3.2.2-Government objectives Flashcards
What is the Balance of Payments (BOP)
A record of all economic transactions between the residents of the country and the rest of the world in a particular period
What is conflict?
The better one objective does, the worse another does
What is economic growth?
An increase in the productive capacity of the economy to produce goods and services
What are economic objectives?
The main aims of the government
What is full employment?
Where all eligable people who want to work can find jobs
What is inequality?
A lack of equality in the sharing of wealth or opportunities in an economy
What is price stability?
Where the inflation is within the government’s target of 1-3%
What is a trade-off?
Accepting less of something in return for more of something else-a solution to minimise the negative impact of an objective comprimise
What are some potential trade offs?
Unemployment lowering-Inflation
Economic growth-Inflation
Economic Growth-Environment
Inflation-Current account
What is GDP?
Gross domestic product is the total value of everything produced in a country
What is GDP per capita?
GDP divided by population-useful for comparing countries and reflects changes in population size
What is real GDP?
GDP that is adjusted by inflation
How do you calculate the rate of economic growth?
(Change in GDP between year 1 and 2 / GDP in year 1) x 100
What is nominal GDP?
GDP not adjusted for inflation
How do you calculate real GDP?
GDP x base year price index / current year price index
What determines economic growth?
- Investment
- Technology
- Education and training
- Labour productivity
- The size of the workforce
- Natural resources
- Government policies
What are some benefits of economic growth?
- A rise in living standards
- Increased employment
- A reduction in poverty
- A rise in the welfare of the population
- A rise in productivity
What are some drawbacks of economic growth?
- Environmental costs
- Air pollution
- Global warming
- Congestion
- Loss of non-renewable resources
- A lower quality of life
- Inequalities of income and wealth
- Inflation
What are limitations of GDP as a measure of growth?
- Inflation artificially increases GDP
- Population changes GDP
- Statistical errors
- Home goods being produced
- ‘Black economy’
- Living standards aren’t reflected
What is employment?
The use of labour to produce goods and services in an economy
What is unemployment?
Members of the labour force that are willing and able to work and are seeking employment
What is seasonal unemployment?
Lack of employment caused by a fall in demand during a particular season
What is frictional unemployment?
Lack of employment caused by time lags when workers move between jobs
What is structural unemployment?
Unemployment caused by a permanent decline of an industry or industries
What is cyclical unemployment?
Lack of employment caused by lack if demand in an economy
What is voluntary unemployment?
Unemployment caused by people choosing not to work
What is being dismissed (firing)?
When your employer ends your employment
What is redundancy?
It is dismissal from your job, caused by your employer needing to reduce the workforce
What is the difference between the level and rate of unemployment?
Level of unemployment-Number of people unemployed
Rate of unemployment-Number of people employed as a percentage of the workforce
What is the measure of unemployment in the UK?
The claimant count-the amount of people claiming jobseeker’s allowance
What is the rate of unemployment formula?
NO. of unemployed / labour force x 100
What groups of people are ‘Economically inactive’?
- Pensioners
- Students
- Children
- Housewives/husbands
- Prisoners
What are the costs of unemployment to individuals?
- Lower living standards
- Loss of status and self-esteem
- May become unemployable after a period of time-skills become outdated
- Costs to taxpayers increases as more benefit payments must be funded
What are costs of unemployment to the government?
- Labour resouces are wasted
- Unemployment could lead to more unemployment-cyclical unemployment
- A budget deficit could occur
- Cost to specific regions
What is the consumer price index (CPI)
An index that compares the current prices of a basket of goods and services to the same basket a year previously
What is cost-push inflation?
Prices rising due to an increase in firm’s costs-causing a shift in aggregate supply
What is deflation?
A general force in the price level
What is demand-pull inflation?
Prices rising due to an increase in aggregate demand, typically consumption
What is disinflation?
Where prices are still rising but at a slower rate
What is hyperinflation?
Very high inflation-1000%+
What is inflation?
A general increase in prices and fall in the purchasing value of money
What is the rate of inflation?
The measurement of price changes over a time period, usually a year
What are the differences between CPI and RPI?
CPI doesn’t include housing costs so is used as the main measure of inflation in the economy (due to usually being a lower figure-as a result of high inflation on housing)
What is the BoE’s target for inflation?
2±1%
What do the goverment do to achieve their objective of low inflation?
Monetary policy (interest rates, money supply & exchange rates)
What are the benefits of low inflation?
- Economic stability
- Encourages investment from overseas-if the UK is lower than other countries they will invest in the UK
- Maintain living standards
- Avoids ‘booms and busts’ in economic cycles
- Avoids uncertainty and loss of interational competitiveness
- Business confidence leading to investment leading to increased productivity and economic growth
What are the two types of inflation?
