Additional Theme 2 Info Flashcards
3 ways to measure GDP
Expenditure method (all consumer expenditure), Income Method (all total income for firms), Output Method (value of output produced). All should be equal
Relationship with the circular flow of income and the multiplier
The large the multiplier, the larger the size of the circular flow of income
Ways the multiplier can be increased
Increased investment, increased income, decreased price of goods, increased quality
Define sustainability
Fulfilling the needs of current generations without compromising the needs of future generations
Inequality
Number of people below the required level of income
Factors influencing consumption
Disposable income, Wealth, inflation and rate of interest
What % of AD is consumption?
65%
Accelerator theory
Where an investment increases when either demand or income increases (at a faster rate)
AD calculation
Consumption + Investment(in machinery) + Government spending + (Exports- imports)
Factors that influence investment
Rate of interest, retained profit, accelerator theory
Discretionary income
Income after bills
3 benefits the government provides
Pensions, childcare benefits, Jobseeker’s Allowance
Where does the government announce its spending plans?
The Budget
Interest rates
Cost of borrowing, reward for saving
Output gap definition
The difference between potential GDP and actual GDP
Hot money
Flow of funds from one country to another to earn short term profit on interest rates differences
Liquidity Trap
When interest rates are very lower, a further decrease will have minimal or no effects on AD
Negative Equity
When a house/belonging is worth less than the mortgage you took out on it
3 limitations of QE
Lower value of the pound, causes inflation, hurts savers
Automatic stabilisers definition
Automatic fiscal changes as the economy moves through the stages of the business cycle I.e fall in tax during a recession
Monetary Policy definition
Changes in interest rates, the money supply and the exchange rates by the central bank to influence AD
Costs of unemployment
Lost output, worsens deficit, social costs (crime etc), costs to other countries, rise in poverty, hysteresis
Hysteresis unemployment argument
When unemployment become long-term, workers lose skills making it difficult to re-enter labour (constraints AD and LRAS)
Benefits of unemployment
Greater supply of labour for firms, low inflation, Improved current account deficit
Evaluation of unemployment
Rate of unemployment, duration/type of unemployment, distribution (regional/age)
Tax evasion
Illegal practice of not paying taxes
Tax avoidance
Legal methods used to minimise the amount of tax paid
