2.5 Flashcards
what is the economic cycle?
the tendency of national or global economic activity to fluctuate between boom, downturn, recession and recovery
what is GDP?
Gross Domestic Product which occurs within UK borders e.g. investment, profit, consumer confidence, employment
what is GNP?
Gross National Product which is of that nationality
when does a recession occur?
when 2 quarters of GDP growth is negative consecutively
what are the 6 qualities of a recession?
decreasing GDP growth
decreasing consumer confidence
increasing unemployment
decreasing investment
decreasing income
decreasing imports
what are the 9 qualities of a boom?
increasing GDP growth
increasing inflation in a downturn
increasing capacity
increasing imports
increasing government tax revenue
increasing consumer confidence
decreasing unemployment
increasing investment
increasing income
what is stagflation?
the unattractive combination of increasing inflation and falling GDP
what does cyclical unemployment do?
follow the economic cycle
what is a depression?
a prolonged slump where real GDP falls by more than 10% from peak to trough
what happened with Greece’s depression?
Greece’s national output fell for 6 consecutive years and GDP is more than 25% lower than at the peak of the cycle
what is a leading indicator?
early signs of the direction of economic activity e.g. business and consumer confidence levels, capital goods orders and construction firm order books
what is a lagging indicator?
it measures which are slow to reflect the current state of economic activity e.g unemployment levels
when is the economy in equilibrium?
when injections = leakages
what is the multiplier?
an economic factor that when increased or changed causes increases or changes in many other related economic variables
what is AD?
the total demand for all goods and services in an economy at any given price level over a period of time
what is the formula for AD?
C + I + G + (X-M)
what is consumption affected by?
confidence, income tax, level of employment and interest rates
what investment affected by?
interest rates, confidence, corporation tax and capacity utilisation
what is government spending affected by?
government policies and the stage in the economic policy
what are imports/exports affected by?
exchange rates, international competitiveness and the state of the global economy
what is AS?
the total value of output of the economy at a given price level and period of time
what is assumed in the short run?
all factors of production are fixed (labour can be an exception)
what 3 things cause a shift in SRAS?
input costs
tax, subsidies and imported costs
supply shocks
what is meant by input costs?
wages, labour productivity, interest rates
what is meant by supply shocks?
political/environmental crisis
why can producers increase their level of output without increasing average costs in regards to LRAS?
because of spare capacity
what happens to the available factors in the economy as it moves closer to potential output in regards to LRAS?
they become scarce
in regards to LRAS, was producers increase output what do they bid for?
scarce factors and as a result prices increase
in regards to LRAS, when the economy is at full capacity, what is happening to the factors and what is the result of that?
all factors are being used and so output cannot increase but prices and wages do
what is frictional unemployment?
with every economy needing a certain level of unemployment to create change in the economic structure; this can be done through workers moving between jobs and changes in the wage rate
what happens if the economy overheats?
frictional unemployment will decrease which is indicative of real economic growth
what 5 things cause shifts in LRAS?
labour supply
stock of capital inputs
efficiency of allocation
state of technology
quality/ productivity of factor inputs
