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economics > 4.2.3 economic performance > Flashcards

4.2.3 economic performance Flashcards

1
Q

short run growth

A

percentage increase in a country’s real gdp, messured anually, caused by increase AD

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2
Q

long run growth

A

increase in the productive capacity of the economy, it is the trend growth caused by increased LRAS

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3
Q

potential output

A

what an economy could produce if all resources were fully employed

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4
Q

output gaps

A

difference between actual and potential output levels

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5
Q

negative output gap

A

working below the potential level of output and thus there is spare capacity

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6
Q

positive output gap

A

we are working above the potential output, could be due to labour being overworked

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7
Q

where do we work in the long run

A

YFE

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8
Q

stages in economic cycle

A

boom
recession
slump
recovery

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9
Q

charactersitics of a boom (6)

A

high economic growth
positive output gaps or full capacity
near full employment
high confidence
demand pull inflation
improved budget

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10
Q

characteristics of a recession (6)

A

negative growth
cyclical unemployment
worsened budget
spare capacity and negative output gaps
low inflation
low confidence

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11
Q

how can we define a recession in the uk

A

negative economic growth over 2 consecutive quarters

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12
Q

causes of cyclical instability (3)

A

growth financed by public debt is not sustainable as it may be difficult to repay in the future
assett price bubbles, increaeded demand due to speculation, increased price, confience spending, bubble bursts, investors loose out, fall in confidence
herding: economic agents follow each other

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13
Q

economic growth impact on consumers

A

higher real incomes
more employment
confidence
wealth effect
h/e regressive impact
inflation
shoe leather costs

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14
Q

economic growth impact on firms

A

higher profits
productivity due to investment
more confidence
more exports
h/e menu costs
lose sales depending on YeD
lose sales due to inflation (X)

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15
Q

economic growth impact on government

A

higher income tax
less spending on welfare benefits
thus better budget
h/e more consumption on demerit goods could lead to more spending on healthcare

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16
Q

economic growth impact on living standards

A

higher quality goods
environmental investment
better public services due to high tax rev
h/e more negative externalities
environemnatl degradation

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17
Q

unemployment

A

share of the labour force that is willing and able to work but without a job

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18
Q

measures of unemployment

A

claimant count- number of people claiming unemployment benefits such as job seekers allowance or universal credit
labour force survey- household survey sent to a sample of people who self categorise as employed, unemployed or economically inactive

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19
Q

long term unemployment

A

12+ months of umeployment

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20
Q

mass unemployment

A

10% or more of labour force survey is unemployed

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21
Q

hidden unemployment

A

stopped looking for jobs or working less hours than they want to eg in gig economy with zero hour contracts

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22
Q

seasonal unemployment

A

without job due to time of year eg tuition services or beach lifeguard

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23
Q

frictional unemployment

A

between jobs or seeking a better job

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24
Q

structural unemployment

A

caused by a lack of suitable skills for jobs availabe due to deindustrialisation (eg steel)

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25
Q

cyclical unemployment

A

unemployment due to lack of AD

26
Q

real wage unemployment

A

firms unable to hire at the current wage level
excess supply of labour

27
Q

voluntary unemployment

A

choose not to work even though their are oppurtunities available

28
Q

Unemployment trap

A

unemployed
loose skills/erosion of skills
lack employability

29
Q

human capital

A

intellectual and behavioural assetts that people have and enable them to contribute to economic growth
- improving human capital is critical to decreasing unemployment

30
Q

5 costs of high unemployment

A

loss of output and productivity
fall in consumption and thus AD
fall in tax revenues, increased welfare benefits
fall in social mobility
increased inequality

31
Q

policies to reduce unemployment

A

expansionary monetary and fiscal policies
education and training
subsidise firms

32
Q

inflation

A

sustained rise in an economy’s general price level and a fall in the value of money

33
Q

hyperinflation

A

phase of extremely rapid inflation nearly always a result of mass money printing

34
Q

deflation

A

sustained period where the general price level is falling- negative inflation

35
Q

disinflation

A

fall in the rate of inflation where prices are still rising just at a slower rate

