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AS Level Macroeconomics > 4. The macroeconomy > Flashcards

4. The macroeconomy Flashcards

1
Q

What is meant by the term national income?

A

National income measures the monetary value of the flow of output of goods and services produced in an economy, over a given time period

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2
Q

Why are national income statistics so useful for a government?

Only need 2

A
  1. Provides a report card of economic growth to governments which allows them to evaluate their economic performance
  2. Allows governments to see if their policies used to achieve their economic growth goals are succeeding
  3. Allows governments to forecast expected demand and growth going forward
  4. National income statistics can be a very important indicator of evaluating living standards
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3
Q

What are the three different measures of national income / economic growth?

A
  1. Gross domestic product (GDP)
  2. Gross national income (GNI)
  3. Net national income (NNI)
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4
Q

How do we measure GDP?

A

There are 3 different ways:

  1. The income method
  2. The output method
  3. The expenditure method

The circular flow of income tells us that income = output = expenditure

Meaning all three of these measures of GDP give us the same value

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5
Q

What is the definition of GDP?

A

The total value of goods and services produced in the economy over a given time period, (normally a year)

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6
Q

What is the benefit of using GDP to measure national income?

A

It doesn’t just give us a measure of economic growth, but it also gives us a measure of living standards

–> One method of GDP measures income
–> If GDP goes up, then incomes go up, which leads to a higher standard of living

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7
Q

What are the key issues of using GDP as a measure of growth?

A
  • Risk of double counting, (especially with the output method)
    This means that we include the value of output in the primary sector, and then we include the value again when that primary commodity has been manufactured into something in the secondary sector
  • GDP doesn’t take into account informal economic activity, such as illegal or black market activity. However, this also means it doesn’t include informal activities like DIY work. This massively disadvantages LEDCs as they have a more prominent informal economy
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8
Q

One of the main issues of using GDP as a measure of growth is the risk of double counting. How could this be combated?

A

GDP is the total value of goods and services produced in the economy over a year

If double counting means we are using the value of the commodity in the primary sector and the value of the commodity when it has been manufactured into something in the secondary sector. Then we can change our definition so that we measure the value of final goods, not just goods

This means we won’t measure the value of commodity goods in the primary sector, but rather measure the value of them when they get manufactured into something in the secondary sector

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9
Q

What are some key issues of using GDP as a measure of living standards?

A
  • GDP just looks at the value of output, not the quality. Meaning it doesn’t look at the negative externalities of production. Such as the cost of air pollution. If these externalities were included, then living standards would be lower than what GDP suggests, indicating the measure is inaccurate
  • GDP doesn’t take into account other quality of life aspects, such as education and healthcare. Meaning it is a less reliable measure of living standards. This suggests that something like the human development index, (HDI), is a far better measure of living standards
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10
Q

What is GDP per capita?

*CHECK WITH TEACHER TO MAKE SURE THIS IS A GOOD ENOUGH DEFINITION

A

GDP figure divided by the population, in order to see the average income of individuals in an economy

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11
Q

What is the formula for GDP per capita?

A

GDP / Population

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12
Q

What is one issue with using GDP per capita to measure the standard of living?

A

(Same issues as using normal GDP) +

Remittance payments - This is when workers or firms located in one country, go and work in other countries to earn higher incomes. But these firms and businesses then send any income earned back to the home country

GDP per capita does not take into account any factor incomes earned abroad –> However, it is clear that as this money is sent back home, it is being used to improve living standards
–> Lots of money sent back goes to friends and family

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13
Q

What is meant by nominal GDP?

A

GDP at current prices, not factoring in inflation

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14
Q

What is meant by real GDP?

A

Real GDP is when the value of all goods and services in the economy are adjusted for inflation

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15
Q

How do we convert a nominal figure into a real figure?

A

100 x Nominal GDP / Real GDP

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16
Q

What is the definition of GNI?

A

GNI is the total income generated by a countries factors of production, regardless of where these factors of production are located

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17
Q

What is the formula for GNI?

A

GNI = GDP + Net factor incomes

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18
Q

There is one additional measure of economic growth used which factors in environmental cost. What is this called?