Demand pull inflation and cost push inflation
What are the causes of demand pull inflation?
- An unexpected increase in consumer confidence
- Goods not being imported or manufactured fast enough to meet the new demand
- Collusion between firms-to fix prices via illegal agreements
- Firms with monopoly power taking advantage of their position by raising prices
What are the causes of cost push inflation?
- A rise in the cost of labour
- A rise in the cost of raw materials, whether imported or domestically produced
- A rise in transport or energy costs
How do increased interest rates affect inflation?
Increased interest rates lead to lower economic growth leading to slower inflation
How do decreased interest rates affect inflation?
Decreased interest rates lead to higher economic growth leading to faster inflation
What is the Balance of Trade?
The difference between the exports and imports of goods and services into and out of a country
What is the Current Account?
The account that records the visible and invisible trades of a country as well as government aid payments.
What is a Current Account Deficit?
Imports are greater than exports
What is a Current Account Surplus?
Exports are greater than imports
What is the Current Balance?
The difference between exports and imports
What is Invisible trade?
Trade in services
What is Visible trade?
Trade in goods
What are the 4 parts of the current account?
- Trade in goods
- Trade in services
- Investment income
- Current transfers
What are imports?
Outwards flow of money from the country/economy
What are exports?
Inwards flow of money to the country/economy
What are the 5 largest trading partners of the UK?
- USA
- Germany
- Netherlands
- France
- China
What is the UK’s largest trade in goods?
- Cars
- Medicinal & Pharmaceutical products
What is the UK’s largest exported service?
Financial services
What are the benefits of exporting?
- They are an injection into the economy
- They increase AD
- They reduce unemployment levels
What are the problems and benefits of importing?
Problems:
* Leakage from the economy
* Deacreased AD
* Increase in likelikood of unemployment
Benefits
* Raises standard of living of a country
What are exchange rates?
The amount of one currency that can be bought with another
How can a surplus on the current account affect exchange rates?
A larger surplus means there are more exports meaning that there is more demand for currency in the economy-this could lead to the exchange rate getting stronger leading to the rise in the exchange rate.
How could an increase in the exchange rate have a negative impact on the current account?
If a country’s exchange rate gets stronger, exports become more expensive and imports cheaper-this might result in fewer exports being sold and more imports being bought in-negative impact on the current account.
What are the reasons for deficits and surpluses on the current account?
- Quality of domestic goods
- Quality of foreign goods
- Price of domestic goods
- Price of foreign goods
- Exchange rate
What are the impacts of a current account deficit?
Leakages–>Inflation–>Low demand for exports–>Funding the deficit–>Leakages
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What is absolute poverty?
According to the UN, people surviving on less than $1.90 per day-can’t afford essentials
What is income inequality?
Differences in income that exist between the different groups of earners in society (the gap between the rich and poor).
What is relative poverty?
Living below the standards of the average individual.
What is under-population?
When there could be a population increase without a reduction in living standards
What is wealth?
Collection of assets (houses, land, shares in companies, money saved in bank accounts).
What is wealth inequality?
The unequal distribution of assets across an economy
What are characteristics of absolute poverty?
- Income is insufficient to obtain the minimum needed to survive
- Don’t have food, clean water, shelter, heating and clothes
- Their income is so low they can barely survive
- Rowntree-shopping list-income below his was absolute poverty
What are some characteristics of relative poverty?
- When someone cannot afford to meet the general standard of living of most other people in their society
- Their income is much less than the average for society as a whole, so they are poor compared with others in society
What does the national minimum wage do?
- Helps to give people who are low skilled, traditionally low wage, jobs, a certain amount of money to live on
What are the state benefits?
- Universal credit (main one)
- Jobseeker’s allowance
- Pension credit
- Child benefit
- Carers allowance
- Disability living allowance
- Cold weather payment
What is the top fifth of incomes compared with the bottom fifth?
40% compared to 8%
What are the causes of income disparity?
- Income earning assets
- Differences in wages
- Reliance on benefits
- Age and gender differences
What are the reasons to reduce poverty and inequality?
- To meet basic needs
- To raise living standards
- Ethical reasons
How can the government intervene to reduce poverty?
- Progressive taxation
- Redistribution through payments
- Investment in healthcare
What is the main stat on the benefit of education?
One year of extra schooling increases an individual earnings by up to 10%
How can investment into healthcare reduce poverty?
- If children are healthier, their attendance at school is higher
- If people live longer, they are more likely to save for their retirement
- If people are healthy, they will be more productive in the workplace, which will help to increase economic growth
What are the main causes of world poverty?
- Natural disasters
- Civil war
- Corruption
- Climate
- Unfair World trade
- Reliance on exports
- Disease
- Lower life expectancy
- Lack of education
