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Economics A edexel > 2.1 Economic growth > Flashcards

2.1 Economic growth Flashcards

1
Q

(actual) Economic growth

A

measure of an increase in real GDP

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2
Q

GDP

A

total amount of goods and services produced in a country in 1 year

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3
Q

potential economic growth

A

measure of the increase in the productive capacity of an economy (shown by shift of PPF)

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4
Q

recession

A

when an economy suffers 2 consecutive quarters of negative economic growth

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5
Q

nominal GDP

A

money value of all goods and services produced by a country in one year

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6
Q

real GDP

A

nominal GDP adjusted for inflation (can measure volum of output over time)

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7
Q

GDP per capita

A

GDP divided by a country’s population - (better indicator of living standards)

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8
Q

volume of output

A

-amount/number of goods produced

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9
Q

value of output

A

-amount of goods produced (volume) x price sold at

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10
Q

GNI

A

income received by a country both domestically (GDP) and via net incomes from overseas

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11
Q

Purchasing power parities - PPP’s

A

the rate at which the currency of one country would have to be converted into that of another country to buy the same amount of goods and services in each country.

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12
Q

PPP exchange rate

A

-equalises purchasing power of different currencies
-aims of making more accurate standard of living between countries

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13
Q

PPP example - CD costs £10 to buy in UK & $10 in US
exchange rate = £1.00: $1.50
PPP rate = £1.00 : $1.00
this means..

A

-pound is overvalued

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14
Q

Using GDP to compare standards of living

A

-can be used to compare over time / between countries - has to be real GDP
-standard of living refers to qol (housing/health/environment/safety)

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15
Q

Quality of life

A

-is a measure of living standards that takes into account more than income/ GDP

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16
Q

limitation of using GDP to compare standards of living

A
  • different populations not accounted for
    -different rate if inflations (not comparable if not adjusted for inflation)
    -type of spending by gov (welfare/fiscal)
    -doesn’t show income inequality/ wealth gap
    -quality of g/s not reflected
    -hidden economy unaccounted
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17
Q

absolute poverty

A

-household income below necessary level to maintain a basic living standard ($2.00)

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18
Q

National happiness

A

-some govs take national happiness surveys given limitations of GDP
-uk - regular surveys about well-being
-measure strongly related to aspects of QOL (e.g health)
-attempt to measure subjective happiness

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19
Q

relationship between real income and subjective happiness

A

-positive relationship
-once income beyond marginal gains it plateus/falls
-Easterlin paradox
- policy as a result form paradox shows govs should focus on other measures (e.g macroeconomic objectives) , not just economic growth

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20
Q

Inflation

A

-sustained rise in general price level

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21
Q

deflation

A

-sustained fall in general price level

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22
Q

disinflation

A

-fall in the rate which the general price level is rising

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23
Q

CPI (consumer Price Index)

A

-a measure of the average change over time in the prices paid by consumers for a weighted average basket of goods and services

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24
Q

CPI usefulness

A

-used to measure inflation (changes in CPI)
-cane be used to make international comparisons of rates
-CPI is an index number -shown as a % relative to base year(100)

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25
Q

formula CPI

A

change/original x100

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26
Q

CPI calculated

A

-ONS collects prices on 710 products from 20,000 locations
-data collected once a month
-weights assigned to each avg household item bought
-price change x weights = give price index
-inflation rate = % change of index

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27
Q

weights

A

-proportion of income spent on items
-shows impact of price change on avg household spending

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28
Q

limitations of CPI

A

-doesn’t include housing costs (mortgage interest/rent/council tax)
-sampling - generalised /not representative of population
-spending patterns not reflected

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29
Q

CPIH

A

-preferred measure of inflation by ONS
-extend the CPI to include owner occupiers housing costs and council tax

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30
Q

Retail price index (RPI)

A

-Does include payments on mortgages but isn’t as reliable as the CPI for international comparisons
-calculate the cost of a typical basket of goods the difference in price for this basket from one year to the next gives rates of inflation
-housing costs included

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31
Q

Demand pull inflation

A

Occurs when aggregate demand in the economy increases at a faster rate than aggregate supply therefore causing inflationary pressure