A

Green GDP

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19
Q

How do we work out green GDP?

A

Green GDP = GDP - Environmental costs

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20
Q

What is one issue with using green GDP?

A

It is difficult to put a monetery value on environmental costs, which means it may require a normative view to do so

This will include human bias

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21
Q

What is the circular flow of income?

A

Macroeconomic model, which tells us the leakages and injections of an economy, as well as showing us how to measure economic growth

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22
Q

What does the circular flow of income explain?

A
  1. Households provide their factors of production to firms
  2. Firms then combine these factors of production to produce goods and services
  3. Households then receive factor incomes
  4. Households then spend these factor incomes on other goods and services made by firms
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23
Q

Draw the circular flow of income.

A
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24
Q

What is a closed economy?

A

An economy that doesn’t engage in trade or other financial exchanges with other countries

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25
Q

What is an open economy?

A

An economy which trades goods and services with other economies

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26
Q

What are the 3 injections?

A
  1. Investment
  2. Government Spending
  3. Exports
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27
Q

What are the 3 leakages?

A
  1. Savings
  2. Taxation
  3. Imports
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28
Q

The circular flow of income suggests three ways to measure GDP. What are they?

A
  1. Income
  2. Output
  3. Expenditure
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29
Q

What are 2 problems regarding the circular flow of income?

A
  1. The model assumes that factor incomes generated by households will be spent on goods and services produced by firms, but some will save their income
  2. The circular flow of income is extremely oversimplified. This is evident by the fact it ignores two main economic agents, the government and the international sector
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30
Q

What is macroeconomic equilibrium?

A

When leakages and injections are equal to eachother

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31
Q

What is macroeconomic disequilibrium?

A

When leakages and injections are not equal to eachother

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32
Q

What is aggregate demand?

A

The total amount of effective demand in the economy

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33
Q

What is the equation for aggregate demand?

A

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

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34
Q

What does C mean in the aggregate demand equation?

A

Consumption

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35
Q

What does I mean in the aggregate demand equation?

A

Investment

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36
Q

What does G mean in the aggregate demand equation?

A

Government spending

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37
Q

What does X-M mean in the aggregate demand equation?

A

Exports - Imports

(Net exports)

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38
Q

What is meant by consumption?

A

The total spending by households on goods and services in the domestic economy

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39
Q

What is meant by the term investment?

A

The spending by firms on capital goods to improve their productive capacity

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40
Q

What is meant by the term government spending?

A

When the government spend money to influence the level of economic activity, in other the short-run and the long-run

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41
Q

What is meant by the term net exports?

A

The total value of a countries exports take away the total value of a countries imports

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42
Q

What are the determinants of aggregate demand?

A

C
I
G
(X-M)

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43
Q

What causes a shif in the aggregate demand curve?

A

If C, I, G or X-M change, then AD will also change, as the equation is AD = C+I+G+(X-M)

Meaning that if one of the determinants of AD increases, then the AD curve shifts outwards

If one of the determinants of AD decreases, then the AD curve shifts inwards

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44
Q

What are some factors that could influence consumption in the economy?

A
  1. Level of real disposable income
  2. Interest rates
  3. Consumer confidence
  4. Asset prices
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45
Q

What is meant by the term marginal propensity to consume?

A

Marginal propensity to consume refers to the consumer’s willingness to spend any additional income earned on consumption

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46
Q

How does the level of real disposable income affect consumption and therefore aggregate demand?

A

–> If people have more real disposable income, then their marginal propensity to consume will be higher

–> If people have less real disposable income, then their marginal propensity to consume will be higher

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47
Q

What factors might affect the level of real disposable income?

A

The main factor is income tax

Income tax rates may go down, which would cause real disposable income to rise, (and vise versa)

Or changes in the tax-free allowance, (refers to how much income you have to make before paying income tax)

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48
Q

How do interest rates affect the level of consumption in an economy?

