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Macroeconomics Y12 > Booklet Three > Flashcards

Booklet Three Flashcards

1
Q

What is unemployment?

A

People who are actively seeking employment but are unable to find it

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2
Q

What type of variable is unemployment?

A

Unemployment is a stock variable that is influenced by the flow of worker in and out the labour market

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3
Q

2 ways the measure unemployment

A

1)claimant count
2)labour forced survey

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4
Q

What is the claimant count?

A

The number of people currently “signing on” to claim the Jobseeker’s Allowance

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5
Q

What is labour forced survey?

A

Identifying the number of people out of works, currently searching and willing to start in the next 2 weeks

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6
Q

What is unemployment rate?

A

The number of unemployed people expressed as a percentage out of the economically active population

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7
Q

Example of people that are economically inactive (6)

A

House wives
Full time students
Disable
Early retired
Prisoners
Full time home carers

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8
Q

What is meant by underemployment?

A

When they are employed but do not work as many hours as they like (e.g. if the are part time but would like to work full time)

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9
Q

What are the six types on unemployment?

A

1)frictional or ‘job search’
2)seasonal
3)structural
4)technological
5)cyclical, Keynesian or demand-deficient
6)classical or real-wages

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10
Q

What is often the cause of persistent unemployment?

A

The immobility of labour

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11
Q

Name the 2 types of immobility of labour

A

geographical immobility of labour
occupational immobility of labour

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12
Q

what is geographical immobility of labour?

A

workers cannot relocate to where the is demand for their labour

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13
Q

what is occupational immobility of labour?

A

workers cannot switch jobs because they lack transferable skills

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14
Q

What is frictional unemployment?

A

People who are between jobs either because they have just left one job but not yet found another or have just become economically active (recent graduates)

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15
Q

what does economically active mean?

A

people who are willing to work at the current wage rate (both employed and unemployed)

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16
Q

what does economically inactive mean?

A

People who are unwilling to work at the current wage rate or unable to

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17
Q

what is seasonal unemployment?

A

when workers are unemployed only at certain times of the year

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18
Q

what is structural unemployment?

A

Unemployment caused by a change in the structure of the economy which means there is no longer a demand for a certain type of laour

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19
Q

what is cyclical, Keynesian or demand deficient unemployment

A

unemployment caused by a lack of aggregate demand

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20
Q

what is classical or real wage unemployment?

A

Unemployment caused by real wages being too high

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21
Q

Reasons why labour may be geographically immobile(4) :

A

Children settled in schools
Difference in housing costs
Friends and social ties
cultural or religious ties

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22
Q

The cost of unemployment (9) :

A

1)Loss of income and lower living standards
2)stress, low self esteem and mental health problems
3)lower tax receipts for government (e.g. income tax)
4)increase in the government transfer payment (e.g. job seeker allowance
5)crime drug abuse and social problems
6)loss of skills
7)lower business and consumers confidence
8)lower demand and profit for businesses
9)negative multiplier effect

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23
Q

what is inflation?

A

A sustained increase in the general level of prices

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24
Q

what is deflation?

A

A sustained decrease in the general level of prices

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25
Q

what is disinflation?

A

A fall in the rate of inflation (prices are rising more slowly)

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26
Q

what is core inflation?

A

inflation measured without the most volatile prices (likely to change suddenly and unexpectedly) (e.g. energy and food)

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27
Q

what is hyperinflation?

A

Very high inflations, typically in excess of 100% per year

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28
Q

what is anticipated inflation?

A

Inflation that economic agents expect and factor into their decisions

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29
Q

what is unanticipated inflation?

A

Inflation that is higher than economic agents expectations

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30
Q

When does demand pull inflation occur?

A

When there is a change in the component for AD

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31
Q

When does cost push inflation occur?

A

When there is a change in the cost of production

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32
Q

What diagram can a cost push inflation be shown on only?