32
Q

Cost push inflation

A

occurs when aggregate supply decreases i.e the. total costs of production increases

33
Q

Causes of demand pull inflation

A

-A decrease in interest rates
-rise in the level of business and consumer confidence
-an increase in gov spending
-exports rising relative to imports
-depreciation of the exchange rate - increasing demand for exports and reducing demand for imports

34
Q

Causes of cost push inflation

A

-Arise in oil prices and/or raw materials
-fall in the exchange rate making imports more expensive -rise in taxes on businesses
-increase in the minimum wage or wages
-increased regulations E.g. environmental health safety that increase costs

35
Q

monetarism

A

based on the belief that inflation is always a problem of too much money in the economy

36
Q

Inflation effects on consumers

A

(SAY RATE OF INFLATION)
-for those on fixed incomes - inflation mean REAL income decreases so PP would decrease
-REAL value of savings decreases - if inflation rate higher than interest rate of savings
- REAL value of loans fall = more manageable -if Inflation higher than interest rates on loans
-if inflation rising faster than wages in nominal terms = worse off

37
Q

Inflation effects on firms

A

-fall in exports - if inflation higher than its trading partner , international competitiveness will fall as firms exports become more expensive in foreign markets and imports seem cheaper weakening trade balance
-uncertainty - high inflation makes it difficult for firms to set budgets -low animal spirits - fall in investment
-lower profits - cost-push inflation = decrease in profits
-impact on monetary policy - high inflation = MPC could increase interest rates - investment may fall - (TIGHT MONETARY POLICY)
-some inflation allows firms to increase revenue if demand-pull = inc profits = encourage to reinvest

38
Q

Inflation effects on govs

A

-fall in real value of national debt - inflation reduce value of debt
-increased inequality - inflation= more difficult for lower income households with fixed incomes widening inequality gap
-weakened trade balance - fall in exports/increase in imports (see firms
-unemployment - low inflation - low demand high unemployment

39
Q

Tight Monetary policy

A

-Monetary Policy Comittee (MPC)
-reduces rate of inflation
-by raising interest rates
-reversing QE
-makes it more difficult for firms and consumers to borrow money.

40
Q

employment rate

A
  • no. of people in work as a % of the working age population
41
Q

International Labour Force survey / UK Labour force survey (lazy fuckers survey)

A

-sample households - 60,000 h - 100,000 people
-16-65 if out of work over last 4 weeks and available to start in 2
-international comparison - International labour organisation

42
Q

Claimant Count

A

-no. of people claiming benefits
-from Jobseekers Allowance (JSA) or Universal Credit (UC)
-criteria - not everyone eligible / some don’t claim
-only UK no - international comparison

43
Q

Unemployment

A

-when a person of working age (16-65) is actively seeking for employment and is unable to find work
-can be measured as a level or a %
-not a static concept

44
Q

labour force

A

economically active between 16-65 who are either employed and underemployed

45
Q

underemployment

A

-includes individuals who are seeking or available for additional work
-ONS measures measures this all the workers wanting to work more hours and available to start in 2 weeks
-OECD also includes to people who are working in jobs where skills are not adequantly utilised i.e overqualified

46
Q

benefits of increasing in employment rate

A

-increased GDP - higher employment- higher productivity - higher output
-increased revenues and profits for firms
-increased incomes -inc living standards
-improved skills - of workers (human capital)
-higher gov taxation revenue - more people pay tax and spend more VAT

47
Q

human capital

A

-the knowledge and skills of a workforce and determine its productivity
-can be improved by education & training

48
Q

effects of decrease in unemployment rate

A

-fall in gov spending by JSA / UC
-increased employment
-job market becomes less flexible (fewer workers for employers to choose from)

49
Q

economically inactive

A
  • refers to people not in education, employment or training and who are not actively seeking work within the last 4 weeks and who are unavailable to work within the next 2 weeks
    -includes students / stay at home parents / retired early/ too sick to work
50
Q

increase in inactivity rate

A
  • productive capacity of country will fall
    -there may be more claims on state benefits
  • the dependency ratio will increase
    -however if increase due to more people in higher education , likely to result in an increase in skills for future workforce
51
Q

dependency ratio

A

-the number of inactive people that active and employed people are supporting, directly or indirectly