A
  • If interest rates are high, then there is more incentive to save, as the reward for spending is greater
  • If interest rates are high, then it also means that the cost of borrowing is higher, which means that people will be less likely to purchase, ‘big ticket purchases’

However, if interest rates are low, then it means that there is less incentive to save, so people consume more. And the cost of borrowing is lower, meaning people are more likely to spend large amounts of money on ‘big ticket purchases’

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49
Q

What is a big ticket-purchase?

A

A big-ticket purchase, refers to when consumers purchase something special, that they may not always be able to afford

To make these purchases they may have to borrow money

(Ex: Cars, houses and computers)

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50
Q

What are the two main factors that affect consumer confidence?

A
  1. Job prospects
  2. Unemployment rate
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51
Q

How does consumer confidence affect the level of consumption in the economy?

A

If consumer confidence is high, then people’s marginal propensity to consume is high, as they have good job prospects and the unemployment rate is low

If consumer confidence is low, then people’s marginal propensity to consume is low, as they have bad job prospects and the unemployment rate is high –> Meaning they may be worried they will lose their job, meaning they are more likely to save

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52
Q

How does asset price affect consumption in the economy?

A

If consumer’s assets are worth more money, then they feel richer, meaning that their marginal propensity to consume will increase

If consumer’s assets have gone down in value, then they feel poorer, meaning that their marginal propensity to consume will decrease

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53
Q

What factors may affect the level of investment in an economy?

A
  1. Interest rates
  2. Business confidence
  3. Corporation tax
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54
Q

How do interest rates impact the level of investment in an economy?

A

If interest rates are lower, then the cost of borrowing is cheaper, meaning it is easier for firms to finance the purchasing/leasing of capital goods

If interest rates are higher, then the cost of borrowing is more expensive, meaning it is harder for firms to finance the purchasing/leasing of capital goods

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55
Q

What are the two main factors that affect business confidence?

A
  1. Expected profit
  2. Expected demand
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56
Q

How does business confidence impact the level of investment in an economy?

A

If firms expect profit and high demand in the near future, then they are likely to be more confident, meaning they will be more willing to invest in capital goods - Marginal propensity to invest increases

If firms don’t expect high levels of profit or demand in the near future, then they are likely to be less confident, meaning they will be less likely to invest in capital goods - Marginal propensity to invest decreases
* As they are expecting low demand, they also don’t need to invest as they don’t need to increase their supply

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57
Q

A key term to use when deciding the impact of corporation tax on investment is retained profit. What is the definition of retained profit?

A

Retained profit means the profit a business has left over, after paying corporation tax

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58
Q

How does corporation tax impact the level of investment in an economy?

A

If corporation tax is high, then a business will have less retained profit, which means they will have a lower marginal propensity to invest
* This is because retained profit is one-way businesses finance the purchasing/leasing of capital goods

If corporation tax is low, then a business will have more retained profit, meaning that they will have a greater marginal propensity to invest

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59
Q

What are 3 factors that will impact the level of government spending in an economy?

A
  1. Current spending
  2. Capital spending
  3. Welfare Spending
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60
Q

How do all 3 of these factors impact government spending?

A

Current spending, capital spending and welfare spending, are all types of government spending

Meaning that if any of these increase, then so does government spending

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61
Q

What is current spending?

A

Spending on the maintenance of public services and the payment of public sector wages

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62
Q

What is capital spending?

A

The money spent by the government on infrastructure projects

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63
Q

What is welfare spending?

A

The money spent by the government on benefits and pensions

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64
Q

What factors affect net exports?

A
  1. Real disposable income earned abroad
  2. Strong and weak exchange rates
  3. Protectionism at home and abroad
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65
Q

How do real disposable incomes earned abroad affect net exports?

A

If there is a boom abroad, and people abroad become richer, then their marginal propensity to import will increase, which means the demand for our countries/economies exports is likely to increase
(Assuming ceteris paribus)

If the levels of real disposable incomes earned abroad decrease, especially in the countries of our major trading partners –> Then the marginal propensity for them to import goods will increase. This will reduce the amount of income revenue generated by our economy, causing net exports to decrease

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66
Q

How do strong or weak exchange rates influence net exports?

