2.5 (The Economic Cycle) Flashcards

Question

What are deflation and disinflation? + what should our rate of inflation be & why? (who are responsible for inflation rates?)

Answer 1

Deflation: sustained fall in the average price level and rise in the value of money Disinflation: fall in the rate of inflation + government set target is 2% - seen as safest way to avoid deflation which may lead to failing companies & mass unemployment - avoids trust in the system being lost (Bank of England and they regularly report to the government - if inflation falls outside of 1% margin of error they must report directly to Chancellor)

Answer 2

2003 + tax allowances on index-linked securities + cost of living & wage escalation + social housing rent increases + wage rates during employment negotiation

Answer 3

1) Apparel 2) Transportation 3) Education & Communication 4) Recreation 5) Medical Care 6) Food & Beverages 7) Housing 8) Other + more than 700 goods & services in the basket + items added & removed regularly based on consumer spending (e.g air fryers added & hand sanitiser removed in 2024) 2000=£0.52 2020=£1.03 (inflated by x1.9)

Answer 4

N: unadjusted rate or current price without taking inflation or other factors into account R: adjustments are made for general price level changes over time + both can be used to talk about the value of not only money but wages, share prices & other things of financial value (teacher salaries have had a 2% pay rises since 2010 but over a 5% fall in real value)

Answer 5

Occurs when demand for goods & services exceeds supply - usually associated with boom phase - businesses will raise prices to profit max + increased availability of credit + lower interest rates + housing market boom (makes people feel wealthier) + increase in government spending + booming US & EU economies (more exporting)

Answer 6

Occurs when overall prices increase due to increases in the cost of supply, usually driven by wages & raw materials 1) + Less likely to invest as interest rates will probably be high + workers may demand higher wages + less demand & sales for products + firms may be less price competitive globally + reduction in business confidence leading to possibly less investment 2) + less disposable income & purchasing power + more redundancies or unemployment + difficulties for those on low or fixed incomes + real value of debt decreases

Answer 7

Since 1980s, UK unemployment rate has fluctuated between 4% and 12% - up to 12% during 1980s (Thatcher) - down to 5% during 2000s (housing boom) + now at a rate of 4% but higher in the North than the South generally + Qatar has the lowest UR globally at 0.1% as it is a rapidly developing nation + South Africa has one of the highest UR globally at 32.1%

Answer 8

1) not having enough paid work or not doing work that makes full use of their skills and abilities 2) temporary employment that will usually last a few months based around a particular season or holiday 3) employment where the employee works on an as-needed basis 4) people who have been unemployed for 12 months of more

Answer 9

FT: - most common type - typically standard 35-40 hours a week - regular schedule & consistent pay - usually have work benefits PT: - allows them to work fewer hours - often has flexible schedules - hired to meet demands outside of constant workflow

Answer 10

One measure of unemployment & counts those people who are eligible to claim Job Seekers' Allowance + introduced in 1996 to replace unemployment benefit + eligible for 6 months before moving into special employment measures - have to have worked as an employee - can't be in full time education - have to have paid NI in the last 2/3 years (omits many people who don't meet all of the criteria necessary)

Answer 11

Includes all people above a specified age who during a time period were either: 1) without work 2) currently available to work 3) seeking work

Answer 12

longer-lasting form of unemployment caused by fundamental shifts in the economy & worsened by external factors such as technology, competition & government policy + workers lack the appropriate job skills or live too far from regions where jobs are available & cannot move closer + mismatch between what companies need & workers can offer

Answer 13

Primary= farming, fishing, forestry & mining Secondary= manufacturing Tertiary= services (over 70% of UK jobs) Quaternary= research, design & tech

Answer 14

Deindustrialisation occured during 1970s & 80s. Rapid decrease in the amount of manufacturing & growth in tertiary & quarternary sectors. Traditionally industries e.g ship building declined. + 1) global shift in manufacturing to e.g China where wages are lower, working hours longer & trade unions sometimes banned + 2) increase in the number of machines (mechanisation)

Answer 15

- central part of Industrial Revolution (first industrialised city in world) - centre of world's cotton industry (once responsible for 32% of the world's cotton production= 'cottonopolis') - during 1960s & 70s Mills closed at a rate of almost one a week and by 1980s textile industry of North West had almost vanished + Birmingham (vehicle manufacturing) + Sheffield (steel manufacturing)

Answer 16

unemployment in a specific geographical region (characterised by geographical immobility) e.g Port Talbot steel works + unemployment which occurs when trade unions push wages above market-clearing level or when government has pushed minimum wage above market clearing level

Answer 17

unemployment which occurs because the AD in the economy has fallen (in recession) which leads to a fall in demand for labour + if wages are 'sticky' so cannot be adjusted as this reduces flexibility for businesses meaning they have to let more people go

Answer 18

Loss of real output to the economy as a whole - real output of economy is below potential output & output lost can never be regained - the longer people are unemployed, the more de-skilled they become reducing potential output

Answer 19

- loss of tax revenues - extra costs of supporting unemployed (welfare, admin costs & increased policing) - high unemployment may lead to increased crime & anti-social behaviour, ill health & family breakdown leading to further costs + Birmingham has highest unemployment rate in UK (7.8%) & 4th highest violent crime rate + Mid-Sussex has lowest unemployment & 5th lowest violent crime rate

Answer 20

- direct financial cost to unemployed people (difference between previous income & unemployment benefit) - personal costs including stress-related illness & family issues caused by strain