52
Q

causes/ types of unemployment

A
  • cyclical
    -structural
    -frictional
    -seasonal
    -classical/real wage inflexibility
    -voluntary
53
Q

cyclical unemployment

A

-lack of spending in the economy/recession means that people out of work - expect this type of employment in a recession
-High unemployment as firms produce less due to lack of demand

54
Q

Structural unemployment

A

-Where industries are in decline and Waka skills are becoming obsolete (out of date)
- due to lack of transferable skills/tech changes

55
Q

Frictional unemployment

A

Where people are between jobs (two weeks)

56
Q

Seasonal unemployment

A

Where people are out of work for some periods of the year for example ski instructors in summer

57
Q

Classical or real wage inflexibility unemployment

A

-Where there are problems with the supply side of labour E.G minimum wage is too high above & equilibrium wage
-therefore firms need to reduce the cop and let some workers go

58
Q

Migration

A

Refers to the movement of people i.e immigration/immigration

59
Q

Net migration

A

Overall balance - number of immigrants minus emigrants

60
Q

Immigration

A

When people enter the country for a long term stay

61
Q

Emigration

A

When people exit a country for long-term stay in another country

62
Q

Reasons for migration

A

-Employment / education
-higher income
-QOL
-join other family members
-escape conflict
-avoid high tax
-remittances (migrate to send money back home)
-environmental

63
Q

Significance of migration

A

-Fill vacancies in the workforce increasing employment
-may displace other people from their work -unemployment rate may rise
-public finances migrants who work pay tax
-remittances - affect the current account of the balance of payments/doesn’t contribute to GDP

64
Q

Significance of skills for employment/unemployment

A

-Highly skilled workforce is likely to be more productive = economic growth
-earnings of highly skilled workers likely to be more than unskilled
-highly skilled workers are less likely to be unemployed/they have more stable and secure employment
-this all means income inequality and poverty are likely to be lower than if there was a large larger proportion of unskilled workers

65
Q

Effects unemployment on consumers

A

-Decrease in living standard
-loss of consumer confidence
-danger of mental illness
-fall in personal wealth
-Loss of skills
-lower living standards
-loss of income

66
Q

Effects of unemployment on firms

A

-Easier to recruit new employees
-less consumer spending so revenues and profits fall
-surplus labour means firms can reduce COP by holding wage down

67
Q

Effects of unemployment on government/society

A

I-ncrease spending on welfare benefits
- less revenue from income tax/indirect taxes
-opportunity cost: g/s that could’ve been produced by unemployed workers
-inequality may increase- may increase other factors like crime

68
Q

Balance of payments

A

Record of all financial transactions between economic agent of a country and all the other countries

69
Q

Balance of trade

A

Trade in goods balance + trade in services balance
( g exp- g imp) + (s exp -s imp) *value of …

70
Q

The current account

A

Records payments for transactions between countries in the present year
-balance of trade + investment income + current transfers

-Investment Income: earnings of foreign investments - payments made to foreigners
-current transfers: transfers money/goods/services e.g aid

71
Q

Current account surplus

A

Occurs when more money is flowing into the country than out
-positive value

72
Q

Current account deficit

A

Because when more money is flowing out of the country than in
-negative value

73
Q

Causes of a current account deficit

A

-Currency too strong -less internationally competitive- G/S cheaper abroad
-High rate of inflation
-high wage costs
-high rate of economic growth (more imports)

74
Q

Causes of a current account surplus

A

-Currency two weak - more internationally competitive exports attractive
-low rate of inflation
- low-wage costs
-low rate of economic growth (less imports)

75
Q

Relationship current account and macro economic objectives

A

-Persistent current account deficit country’s goods uncompetitive increasing level of unemployment = fall in rate of economic growth
-not true if deficit caused by lower exports due to boom and high spending/imports = fall in countries exchange rate increase imports maybe inflationary

76
Q

International trade causes

A

-Interconnectivity
-interdependence e.g. global supply chains
-flow of resources
-may be beneficial because it reduces costs and promotes corporation can result in trade blocks which can be unfair

Economics A edexel (5 decks)

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