A

For this, we use our 2 mnemonics:
SPICED & WPIDEC

If the exchange rates are strong in favour of our currency, then our imports become cheap, and exports become deer. If imports are cheap, then the demand for them will increase, causing import expenditure to go up, leading to an inward shift of our aggregate demand curve

If exchange rates are weak, then our imports become deer, and our exports become cheap. This means that other countries marginal propensity to import will increase, which means we will export more. This means we will generate more export revenue, causing AD to shift outwards

67
Q

How does protectionism abroad influence net exports?

A

If strong protectionism exists abroad, it will be harder to export our goods to them. This is because they may have put quotas or tariffs on the goods we are exporting. This means their marginal propensity to import is low, meaning we generate less from export revenue

If there are low levels of protectionism abroad, it will be easier for our economy to access international markets. This will make it easier to sell our goods to other economies

68
Q

How does protectionism at home influence net exports?

A

If there are high levels of protectionism at home, it means we may be less likely to import goods and services, meaning our import expenditure will be low, potentially leading to an outward shift in AD. This is because low import expenditure means our net exports will potentially increase
*Assuming that this is lower than export revenue

If there are low levels of protectionism at home, it means we may be more likely to import goods and services, meaning our import expenditure will increase, potentially leading to net exports decreasing

69
Q

What is the largest component of AD?

A

Consumption

70
Q

What effect does the availability of credit have on consumption?

A

If there is more availability of credit, then consumption will increase, as it will be easier for people to borrow money

71
Q

What effect does age distribution have on consumption?

A

Different age groups have different spending patterns

72
Q

How could the government encourage investment in the economy?

A
  • Lower the rate of corporation tax
  • Reduce interest rates - Lower cost of borrowing
  • Provide subsidies to firms in order to purchase/lease capital goods
73
Q

How do the debt levels of consumers impact the levels of consumption in an economy?

A

If lots of consumers in an economy have unpaid debts, then their marginal propensity to consume will be lower than someone who doesn’t

This is because any additional income earned, is likely to contribute towards repaying debt, as apposed to consumption

74
Q

What is the opportunity cost of consumption?

A

Saving

75
Q

What is aggregate supply?

A

The total amount of goods and services produced in an economy

76
Q

What does the aggregate supply curve show us?

A

The AS curve shows us the relationship between the general price level in an economy and the level of total output

77
Q

Name two types of aggregate supply curve.

A
  • Short-run aggregate supply
  • Long-run aggregate supply
78
Q

Why is the standard SRAS curve upward-sloping?

*Draw an AS curve to help you, (if you need)

A

Because at higher price levels, producers are willing to supply more because they earn more profit

79
Q

What causes a movement along the aggregate supply curve?

A

Changes in the general price level

80
Q

If AD shifts outwards, then there is a ________________ in SRAS from Y1 to Y2.

Fill in the blank and prove it using a diagram

A

Expansion

81
Q

If AD shifts inwards, then there is a ___________________ in SRAS from Y1 to Y2.

Fill in the blank and prove it using a diagram

A

Contraction

82
Q

What causes a shift in the SRAS curve?

A

The AS curve shifts when there are changes in the conditions of supply

83
Q

Give some examples of changes in conditions of supply, that would shift the AS curve?

A
  • The cost of employment might change
    –> Wage costs might increase
    –> Taxes might go up
    –> Labour productivity decreases
  • The cost of inputs
    –> The cost of raw materials
    –> The cost of certain commodities
    –> If the raw materials are imported, then the exchange rate also has an impact
  • Government regulation or intervention
    –> New laws and taxes, (intervention)
    –> More paperwork, (regulation)
84
Q

What is business regulation sometimes referred to as?

A

Red tape

85
Q

What causes a shift in the LRAS?

A
  • Technological advancement
  • Infrastructure improvements
  • Changes in education and skills

(Like SRAS, all of these factors that could shift the curve are related to things that would impact the supply of goods and services)

86
Q

What causes a shift in the LRAS?

A
  • Technological advancement
  • Infrastructure improvements
  • Changes in education and skills

+ Quality and quantity of factors of production

(Like SRAS, all of these factors that could shift the curve are related to things that would impact the supply of goods and services)

87
Q

Explain how technological advancement can cause a shift in the LRAS curve.

