2.1 Whiteboard tasks Flashcards
What are the 4 components of AD?
Consumption
Investment
Government Spending
Exports-Imports
What are the 18 components of Aggregate Demand?
Consumption:
-Disposable Income
-Interest Rates
-Wealth Effects
-Consumer Confidence
Investment:
-Interest Rates
-Animal Spirits
-Economic Growth Rate
-Business Expectations
-Access to Credit
-Government Influence
-Demand for Exports
Government Spending:
-Trade Cycle Stage
-Fiscal Policy
Exports-Imports:
-Protectionism
-Domestic Real Income
-Foreign Real Income
-Exchange Rates
-Non-price factors
Define GDP
GDP (Gross Domestic Product) is the amount of finished goods and services produced in a year
Define Real GDP
Value of finished goods and services produced in a year adjusted for inflation
Define GDP per Capita
country’s economic output is broken down to output per person
Define GNI
GNI (Gross National Income) is the total income earned by a country’s people and businesses including overseas money.
What’s the equation to work out GNI?
GDP+ Net factor incomes abroad
What are the benefits of economic growth?
-Higher Disposable Income
-Lower Unemployment
-Higher Profit for firms
-More tax revenue for govt
-Increased material wellbeing
What are the drawbacks for economic growth?
-Inflation
-Income Inequality
-Negative Externalities
-Current Account Deficit
What does measuring GDP and GNI ignore?
-Unpaid work
-Size of population
-Distribution of Income
-Improving Quality of products
-Improving quality of life
Define GNHI
GNHI (Gross National Happiness Index) measures the quality of life of a country on other things that aren’t income. These factors are:
-Health
-Education
-Diversity and Resilience
-Living Standards
-Sense of community
-Work-life balance
What is the Easterlin Paradox?
Higher income does no necessarily improve “happiness”. After a certain point, higher GDP per capita does not equate to higher quality of life.
Define Inflation?
The rate of increase in the price level in an economy
Define Deflation
A fall in the rate of inflation. The inflation rate can fall below zero.
Define Disinflation
A fall in the price level
What are the three measurements of inflation?
-CPI (Consumer Price Index)
-CPIH (Consumer Price Index + Housing Costs)
-RPI (Retail Price Index)
What’s CPI?
Measures the overall change in consumer prices based on a representative basket of goods and services over time.
What’s the CPHI?
Measure of inflation which is identical to the CPI as it has a representative basket of goods and services over time but it includes housing costs.
What’s the RPI?
Measure of inflation that tracks the average prices of basket of goods and services purchased by households. Measures the change in costs.
What are the two causes of inflation?
Cost-Push Inflation
Demand-Pull Inflation
What’s Cost-Push Inflation?
Cost of production is increasing will cause an increase in the price level. Higher production costs will be passed onto consumers in the form of higher prices.
What’s Demand-Pull Inflation?
Increased AD when the economy is at full capacity will increase the price level. This will cause excess demand and prices will be forced up.
In times of high inflation, what could the Government or Bank of England do to reduce inflationary pressure.
-Policies to reduce AD so that it shifts to the left and reduces inflationary pressure
-Policies to reduce costs of production like price caps, government subsidies or tax breaks
-Policies to improve the factors of production like education and training, improving infrastructure and de-regulation
What are the two ways of measuring unemployment?
Claimant Count- Number of people claiming Job Seekers Allowance or Universal Credit
Labor Force Survey- A survey of UK households. It asks working age people if they have been out of work in the last 4 weeks and if they’re ready to go in the next 2 weeks