A

Can only be shown using a shift of SRAS not LRAS

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33
Q

what are the sources of demand pull inflation (4)

A

1)increase in income and consumers confidence
2)falling interest rates
3)increased government spending
4)increased exports

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34
Q

what are the sources of cost push inflation (4)

A

1)Rising wages
2)increase indirect taxes
3)rising energy/fuel costs
4)rising raw material prices

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35
Q

The wage price spiral: (4)

A

1)workers standard of living drops due to inflation
2)They negotiate a pay rise to be able to afford more goods and services
3)firms have to pay more for labour and so their total costs rise
4)firms raise prices to maintain profit margins which cause inflation
(the cycle continues)

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36
Q

What are external shocks?

A

An unexpected event with origins outside of a country

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37
Q

What are internal shocks?

A

An unexpected event with origins inside a country

38
Q

The cost of inflation (6)

A

1)Menu Costs - The costs of updating things with price information (menus, websites catalogue)
2)International Competitiveness - Rising prices may mean that a country’s good become relatively more expensive (e.g. exports)
3)Wider economic costs - uncertainty over future prices to make long term decisions
4)Redistributive costs - inflation erodes the value of money and reduces real interest rates which mean savers are worse off
5)Psychological costs - inflation often makes people feel worse of even if real incomes stay the same
6)Shoe leather costs - means time spent checking changes in price

39
Q

How to calculate real interest rates?

A

nominal interest rate - inflation rate

40
Q

What are the benefits to inflation? (3)

A

1)Allowing some inflation means that relative prices can adjust
2)Difficulties in accurately measuring may mean that targeting zero inflation may mean that deflation is actually taking place
3)Inflation may mean that firms can overcome the problem of prices

41
Q

what is benign deflation?

A

Benign deflation is cause by falling costs (such as a fall in the oil price) and acts as a boost to real incomes and can promote economic growth

42
Q

what is malign deflation?

A

A fall in the general price level caused by falling aggregate demand

43
Q

What are exchange rates?

A

The value of one currency expressed in terms of another currency

44
Q

What are the three main parts of the balance of payments ?

A

The current account
The capital account
The financial account

45
Q

What is the current account?

A

The current account is made up of imports or exports of goods and services

46
Q

Define current account deficit?

A

When the currency outflow from a country’s current account exceed the currency inflows

47
Q

What is a current account surplus?

A

When the currency inflows into a country’s current account exceed the currency’s outflows

48
Q

what are the mnemonics to remember the impact of a change in the exchange rate?

A

SPICED
-Strengthening
-Pound
-Imports
-Cheaper
-Exports
-Dearer (more expensive)

(Net exports decrease)

WPIDEC
-Weakening
-Pound
-Imports
-Dearer (more expensive)
-Exports
-Cheaper
(Net exports increase)

49
Q

Define marginal propensity to import (MPM)

A

The proportion of an increase in income that is spent on imports

50
Q

what are the 2 main government policies for demand-management?

A

1)Fiscal policy
2)Monetary policy

51
Q

what is the Fiscal policy?

A

The use of taxation and/or government spending to manage the economy

52
Q

what is the monetary policy?

A

monetary policy means the use of interest rates and the manipulation of the money supply to mange the economy

53
Q

Monetary and fiscal policies can be classified as either…

A

expansionary or contractionary

54
Q

What is expansionary policy?

A

expansionary policies are designed to increase aggregate demand and cause the value of real output produced to increase

55
Q

what is contractionary policies?

A

contractionary policies are designed to reduce aggregate demand or perhaps to reduce the size of an increase in aggregate demand

56
Q

what are expansionary policies also known as?

A

loosening of fiscal or monetary policy
(loosening = not strict with spending)

57
Q

what are contractionary policies also known as?

A

tightening of fiscal or monetary policy

58
Q

what are pro cyclical policy?

A

Macroeconomics policy designed to work with in line with business cycle
(i.e. expansionary policy during a of growth or contractionary policy during a period of recession)

59
Q

what are counter cyclical policy?