A
  • Technological advancement may allow new goods and services to be produced
  • Technological advancement may also allow goods and services currently being produced, to be produced more efficiently
  • This results as an increase in capital productivity
  • Resulting in a lower cost of production, meaning supply will increase

LRAS curve shifts outwards

88
Q

Explain how improvements in infrastructure can cause a shift in the LRAS curve.

A
  • If the government build or develop new infrastructure, such as roads, ports or airports, then it will become quicker and more efficient for firms to transport goods and services
  • This will cause an increase in productive efficiency in the economy

LRAS curve will shift outwards

89
Q

Explain how changes in education and skillset can cause a shift in the LRAS curve.

A
  • If governments use supply-side policies to educate and improve the skillset of workers, then they are going to become more efficient
  • This means that they will be able to produce more than they previously could, in the same time period
  • This increase in education will cause the cost of production to decrease

LRAS curve will shift outwards

90
Q

What does the LRAS curve show?

A

The LRAS curve shows the potential supply of the economy in the long run

*This could be when prices, costs and productivity changes

91
Q

Why is the classical LRAS curve perfectly inelastic?

A

Because it assumes that in the long-run supply will not change as the general price level changes

92
Q

When does the economy reach a state of equilibrium?

A

AD = AS

93
Q

What are the effects of shifts in AD and AS on the general price level and real national output?

A
  • At a price above the equilibrium, there will be excess supply
  • At a price below the equilibrium there will be excess aggregate demand, (in the short-run)
94
Q

What happens to the general price level if AS shifts inwards?

*Use a diagram

A

Price increases

95
Q

What happens to real GDP when AS shifts inwards?

*Use a diagram

A

RGDP decreases

96
Q

What happens to GPL and RGDP if AD increases?

*Use a diagram

A

Both increase

97
Q

…

A

…

98
Q

What does YFE mean?

A

Full employment

99
Q

What effects do shifts in AD curve and AS curve have on employment?

A

**** Get this Q answered by teacher when back at school

100
Q

Why is the AD curve downward sloping?

A

**** Get this Q answered by teacher when back at school

101
Q

What is potential economic growth?

A

An expansion of the productive capacity of an economy

102
Q

How can we show potential economic growth on a PPC diagram?

A

An outward shift in our PPC

103
Q

How can we show potential economic growth on an ADAS diagram?

A

An outward shift in our LRAS curve

(Where it says Y on the left diagram it should say YFE)

104
Q

How do economists measure actual economic growth?

A

Th percentage rate of change of real GDP or real GNI / Time

105
Q

What is the formula used to calculate % change?

A

Change / Original x 100

106
Q

Why is it more difficult to measure potential economic growth than actual growth?

A

Potential economic growth is when there is an expansion of our economies productive capacity

This is hard to measure as economies are not always operating at their full productive capacity –> So it may be unclear as to when this is expanded

107
Q

Why is it important to use real GDP / real GNI when calculating actual economic growth, as opposed to using nominal GDP / nominal GNI data?

A

Real GDP / Real GNI takes into account the effect of changing prices

If we used nominal data to calculate actual economic growth, then it would be misleading

108
Q

What is the distinction between growth in nominal GDP and real GDP?

**** May need to correct answer

A

Nominal GDP doesn’t take into account changes in the general price level

109
Q

What is the definition of productivity?

A

A measure of the efficiency of a factor of production

110
Q

What is economic growth?

A

An increase in real GDP in an economy in a year, caused by an increase in AD or LRAS

111
Q

What do we call economic growth that is linked to an increase in AD?

A

Short run growth

Or

Actual growth

112
Q

What are some causes of actual economic growth?

A

Anything that causes aggregate demand to increase –> If you need specifics, look back at the flashcards made on AD

113
Q

What are some causes of potential economic growth?

A

Anything that causes the long-run aggregate supply curve to shift outwards

114
Q

What are the 4 main benefits of economic growth?

