2.1.1 Flashcards
What is economic growth?
Economic growth is the increase in a country’s output.
What are the measurements for economic growth?
- GDP
- Nominal and Real
- GDP per Capita
What is GDP?
GDP is the total output of a country, calculated by adding up output of all industries in a country , this way of calculation is the nominal GDP which hasn’t been adjusted for inflation.
What is real GDP?
This is GDP multiplied by the price index of the base year. A rise in real GDP measures the actual rise of output.
What is real GDP per head?
It is the division of real GDP by the population, if the population increases more than the GDP the rise in output may not be growth, simply indicative of a rise in population.
What are the limitations is measuring GDP?
- Informal Economy
- Unrecorded economic activity
- Illega Activities
- non-marketed goods and services (doing things by yourself)
What is the economic cycle?
Growth → Boom → Downturn → recession → recovery
What happens in a recesson?
This is where real GDP declines over a period of sic months or more.
What causes recessions?
- negative demand-side shock
- fall in business and consumer confidence
- negative supply-side schock
- rise in raw material costs
What happens after economic growth?
- Improve Living Tandards
- Higher Tax revenue, better government services
- Poverty can reduce
- More goods and services
- More jobs
- Less unemployment
- More pollution and less non-renewable resources
What are the government’s macroeconomic objectives?
- Economic Growth
- Low and Stable Inflation
- Low Unemploymeny
- BOP Surplus/Balance
- Redistribution of Income
- Protection of the environment
What is inflation?
Inflation is the rise of price levels over a period of time.
What is deflation?
It is the fall of prive levels over a period of time.
What are the kinds of inflation?
- Cost-Push
- Demand-Pull
What is Cost-Push Inflation?
This is inflation caused by the increase in costs of production, it can be caused by:
- Increase in minimum wage > Increase in labor productivity
- Wage-Price Spiral
- Raw Materials increase in price
What is demand-pull inflation?
This is inflation caused when there is excess demand.This is caused by:
- Increased Consumption, Increased Investment
- Higher Exports
- Higher Government Expenditure
- This is when supply < demand
- Lack of skilled workers etc
Monetary inflation is also demand-pull inflation, which is created by excessive growth of the monetary supply.
What can Inflation do to prices?
- It increases prices, can cause a fall in the value of money
What can inflation do to wages?
- Wages can decrease due to cutting costs
What can inflation do to exports?
- As inflation can depreciate the value of money
- This will increase exports due to cheaper costs
What can inflation do to businesses?
- They can cause shoe-leather costs
- This is when money is moved around for higher interest rates
- They can cause many costs, as prices should be adjusted to inflation
What can inflation do in general?
Increase uncertainty, reduce business and customer confidence, decrease investment. and Fiscal drag → tax brackets not measured to inflation.
What is unemployment?
This is being without job despite being able to work.
What are the types of unemployment?
- Cyclical
- Structural
- Seasonal
- Voluntary
- Frictional
What is cyclical unemployment?
This is unemployment caused by a lack of demand. This occurs during a recession, as demand for labour falls due to cost-push inflation.
What is Structural Unemployment?
THis is unemployment caused by the decline in industries. Some forms of this are:
- Technological Unemployment
- Regional Unemployment
This lasts for longer periods, and affects more workers. This especially affects immobile labour.
What is frictional unemployment?
This is unemployment that is the time period for workers in between jobs. Some kinds of this are:
- Search Unemployment(People who are looking for new jobs)
- Casual Unemployment (Actors, Migrant Workers)
- Seasonal Unemployment (Fall of demand at certain times)
What is the impact of unemployment?
On the Unemployed:
- Loss of self worth, loss of income, stress
- decline of mental and physical health
- Less education on the children
- can lead to relationship distress
On Firms:
- More Labour Supply
- Minimum wage may not rise
- Workers more willing to negotiate
- low demand for products
On the Economy:
- Market Failre
- Tax revenue is lower, Government expenditure increases
- Free rider issue
- Opportunity Cost
How can each kind of unemployment be dealt with?
Structural Unemployment → Supply-side policies (Training, Education)
Cyclical Unemployment → Monetary and Fiscal Policies
Frictional Unemployment → cut income tax
What is the BOP?
This is a record of all economic transactions done by a country
What does the current account of balance of payments consist of?
- Trade in Goods(goods )
- Trade in Services (payments and services)
Primary Income (general income) - Secondary INcome (gifts)
What is a current account surplus/deficit?
Surplus → Export > Import
Deficit → Import > Export
What causes deficits?
- Better foreign goods
- cheaper foreign goods
- stronger currency
What causes Surplus?
- Better domestic goods
- weaker exchange rate
- Cheaper domestic goods.
What is the impact of a current account deficit?
- Output and employment lower than possible
- more primary and secondary income leaving
- low demand for exports
- can be inflationary if prices rise abroad
How do businesses damage the environment?
All kinds of pollution
How can the government reduce these environmental impacts?
- LEgislations
- FInes
- Subsidies
- Regulation
- Pollution Permits
Why does the government want to redistribute income?
So that the income inequality gap can close, to break vicious circle of poverty.
