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
What is Frictional Unemployment?
People taking time off as they switch from one job to another. Its not severe as its short-term and this is why the government targets 4% unemployment and not 0%.
What’s seasonal unemployment?
People working in seasonal roles become unemployed after the season ends. Its more serious than frictional unemployment but its still short-term as workers can seek employment in other roles during low seasons.
What’s Cyclical Unemployment?
Unemployment rising during economic downturns as AD falls. Its severe during long recessions and certain industries struggle more than other so certain workers are hit harder. Some of these industries are retail or services as they aren’t needed.
What’s real-wage inflexibility?
Wages sticking at higher costs causing unemployment as so not as many staff will be hired and so workers struggle to find jobs. Higher wages=less employees as only really low paid wages=more unemployment. This is very severe
What’s structural unemployment?
Unemployed due to a lack of skills or mobility to find a job. This occurs when industries die out. Workers then need to go back to education or to the bottom of the ladder to find work which is a long process and so is severe.
What is Geographic immobility of labour?
Being unable to unwilling to move to a place with more opportunities
What is Occupational Immobility of labour?
Lack of skills to find a job
How could the government reduce structural unemployment?
-Improve education
-Improving Apprenticeships
-Affordable living schemes
-Improved public transport
-Company tax breaks for trainees
What are the 5 economic agents?
Consumers
Firms
Workers
Government
Society
How does unemployment affect each of the economic agents?
Consumers- Less goods and services meaning lower living standards
Firms-Lower unemployment means less demand
Workers-Lower income so lower living standards
Government-Lower Tax Revenue and increased welfare payments
Society-Low outlook on the economy meaning social unrest
What are the four components of the Current Account?
Trade in Goods- X-M of goods
Trade in Services- X-M of Services
Income- Wages, Rent, Dividends +profit earned by UK entities overseas-Overseas entities in the UK
Current Transfers-Remittances or Aid sent into the UK-sent out from the UK
What Cyclical Factors cause a CA deficit?
Increasing Domestic Demand
Decreasing Foreign Demand
Over-Valued Exchange Rates
What Structural Factors cause a CA deficit?
Low international Competitiveness
High Relative Inflation
Low-Cost Competition
What are ways to reduce a CA deficit?
Reduce Expenditure = reduce AD
Expenditure switching (buy British)
Supply-side policies
What are the capital and financial accounts of the balance of payments?
Capital Account- Records transfers of capital assets
Financial Account- Measures net flow of financial claims
Together, they reflect capital market regulations and investment
What does an appreciation and depreciation of the pound do to AD?
An appreciation of the pound means that AD will decrease.
A depreciation of the pound means that AD will increase.
