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Economics Paper 2 > 2.5 The Economic Cycle > Flashcards

2.5 The Economic Cycle Flashcards

1
Q

Define the economic cycle

A

The tendency for an economy to fluctuate between upswing, boom, downturn and recession

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2
Q

Give the 5 stages of the economic cycle

A

Upswing, boom, downturn, recession, recovery

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3
Q

Define economic boom

A

A period of rapid economic growth linked with rising demand and lower unemployment

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4
Q

Define economic downturn

A

Where people reduce spending, causing a fall in aggregate demand, thus reducing income and government revenue

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5
Q

Define recession

A

Where firms cut output due to low demand which reduces employment and lowers GDP

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6
Q

Define stagflation

A

A very bad combination of falling GDP and high inflation

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7
Q

Define what is meant by a ‘leading indicator’

A

Early signs of direct economic action such as the state of consumer confidence

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8
Q

Definer what is meant by a ‘lagging indicator’

A

Measures that are slow to reflect the current state of economic activity (e.g. employment levels)

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9
Q

Give 3 evaluation points on how a recession could be positive

A
  • Sales of inferior goods rise
  • Inflation is normally low
  • Scope to employ a higher skilled workforce
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10
Q

Define circular flow of income

A

Connections between different sectors of our economic system focusing on goods and services and factors of production between firms and houselholds

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11
Q

Give 3 injections into the circular flow of income

A

Investment
Exports
Government Spending

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12
Q

Give 3 leakages from the circular flow of income

A

Savings
Imports
Taxes

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13
Q

Define injection in relation to the circular flow of income

A

Additions to the link between firms and households

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14
Q

Define leakage in relation to the circular flow of income

A

Ways in which income escapes from the circular flow of income

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15
Q

Define Aggregate demand

A

Total demand for goods and services in the economy

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16
Q

Give the equation for AD

A

AD = C + I + G + (X - M)

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17
Q

What is the biggest component of AD?

A

Consumer Spending

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18
Q

How does investment boost AD?

A

Spending on capital goods increases the productive capacity of the economy

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19
Q

How does government spending boost AD?

A

Direct investment, indirect grants, welfare payments

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20
Q

How does the balance of payments boost AD?

A

Exports are counted as domestic demand

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21
Q

Define fiscal policy

A

The use of government spending, taxation and borrowing to influence the pattern of economic activity

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22
Q

Define monetary policy

A

The use of interest rates to influence the supply of money and borrowing to influence economic activity

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23
Q

Define aggregate supply

A

The total quantity of output in the economy at a given price level

24
Q

In which part of the aggregate supply graph is there lots of spare capacity in the economy?

A

Far left, under the curve

25
Q

In which part of the aggregate supply graph is there very little spare capacity in the economy?

A

Far right, under the curve

26
Q

Give the 3 things that impact Short-run Aggregate Supply

A
  • Employment costs
  • Cost of other inputs
  • Impact of government
27
Q

How do employment costs, other inputs and the impact of the government impact short-run aggregate supply?

A

The higher the cost, the lower output will be

28
Q

What is meant by long-run aggregate supply?

A

The long-term ability for an economy to produce goods and meet demand

29
Q

Give the 5 factors of long-run aggregate supply

A
  • Productivity of labour
  • Labour market participation
  • Innovation and enterprise
  • Capital investment
  • Supply constraints
30
Q

How does higher productivity boost AS?

A

Output per worker increases so more products are produced in the same time

31
Q

What is meant by labour market participation?

A

The number of people in the workforce

32
Q

How do supply constraints impact long-run aggregate supply?

A

Demand for scarce resources forces prices up

33
Q

Give 3 possible positive impacts on businesses of inflation

A
  • Real value of loans eroded
  • Assets are made more valuable
  • Spending on inferior goods increases
34
Q

Give 3 negative impacts of inflation on businesses

A
  • Real value of savings eroded
  • Uncertainty can postpone expansion plans
  • ‘wage price spiral’ as workers demand higher wages
35
Q

What is meant by the ‘wage price spiral’?

A

Increasing prices caused by inflation leading to staff demanding higher wages, reducing international competitiveness

36
Q

Define inflation

A

A sustained increase in the general price level

37
Q

Define deflation

A

A sustained fall in the general price level

38
Q

Define disinflation

A

A reduction in the rate of inflation

39
Q

Define nominal income

A

A measure of income that doesn’t take inflation into account

40
Q

Define real income

A

A measure of income that does take inflation into account

41
Q

What is the RPI?

A

A measure of income weighted on the collection of goods and services bought including mortgage payments

42
Q

What is the CPI?

A

A measure of income weighted on the collection of goods and services bought excluding mortgage payments

43
Q

What does demand-pull inflation come from?

A

An increase in AD

44
Q

What does cost-push inflation come from?

A

A reduction in AS

45
Q

Define unemployment

A

The number of people willing and able to work at a given price rate without a job

46
Q

Define underemployment

A

Those who aren’t working their desired hours or are overskilled for their job role

47
Q

What is the claimant count?

A

The number of people claiming jobseekers allowance

48
Q

What is the other name for the ILO?

A

Labour Force Survey

49
Q

What is the ILO (Labour Force Survey)?

A

Sample data based on counting those actively seeking work

50
Q

Name the 5 types of unemployment

A
  • Frictional
  • Seasonal
  • Structural
  • Geographical
  • Cyclical
51
Q

What is meant by frictional unemployment?

A

Temporary unemployment due to moving between 2 jobs

52
Q

What is meant by structural unemployment?

A

Long-term unemployment caused by changes in industry (e.g. the UK stopping coal mining)

53
Q

What is meant by geographical unemployment?

A

Where jobs are available but not in your local area so you may have to commute far or move to get them

54
Q

What is meant by seasonal unemployment?

A

Unemployment arising from the uneven pattern of activity in some industries

55
Q

What is meant by cyclical unemployment?

A

Unemployment from declines in AD during the downturn of an economic cycle

Economics Paper 2 (6 decks)

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