A
  1. Higher disposable incomes
  2. Higher employment
  3. Higher profits for firms
  4. Increase in tax revenue for the government
115
Q

Explain how higher disposable incomes are a benefit of economic growth.

  • Think about what might have led to these higher incomes
  • The multiplier effect that this has
  • Why is this beneficial
A
  • Households will be earning more disposable incomes because firms are making higher profits –> Meaning some of this may be translated into higher wages
  • This triggers a multiplier effect, as people are now making higher wages, meaning that consumption will increase. This means there will be more demand for certain goods and services, which will lead to firms having to hire employees who may be seeking work –> They will now have higher incomes
  • Higher disposable incomes lead to an increase in living standards - People will now have better living standards when it comes to material items, but they will also have better access to education, helathcare, etc…
    –> This means people will feel happier and in some LEDCs may even be the thing that takes them out of absolute poverty
116
Q

4.4.5 Notes will be on a mindmap, not on flashcards –> See the back of the flashcard to see a photo of the mind map…

A

…

117
Q

What is the definition of unemployment?

A

Unemployment is when an individual who is economically active is not currently in employment

*However, they are seeking work

118
Q

What is the definition of the working-age population?

A

All people between the ages of 16 and 64

119
Q

What is the definition of the workforce?

A

Al people who are economically active, (either in employment or unemployed)

120
Q

What is the definition of being economically active?

A

People of working age, who are either employed or actively seeking work

121
Q

What is the definition of being economically inactive?

A

People of working age who are not actively seeking work for a variety of reasons

122
Q

What is the definition of discouraged workers?

A

People who have been unable to find a job and have been discouraged, so much so, that they are no longer seeking employment

123
Q

What is the equation used to calculate unemployment rate?

A

Unemployment rate = unemployed/workforce x 100

124
Q

What are the two main ways we measure unemployment?

A
  • Claimant count
  • ILO labour force survey
125
Q

How does the claimant count measure unemployment?

A
  • Measures unemployment based on the number of people applying for unemployment benefits, (Example: Job seekers allowance)
126
Q

What are the limitations of using the claimant count to measure unemployment?

A
  • Not everyone who is unemployed will claim benefits –> For some people, there is a stigma around claiming benefits, which would stop people from applying for JSA, (job seekers allowance)
  • If you are unemployed, you might not be allowed to claim benefits. For example, if your partner is a high earner, then your not even allowed to claim benefits
  • The government often change the citeria for those eligible for benefits –> This makes it difficult to compare unemployment over time
127
Q

How does the ILO labour force survey measure unemployment?

A
  • 80,000 households are either interviewed in person or over the phone every quarter
  • The ILO then asks these people whether anyone in the household has been out of work for 4 weeks or more
  • They then ask if someone has been out of work for 4 weeks or more if they would be willing to start working in the next 2 weeks
  • If their answer is no, then they are classed as unemployed
128
Q

What is the main limitation of using the ILO labour force survey to measure unemployment?

A

The ILO labour force survey asks 80,000 households, but there are over 27 million households in the UK; This means only asking 80,000 households might not give an accurate estimate of unemployment

129
Q

We must know about 5 types of unemployment for CIE AS Level Economics. What are they?

A
  1. Frictional unemployment
  2. Structural unemployment
  3. Cyclical unemployment
  4. Seasonal unemployment
  5. Technological unemployment
130
Q

What is frictional unemployment?

A

Frictional unemployment refers to people who are temporarily unemployed as they are searching for a new job

(In-between jobs)

131
Q

What policies could be used to reduce frictional unemployment?

*Hint: Frictional unemployment is all about temporarily unemployed people

Think about things that could be done to incentivise employment or things that could reduce the time taken to find new employment

A
  • Governments could subsidise job centres so that they could access better resources, which can help those who are frictionally unemployed
  • Governments could also offer subsidies to firms in a specific sector, with high demand for labour –> This means that they will have more access to financial resources, which they can spend on hiring frictionally unemployed people
  • The government could also reduce benefits –> This incentivises people who are frictionally unemployed to find employment sooner, as benefits have been reduced
132
Q

What is structural unemployment?

