?
Doesn't show any supply side policies. Non inflationary - inflation effects incomes and spending, not mentioned.
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What are some features of classical economics?
Pure competition. Unemployment can be voluntary. Flexible prices and wages. GDP deviations. Adjusts naturally - Don't want government help. Government limited role. Says Law. Individuals are rational. Concern over government borrowing.
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What are some features of Keynesian economics?
Inflexible prices and wages. Involuntary unemployment. Gov must keep AD strong for certainty. Confidence in public sector efficiency. Says law doesn't hold. free market not self correcting. Firms only produce in anticipation of selling. AD-GDP.
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What are the main thoughts of neoclassical synthesis?
Fusion. Walrus, Jevons and Menger. Post war period. LR= Classicals. Market system. SR= Keynesian. Not quick enough.
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What are the main thoughts of neoclassical synthesis? P2
Scientifically driven - firms behaviour. agents-rational. Consumers-utiliity. Firms-profits. Market always at equilibrium.
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Neoclassical synthesis view of Phillips curve?
Phillips curve gives gov ability to manipulate economy to reduce economic policy to tech or admin problem. Recession - stimulate AD. Inflation - constrain. Only face one or other. U/E and inflation have direct relationship.
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What do the new classicals think?
Robert Lucas - 1970s. Macro problems based on micro concepts to explain behaviour. max utility, rational expectations and clear market.
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What do the new classicals think? P2
Unemployment largely voluntary - monetary policy controls inflation. Fiscal policy destabilising. When prices are flexible and rational expectations, only unanticipated policies will impact economy.
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What do new keynesians think?
FE only over very long period of time, government needed before hand as laissez faire inefficient. Agree with NC that prices are flexible in LR and GDp will tend to potential GDP accepting rational exp.
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Market failures of new keynesians?
Sticky prices and wages, incomplete information and credit imperfections.
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What do Monetarists believe?
Money supply primary tool for economic stability. Fiscal is destabilising and inefficient. Gov spending crowds out private spending so no impact on GDP. Stead of increase of money parallel to average growth of GDP.
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What is UE and the current UK rate?
UE is the when someone is actively seeking employment but unable to find work. Current rate is 4.2%. Varies geographically and across age groups.
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What is frictional u/e?
When people are moving between jobs or moving to find work.
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What is structural u/e?
composition of output changes and therefore demand falls for an industry. Those employed lose jobs and have to move to find places which demand their skills or train in new skills. EG Miners
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What is cyclical u/e?
Business cycle patterns. peak - high output high employment. Recession - low output low employment.
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What is seasonal u/e?
When jobs rely on the seasons or time of year. EG Ski instructor will be out of work in summer months. To reduce this it is assumed those relying on seasons will have a second job lined up for other months.
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What is technological u/e?
When technological advancements create a loss of jobs. Labour saving 'mechanical muscles' machines or 'mechanical mind' processes. EG self checkout.
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What is voluntary u/e?
People who choose not to work and claim u/e benefits instead of a working income.
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What is NRU?
rate of u/e when the labour market is in equilibrium. difference between those who would like a job at the current wage rate – and those who are willing and able to take a job.
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How would training and education reduce u/e?
Reduce structural u/e. Gov providing training for long term unemployed help them to find work in the labour market. Giving skills and retraining programs to gain what employers want. However, no guarantee its the skills that are needed- time lag.
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How would increasing job info reduce u/e?
Increasing availability and level of job info and vacancies allow those searching easier and better access to opportunities. Reduce frictional u/e.
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How would subsidising firms reduce u/e?
Subsidising firms who employ long term unemployed. UK youth contract - firms receive 2275 payments for taking on 18-24 yr olds seeking JSA for 6 months +. But could make current workers redundant, less efficient etc.
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Demand side policies to reduce u/e?
Fiscal stimulus to boost disposable income, many govs use this to create new jobs.
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How would increasing government investment reduce u/e?
Gov funded projects of building new roads, houses or infrastructure would require a large, labour intensive workforce. This would not only employ more people, but lead to strong multiplier effect on output, income and new jobs would arise.
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How would lowering income taxes reduce u/e?
More disposable income - more consumption - firms produce more - require more labour.
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How would lowering corporation tax reduce u/e?
higher profit margins - extra income for investment or extra output - demand increased labour.
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How would lowering taxes for larger workforce reduce u/e?
incentive for large labour force if lower cost than tax for small work force. EG: cut in employer national insurance contribution if employ young, low paid workers.
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Other cards in this set

Card 2

Front

What are institutionalists concerned with?

Back

Change in eco+legal system relationships, formation of institutes, relationship between power+social systems and effect of technical change on institutional structure.

Card 3

Front

What are the three points of Austrian economics?

Back

Preview of the front of card 3

Card 4

Front

Why is the AD curve sloping downwards?

Back

Preview of the front of card 4

Card 5

Front

Why is the AS curve sloping upwards in the Keynesian view?

Back

Preview of the front of card 5
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