2.1 Flashcards
What is the balance of payments?
The balance of payments is a record of all the financial transactions that occur between a country and the rest of the world
What is the current account?
The current account consists of all the financial transactions related to goods/services along with payments related to the transfer of income
What is a current account deficit?
When imports > exports
What is a current account surplus?
When exports > imports
When the UK is in a current account deficit is AD increasing or decreasing?
When the UK is in a current account deficit AD is decreased
What is unemployment?
Unemployment is when someone isn’t working but is actively seeking work
What are the 2 ways of measuring unemployment?
ILO survey (International Labour Organisation) and the claimant count
What is the ILO survey?
An extensive survey sent to 60,000 random households
What is the claimant count?
It calculates unemployment by counting the number of people claiming job seekers allowance
What is underemployment?
When someone takes a lower skilled job for their skill set
What are the causes of unemployment?
Structural unemployment, demand deficient unemployment, seasonal unemployment, frictional unemployment and real wage unemployment
What is structural unemployment?
When there’s a mismatch between jobs and skills in the economy
What is demand deficient unemployment?
Unemployment caused by a decrease in AD usually in a recession
What is seasonal unemployment ?
Occurs during certain seasons when labour isn’t required
What is frictional unemployment?
When workers are between 2 jobs
What is real wage unemployment?
Occurs when wages are inflexible
What does the circular flow of income show?
Shows the money flow between households and firms
What are the examples of injections into the circular flow of income?
(G) governments spending increases
(I) investment increases
(X) exports increase
What are the examples of leakages?
(S) increased savings by households
(T) increased taxation by governments
(M) increased import purchases
What is the multiplier effect?
The idea that a small first investment leads to a larger change in output
What is the MPC (Marginal Propensity to Consume)?
The proportion of addiction all income that is spent
What is MPS (Marginal Propensity to Save)?
The proportion of additional income that is saved
What is MPT (Marginal Propensity to Tax)?
The proportion of additional income that tax is paid
What is MPM (Marginal Propensity to Import)?
The proportion of income that is spent on imports
How do you calculate the multiplier effect?
1/ (1-MPC) or 1/ (MPM + MPS + MPT)
What are the macroeconomic objectives?
- Economic growth
- Low unemployment
- Low and stable inflation
- Current account equilibrium
- Balanced government budget
- Environmental protection
- Income equality
What are the 2 demand side policies and what are their aims?
Fiscal policy and Monetary policy. Aims to shift AD
What is fiscal policy?
The use of government spending and taxation to change AD
What is monetary policy?
The action of adjusting interest rates and the money supply to change AD
What is quantitative easing?
Printing more money in order to buy government assets in the open market
What is a fiscal deficit?
when government revenue < government spending
What is a fiscal surplus?
When government revenue > government spending
What is expansionary fiscal policy?
The use of government spending and taxation to increased AD
What is expansionary monetary policy?
The use of interest rates and quantitative easing in order to increased AD
What are the 2 types of supply side policies?
Interventionist and market based
What are the aims of supply side policies?
To increase incentives, to promote competition, to reform the labour market, to improves skills and quality of the labour force, to improve infrastructure
What is a market based supply side policy to increase incentives?
Reduce income/ corporation tax
Reduce unemployment benefits
What is a market based supply side policy to promote competition?
Privatisation and deregulations
Trade liberalisation
What is an interventionist supply side policy to promote competition?
Increased government spending on innovation
Direct support to firms to promote international competition
What is a market based supply side policy to reform the labour market?
Decrease trade union power
Decrease minimum wage
What is an interventionist supply side policy to reform the labour market?
Increase government spending on improving occupation mobility
What is an interventionist supply side policy to improve the skills and quality of the labour force?
Increase government spending on education and healthcare
What is an interventionist supply side policy to improve infrastructure?
Increase government spending on infrastructure
What are the advantages of supply side policies?
Increase rate of growth in the economy
Reduce average price levels
Reduce unemployment
Increase value of net exports
Improve infrastructure and quality of life
What are the disadvantages of supply side policies?
Worse distribution of income
Expensive to implement
Significant time lags
