2.1 Flashcards
what is economic growth
rate of change of output
increase in long term productive potential of country- increase in amount of goods and services produced
% change of GDP per annum
ppf
what is GDP
gross domestic product, total value of goods and services produced by a country per year
difference between total GDP and GDP per capita
total is overall
per capita is total divided by population
how can GDP per capita grow
if national output grows faster than population over a time period, so more goods and services to enjoy per person
what is the difference between real GDP and nominal GDP
real GDP does not include inflation
while nominal does
what is the equation for real GDP
nominal national output divided by average price level
what is short run and long run
In the short run, at least one factor of production is fixed; in the long run, all factors are variable
what is gross national income
value of goods and services produced in a country plus overseas investments
subtracts what foreigners earn and send back home as remittances
what is gross national product
value of all goods and services produced by a domestic business both at home and abroad
what is purchasing power parities
a method that allows us to look at the relative value of different currencies
compares how much the typical basket of goods cost in countries
problems of using GDP to compare standards of living
inaccuracy of data- black market, inefficient data collection.
inequalities- increase may be due to growth of income for one group of people only
quality of goods and services- living standards may increase more than GDP suggests
comparing different currencies- issues over which unit to use
comparisons of rates of growth of countries over time
national income levels per capita
uk national wellbeing
asks 4 questions about life satisfaction, anxiety, happiness and worthwhileness.
explain real income and happiness
poor and income increases, happy
rich and income increases, not happier
happiness depends on people around you
what is inflation
general increase of prices
what is deflation and its causes
fall in general price level over time, demand is delayed as consumers think it will fall further. occurs in periods of low growth
disinflation
when prices rise more slowly than they have in the past
what is the consumer price index
A household expenditure survey to decide what goes in basket of goods and products will have weights attached to them to determine level of inflation based on consumption.
limitations of CPI
does not include price of housing
only used since 1996 so difficult to make comparisons with historical data
not totally representative as it is not possible to take into account every single good
what is RPI
same as CPI but includes housing costs and exludes top 4% of income earners and low income pensioners
how is demand pull a cause of inflation
caused by excessive demand - too much money chasing too few goods
what are causes of demand pull inflation
reduced taxation- increase disposable income
lower interest rates- saving less rewarding
general rise in consumer spending
how is cost push a cause of inflation
firms respond to rising costs of production by increasing prices/ decrease in aggregate supply
causes of cost push inflation
wage increases
higher raw mat cost
higher taxes
natural disaster
how does growth of money supply cause inflation
being too much money in the economy. If people have access to money they will want to spend it but if there is no increase in the amount of goods and services supplied, then prices will have to rise.
effects of inflation on consumers
if peoples incomes don’t rise, they will have less to spend
if in debt, easier to pay off as price is cheaper value, vice versa for money owed
psychological effects
effects of inflation on firms
if inflation is higher, become less competitive so difficult to export
deflation lead to a fall in demand as people postpone purchases, leads to a fall in firms profit and business confidence. reluctant to invest
difficult to predict inflation, deflation, disinflation so hard to plan
changing prices leads to new menus and labelling etc, costly
effects of inflation on governments
if governments fail to change taxes in line with inflation, revenue will fall.
effects of inflation on workers
workers will demand increase in wages to cover higher costs of living
what is the claimant count as a measure of unemployment
number of people recieving benefits for being unemployed
definition of employed
1 hour paid work per week or more, temporarily away from work, government supported training scheme, 15 hours unpaid work for family or business
unemployed definition
working age without work, able to work and seeking for work in last 4 weeks and able to start in 2 weeks
economically inactive definition
working age, not seeking work, as well as people seeking work but can’t start e.g health, study
what is the labour force survey
sample of people living in households, asks personal circumstances and activity in labour market, to class as employed, unemployed or inactive
comparisons between claimant count and labour force survey
some people would only be in claimant count- fraudulent, hidden economy
aren’t eligible for benefits, so in LFS but not CC, partner is working,
what circumstances do both labour force survey and claimant count ignore
working part time but want to work full time
on gouvernement training scheme but prefer employment
classed as sick or disabled
in education because unable top get job
what is underemployment
part time or self employed, but prefer full time.
those in jobs that don’t reflect skill level,
are not included in unemployment statistics
increases during recessions
what happens if increase in inactivity
fall in productive potential, lower gdp and lower tax revenues as less people working
what is frictional unemployment
people moving between jobs
due to new workers entering or people leaving
short term
what is structural unemployment and what are the different types
long term decline in industry leading to a reduction in employment
sectoral
technological
regional
what is seasonal unemployment
industries may be prominent during certain times of the year so only demand large number of workers at a certain point of time
what is cyclical unemployment
due to a general lack of demand for goods in a country, causing business to cut costs and redunt employees
what is real wage inflexibility
when real wages remain above market clearing level so some people remain jobless
what is the effect of migration on employment and wages
increased jobs, spending creates more jobs
lower wages, supply of labour increases, so price equilibrium reduced.
how can uk maintain employment levels
increase skills of workforce
impacts of unemployment to workers
low job security
loss of skills
psychological factors
lower living standards due to income
impacts of unemployment on firms
fall in profit
smaller pool of skilled workers
offer low wages
impacts of unemployment on consumers
less choice and lower quality of goods
firms may lower prices to increase demand
impacts of unemployment on government
fall in tax revenue
higher spending on welfare
budget deficit