A

Macroeconomic policy designed to work against the business cycle
(i.e. expansionary policy during a recession or contractionary policy during an economic boom)

60
Q

Reason for taxation: (3)

A

-To correct market failure (e.g. negative externalities)
-As a macroeconomic policy (decrease AD)
-Redistribute income (and wealth)

61
Q

Define a tax that is progressive

A

A higher proportion off high income earners (income tax)

62
Q

Define a tax that is proportionate

A

A tax that takes an equal proportion of income without considering the level of income

63
Q

Define a tax that is regressive

A

Higher proportion of lower income earners

64
Q

what are the two types of taxes?

A

1)indirect tax
2)Direct tax

65
Q

what is a direct tax?

A

Direct tax are paid directly by an individual or organisation.
The tax liability cannot be passed onto someone else

66
Q

What is an indirect tax?

A

A tax levied on goods and services (such as V.A.T)

67
Q

Three argument in favour of using indirect tax over direct taxes:

A

1)Indirect taxes can reduce market failure
2)indirect taxes don’t disincentivise work
3)indirect taxes can be change more easily

68
Q

Three argument in favour of using direct tax over indirect taxes:

A

1)indirect taxes are inflationary
2)Djrect taxes are more progressive while indirect tax are more regressive
3)indirect taxes may lead to a black market

69
Q

What curve does direct taxes shift?

A

Direct taxes shift aggregate demand

70
Q

What curve does indirect tax shift?

A

Indirect tax shift the SRAS

71
Q

Name four types of direct taxes

A

1)National insurance
2)Income tax
3)corporation tax
4)council tax

72
Q

Name two indirect tax

A

1)V.A.T (value added tax)
2)Business rates

73
Q

What is national insurance?

A

Paying regular contributions to a government fund.
(This covers things such are health care and pensions)

74
Q

What is income tax?

A

Money you pay to the government based on your income
(This helps fund public services such as schools and hospitals)

75
Q

What is corporation tax?

A

Tax that incorporated firms (LTDs and PLCs) pay on their profits

76
Q

What is V.A.T (valued added tax) ?

A

Tax added onto the price of goods and services

77
Q

What is council tax?

A

A fee that people pay to their local government to help fund services (rubbish collection)
It is based on the value of property you live in and the number of people living in the household

78
Q

What is business rates?

A

Taxes businesses pay their local government for using a commercial property (shops or offices)

79
Q

What 3 letters to you need to remember that shift the LRAS?

A

Q - quantity of FOP
Q - quality of FOP
T - technology

80
Q

what is government debt?

A

Government debt is a stock variable that has be accumulated over time

81
Q

How much does the UK owe?

A

approximately £2.4tn

82
Q

what is budget deficit?

A

Flow variable - when the government have to borrow money because government spending in a given period (usually one year) is greater than government receipt (from taxes)

83
Q

What is budget surplus?

A

A situation where the government receives more in tax revenue than it spends

84
Q

what is a balanced budget?

A

A situation where the government spending for a given time period equals its receipts

85
Q

What are fixed interest rates (on loans)?

A

Interest rates on loans stay the same

86
Q

What are variable interest rates (on loans)?

A

Interest rates that change in line with the bank rate

87
Q

What are credit cards?

A

Credit cards allow consumers to make purchases using someone else’s money and to repay this money later

88
Q

What are supply side policies?

A

Government policies designed to increase the rate of long run economic growth by increasing long-run aggregate supply

89
Q

What are free market policies?

A

Policies designed to increase the economy s productive capacity by reducing government involvement

90
Q

Examples of free market supply-side policies (2)

A

Tax cuts
Deregulations

91
Q

what are interventionist supply side policies?

A

policies designed to increase the economy’s productive capacity through greater government intervention

92
Q

Examples of interventionist supply-side policies (4)

A

Education and training
Infrastructure projects
Subsidies for research and development
Intervention in labour market

Macroeconomics Y12 (3 decks)

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