36
Q

stagflation

A

combination of stagnant growth and high inflation

37
Q

cost push inflation

A

businesses respond to rising unit costs by increasing prices to protect their profit margins
shown by a fall in SRAS

38
Q

causes of cost push inflation (4)

A

higher minimum wage leading to higher labour costs
high global commodity or energy prices
fall in exchange rate making imports expensive
increased VAT or carbon tax

39
Q

why is cost push inflation harder to control

A

the central bank have little control over the factors that influence it

40
Q

demand pull inflation

A

phase of accelerating inflation which arises from rapid aggregate demand growth, businesses can take advantage of high demand by increasing prices to increase profit margins
increase in aggregate demand

41
Q

causes of demand pull inflation (4)

A

economic growth
lower interest rates
increase in money supply
fiscal stimulus

42
Q

what does freidman/monetarists say about inflation

A

if central bank increase money supply too fast it leads to inflation because there is too much money chasing too few goods

43
Q

peak inflation 22-23

A

11.1%

44
Q

causes of 22-23 inflation

A
  • as economy recovered from pandemic there was high demand but supply couldn’t keep up
  • ukraine confliact, as russia is a major exporter of natural gas it caused a spike energy prices, increasing CoP
  • lack of workers in healthcare and logistics pushed up wages which increased cost of production
45
Q

inflation expectations

A

what consumers and firms expect to happen to prices in future
eg if people expect high inflation they’ll demand higher wages leading to cost push
if people expect high inflation they may bulk buy now leading to demand pull inflation

46
Q

greedflation

A

price gouging
where increased aggregate demand leads to excessive increase in prices

47
Q

shrinkflation

A

where companies keep prices same but decrease size of good/service

48
Q

negatives of high inflation (9)

A

cannot buy as much, fall in standard of living
capital flight
high bond yields worsens government debt
regressive impact as poor people hold wealth in cash
lower real incomes
less competiive less exports
retired people on fixed income have less
pressure for gov to increase welfare benefits
wage price spiral

48
Q

capital flight as a consequence of inflation

A

investors worry about stablility of economy
they worry inflation will lead to depreciation of currency
want to protect assets so move money out country
sell assets eg stocks or real estate
move proceeds to country with stable currency

48
Q

bond yields as a consequence of inflation

A

if inflation is high gov have to increase bond yields to entice investors- investors want to be compensated for the risk of inflation eroding the investment value
the increased yield rates mean gov have to pay back more
adding to national debt

49
Q

wage price spiral

A

inflation
fall in real incomes
workers bid for higher wages
higher labour costs
higher prices
inflation

50
Q

benefits of high inflation (4)

A

workers who belong to trade unions and have strong wage bargaining power can offset the impact of inflation on their wages
debtors see a fall in real value of debt
if prices are rising faster than costs businesses gain more profit
higher nominal wages, higher tax revenues, better budget

51
Q

policies to control inflation

A

contractionary fiscal
contractionary monetary
supply side policies
labour market reforms to increase supply of labour

52
Q

reasons inflation is hard to control

A

gloabl factors such as exchange rate and trade imapcting import prices
supply side shocks such as global conflicts

53
Q

malign deflation

A

fall in AD
eg recession or large negative output gap

54
Q

benign deflation

A

rise in SRAS
eg technological advancements

55
Q

consequences of deflation (6)

A

due to fall in P, businesses need to reduce costs so will cut wages or redundancies
higher real value of debt
deflationary spiral
asset price deflation (bonds/ equities/ houses)
cyclical unemployment
negative wealth effect

56
Q

benefits of deflation (3)

A

falling prices may increase real incomes for poorer families
businesses must offer value for money, allocative efficiency
fall in asset prices makes it easier for first time buyers

57
Q

policies to avoid deflation

A

lower interest rates or QE
expansionary fical
devalue exchange rate

58
Q

How changes in other economies can affect inflation in the
UK

A

geopolitical tensions or natural disasters can drive up oil prices
globalisation
inflation in key trading partners

59
Q

what does the phillips curve show

A

in the short run you cannot achieve both low unemployment and low inflation

economics (9 decks)

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