2024 Flashcards
Economic growth
An increase in the productive potential of an economy
It us measured by an increase in the real gdp
Productivity
Productivity is the ratio of output to inputs used in production
Its usually measured as output per worker
Describe possible causes low productivity in the Uk
Lower investment in capital/technology
Skills shortages
Geographical immobility of labour exacerbated by lack of supply of housing
Poor infrastructure in road and rail
Hard to improve labour productivity in the service sector
Poor management and industrial relations
Labour hoarding after pandemic
National debt
The cumulative total of all budget deficit
Explain why higher business investment might lead to economic growth
Higher investment in capital and technology increases capital productivity leading to higher output leading to long run economic growth
Higher investment can result in increased employment in ancillary industries which leads to higher output in those ancillary industries
Increased investment will lead to more higher paid jobs which leads to increasing spending which then lead to increased tax revenue for gobt
Advantages for raising the highest rate of income tax
Makes the tax system more progressive
Raises tax revenue
Reduces income inequality
Disadvantages for raising the highest rate of income tax
Encourages tax avoidance so less tax revenue
Reduces enterprise
Brain drain - relocation means loss of skills
Describe possible problems for the uk economy of large budget deficits
The burden on national debt increases
The possible negative impact on the UK’s credit rating
The negative impact iy might have on business confidence
Intergenerational unfairness tax burden on future generations
The opportunity cost of the interest payments in the debt
Oligopoly graph
Firms in oligopolies do nkt usually compete on price. This is because the oligopolies face a kinked demand curve, which is elastic above the market price and price inelastic below the market price. If a firm increases its price above market price, then rivals will not follow leading a more than proportionate reduction in quantity demanded than the proportionate change in price leadinf to lower revenue.
Describe inflationary and deflationary pressure’s currently impacting the uk
Inflationary
Increase in oil price due to conflict in the middle east
Rising rent prices
Supply delays due to red sea shipping attacks
Deflationary
Interest rates risen
Why do raise and lowe interest rates
Raise
Will help lower CPI inflation which is above target
High inflation has also led to high wage expectations which needs to be curtailed
To discourage consumer borrowing as consumers have become used to long term low interest rates and cheap borrowing which has created unhealthy levels of personal debt which needs to be addressed
To address distortions in asset markets due to 15 years of ultra low interest rates
Lowering
To increase investment which could further improve uk productivity
Will increase discretionary income which could lead to a further increase in aggregate demand which would help avoid economic recession
To make mortgages affordable
