4.2.1 Flashcards
What is economics?
As a social science economics studies how economic agents (households, firms and governments) make choices about allocating resources and to satisfy infinite needs and wants.
What is the fundamental economic problem
The idea that there are an unlimited amount of needs and wants which can only be met by the answering of the three economic questions: What to produce, How to produce and For whom to produce.
What is an economy
An economy is the network of economic agents which produces and consumes and economic activity is how different economic agents interact with each other.
What is the role of economic agents in an economy
HOUSEHOLDS:
Consume goods and services through the provision of demand.
FIRMS:
Production- The process which converts inputs into outputs
supply- these goods to households and governments
Consume labour
GOVERNMENT:
Sets laws
Set taxes and decide how to spend public money
provide public services.
What different economic systems have developed to address the fundamental economic problem?
Command economy: where the govt makes the three key economic decision to then dictate onto the economy with no role for firms and markets to decide how to allocate resources.
Free market economy:
The means of production are privately owned by capitalists and the key economic decisions are made by a completely free market.
What is meant by the structure of an economy
The balance of employment, input and output drawn from different sectors:
Primary- Extraction of raw and natural materials. Coal, fish, agriculture.
Secondary- The manufacturing sector.
Tertiary- The service sector
Quaternary- The sector dedicated to technology, r&d and finance
How does the structure of an economy change over time?
A pre-industrial economy will have significant primary industries, lower secondary and lowest tertiary. An industrial economy occurs when the share of secondary is greater than primary and the economy shifts to producing goods rather than selling them. Finally a post industrial economy has a higher market for tertiary goods than primary and secondary ones. also a quaternary sector emerges.
Key facts about the UK Economy
- Highly developed country
- Market oriented economy
- deindustrialised and service based economy
- Financial services are partially economically relevant
- Very open and globalised economy
- Regions of prosperity and deprivation and the north is most deprived.
Macroeconmic performance
How well an economy meets its macroeconomic objectives
4 Main macroeconomic objectives
- Strong, stable, balanced growth
- Full employment
- Price Stability (In target inflation)
- Satisfactory balance of payments
What is a macroeconomic indicator
A statistic that tells is something about the macroeconomic performance of an economy.
Macroeconomic indicator for Growth
% change in real GDP
Macroeconomic indicator for Price stability
% change in CPI
Macroeconomic indicator for Full Employment
LFS (Share of Economically active people who are seeking work but are unable to find a job)
What is the difference between lead and lag indicators
Lead is future. For example business confidence surveys.
Lag is data about the past. Economic Growth, U/P, Trade.
Macroeconomic indicator for Good balance of payments
Balance of trade
Economic shocks. Def and example
Unexpected events which have a bit impact on the economy.
Brexit, Ukraine war, GFS, Covid
Other Macroeconomic Objectives
- Reducing borrowing
- Reducing economic inequality
- Dealing with economic shocks like brexit or covid
- Improving productivity
- Improving public services
- Environmental objectives
Productivity and Labour Productivity
The Rate of Output. Labour Productivity is the rate of productivity per person over a time period.
Define improving Govt Finances
Means the difference between tax rev and govt spending
Indicators for other macro objectives
Improving govt finances: Size of deficit
Reducing inequality: Gini- Coefficient
Dealing with other economic shocks: Overall impact on macroeconomic objectives
Improving productivity: Output per person per time period
Improving pubic services: Quality of output and access to services
Environmental objectives: Net Zero emissions, Sea level rise, GTR
Change of economic priorities over time
WW2-1970’s: Big state rebuilding economy. Common approach to reach full employment. Long postwar boom until 1960’s.
1980: Thatcher era, Free market and trickledown economics
1990’s onwards: Controlling inflation. inflation targeting
Macroeconomic Conflicts
When it is not possible to achieve two objectives at the same time
What are index numbers
Way of simplifying data. Compare relative but not absolute changes. A year is chosen as the base year. Assesses percentage changes compared with the base value.