A

Structural unemployment, refers to when workers become unemployed, because the structure of an economy changes

(Ex: An economy moves from primarily the primary sector towards the tertiary sector) –> The structure of the economy has changed

133
Q

Give an example of structural unemployment.

A

In the 1980s, the UK economy changed its structure, shifting away from primary sector manual labour jobs like mining, towards tertiary services like accounting

134
Q

What are the causes of structural unemployment?

A
  1. Geographical immobility
  2. Occupational immobility
135
Q

What is occupational immobility?

+ How does it cause structural unemployment?

A

Occupational immobility is when workers do not have the skills to adapt to the restructured economy

(Ex: The economy may move from primary the secondary sector, to the tertiary sector. The people who become unemployed due to this resturcture may not have the skills needed to work in the tertiary sector, meaning they remain unemployed)

136
Q

What is geographical immobility?

+ How does it cause structural unemployment?

A

Geographical immobility refers to when workers struggle to move between different areas

Ex: If you were a miner, up North and you become unemployed because the structure of the economy changes towards tertiary sector services. Even if you acquire the necessary skills to have a tertiary sector job, you may not be able to relocate to where these new jobs are, as the area may be too expensive, or you may have to look after family.

137
Q

What policies could be used to solve structural unemployment?

*Hint, think about how to solve occupational and geographic immobility

A
  • Governments could use supply-side policies to provide structurally unemployed workers with an education, which would allow them to get a new job. This prevents occupational immobility
  • Governments could also provide workers with relocation subsidies, which would allow workers to move to a new location. This helps to prevent geographical immobility from stopping workers from finding new jobs, based on the new structure of an economy
  • Governments could improve transport infrastructure. For example, if the sector most impacted by this restructuring is Liverpool and all of the new jobs caused by this restructuring are in London –> Then the government could build a new train line between Liverpool and London, which would allow workers to work in London but live in Liverpool. This prevents geographical immobility
138
Q

What is cyclical unemployment?

A

Unemployment that is caused by there not being enough demand in an economy

*Limited demand means firms produce less, meaning their derived demand for labour decreases

139
Q

What is another name for cyclical unemployment?

A

Demand-deficient unemployment

140
Q

Draw an ADAS diagram that shows cyclical unemployment.

A
141
Q

What policies could be used to reduce cyclical unemployment?

Hint: Think about how it is sometimes called demand-deficient unemployment

Meaning these policies are going to increase AD, (Shift outwards)

A
  • Reduce income tax. This means that consumers will have more real disposable income. This means their marginal porpensity to consume will increase meaning that consumption is likely to increase, causing AD to shift outwards, (back towards full employment). This new demand will also force firms to have higher demand for labour, meaning that unemployment will decrease.
  • Reduce interest rates. This incentivies consumers to spend as the reward for saving is lower. This increases consumption. The cost of borrowing for firms is also lower, meaning they are more likely to borrow money to invest on capital goods. This increases investment. AD shifts outwards and unemployment decreases.
142
Q

What is technological unemployment?

A

Technological unemployment occurs when advancement in technology causes workers to lose their jobs

143
Q

What policies could be used to reduce technological unemployment?

A
  • Governments could use supply-side policies to train workers who have become unemployed due to technological advancement how to operate the technology –> Or how to maintain the technology
  • Governments could use supply-side policies to train workers so that they can use their new skillset to work in a new industry
  • Governments could place tariffs, quotas or even embargos on new technology. This will disincentivise firms to replace workers with new technology and will therefore lead to less technological unemployment
144
Q

Is technological unemployment a type of structural unemployment?

A

Yes

145
Q

What is seasonal unemployment?

A

When people find themselves unemployed during certain seasons because their jobs are seasonal

146
Q

What policy could be used to reduce seasonal unemployment?

A

Supply side policies could be used to train workers with seasonal jobs, so that they acquire the necessary skillest to do another job during the other seasons of the year, where they normally find themsevles seasonally unemployed

147
Q

What are the benefits of unemployment?

Hints:
–> More people are unemploted –> What could that mean
–> Do workers like being unemploed to some extent?

A
  • Firms benefit from a greater pool of potential workers –> The more unemployment there is, the more choice firms have of workers who they hire –> If the pool of potential workers is bigger, then there is also a high probability that there are some really talented workers in there
  • To some extent, it can be argued that unemployed people may actually enjoy being temporarily unemployed, (especially frictional as it is temporary), as it gives them the time to find a new and exciting job
    –> Can lead to increased wellbeing, which is important in a country
    –> When workers find their new and exciting jobs, they will be very motivated, which might lead to more output for firms

^^^^^^^^^^^^^^^^^^^ Self actualisation - Maslow

148
Q

What are the costs/cons of unemployment?

Hints:
–> Think about the effect of unemployment on:
- Output
- Govt Finances
- Individual cons

A
  • Loss of potential output –> If there is unemployment, then it means that we are not utilising our factors of production –> An increase in output for lots of countries may also cause economic growth –> Meaning a country with high levels of unemployment are less able to reach economic growth objectives –> **Operating within PPC
  • Deterioration of government finances –> If unemployment levels are high, then it means the government will have to spend more on unemployment benefits such as JSA –> The government will also receive less tax revenue, as there are fewer people making incomes, which means they receive less income tax
  • Damaging for individuals mental health –> Workers may become anxious and depressed and may miss their old job
    –> Workers may also become discouraged, which means they stop looking for employment, meaning the economically active population decreases
149
Q

What is underemployment?

A

This is when workers are employed, but they are not working as many hours as they like, or they are not fully utilising their skillset

(Ex: Trained engineer working in a coffee shop)

150
Q

What is the definition of inflation?

A

The general sustained upward motion in the price of goods and services in an economy, over a given time period, specifically 2/4, (6 months)

151
Q

What is the definition of deflation?

A

The general sustained downard motion in the price of goods and services in the economy, over a given time period ***Negative inflation rate

152
Q

What is the definition of disinflation?

A

Disinflation refers to when the price level is still rising, but at a slower extent

*Inflation is still occurring, but at a slower rate than previous years

153
Q

What is the distinction between money values and real data?

A

The money value of data is the nominal value

The real value of data is adjusted for inflation

154
Q

What is demand-pull inflation?

A

Inflation caused by the demand side of the economy

When AD is growing unsustainably, so producers increase their prices in order to fully maximise profits

***Usually occurs when resources are fully employed

155
Q

How could you show demand-pull inflation on a diagram?

A

AD shifts to the right

156
Q

What are the causes of demand-pull inflation?

*Hint:
- Demand-pull inflation is to do with AD shifting outward. So think about what does this…

A

An outward shift in AD, some things that could do this are:

  • Lower interest rates
    –> Incentives spending and disincentivises saving, which increases consumption
    –> Reduces the cost of borrowing for firms, which increases investment
  • Lower taxation rates
    –> If income tax rates are reduced, then consumption is likely to increase, as people have higher real disposable incomes
    –> If corporation taxes are reduced, then firms have more retained profit, so investment is likely to increase
  • Weak exchange rates, (WPIDEC)
    –> We know from our pneumonic that when we have weak exchange rates, exports become more deer and imports become cheap
    –> (X-M), Should cause X to increase and M should decrease
157
Q

What is cost-push inflation?

A

Cost-push inflation is inflation that occurs when firms face rising costs of production

*This forces them to pass the cost onto consumers in order to still make a profit

158
Q

How would you show cost-push inflation on a diagram?

A

SRAS shifts inwards

159
Q

What are the causes of cost-push inflation?

A

An inward shift of SRAS, (increased cost of production). Some things that could do this are:

  • Increase in the cost of raw materials
  • Increase in wages
  • An increase in the price of raw materials imported due to a weak exchange rate, (WPIDEC)
160
Q

What are the benefits of inflation?

(Positive consequences)

A
161
Q

What are the negatives of inflation?

(Negative consequences)

A
162
Q

Which of the consequences of inflation are internal?

A
163
Q

Which of the consequences of inflation are external?

A
164
Q

What policies could be used to decrease demand-pull inflation?

A

AS Level Macroeconomics (5 decks)

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