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economics > Chapter 11 > Flashcards

Chapter 11 Flashcards

1
Q

Draw short and long run economic growth

A

…

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2
Q

Define demand side

A

Impact of changes in aggregate demand on the economy

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3
Q

Draw short run economic growth portrayed by rightward shifts of AD

A

…

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4
Q

Define supply side

A

Changes in potential output of the economy

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5
Q

Example of supply side

A

Change in decreasing wages, resulting in more supply

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6
Q

Define trend growth rate

A

Long run growth rate, output can grow on a sustained basis without putting upward or downward pressure on inflation(annual average percentage)

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7
Q

Define economic cycle

A

Upswing and downswing in aggregate economic activity

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8
Q

What causes short run economic growth

A

Increase in AD (demand side)

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9
Q

What causes long run economic growth

A

Supply side of , increase in factors of production

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10
Q

Costs of economic growth

A
  • Uses up finite resources
  • Leads to pollution
  • Destroy cultures and communities
  • Urbanisation
  • Rapid growth in pop leads to more mouths to feed
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11
Q

Benefits of economic growth

A
  • increases standards of living
  • Increase people’s life expectancy/
  • virtuous cycle (business confidence such as)
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12
Q

Does economic growth increase international competitiveness

A

Yes

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13
Q

Draw an economic cycle

A

…

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14
Q

What is actual output

A

Round the trend like which is the real level of output produced by an economy

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15
Q

Cause of changes in phases of economic cycle

A

-Fluctuations of AD (Demand side factors)
-Supply side factors
-Outside shocks
-

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16
Q

Two main ways of changes in economic activity

A
  • seasonal (by seasons)

- cyclical (years)

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17
Q

What else apart from GDP can be used to measure phases of the economic cycle

A

-employment

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18
Q

Define positive and negative output gap

A

Positive output gap- level of actual real output greater than trend
Negative output gap- level of actual real output lower than trend

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19
Q

Show peak and trough

A
20
Q

Draw the negative and positive output gaps on an AD AS diagram

A

…

21
Q

Difference voluntary and involuntary unemployment

A

Voluntary -by choice

Involuntary- Not by choice

22
Q

Types of unemployment and define

A

Frictional- between jobs
Cyclical- demand deficient
Structural- Such as robots
Seasonal- due to seasons changing

23
Q

Define deindustrialisation

A

Decline of manufacturing industries

24
Q

What was Keynesian unemployment

A

Cyclical unemployment lack of demand due to under full employment equilibrium due to ineffective AD

25
Q

What is real wage unemployment

A

Unemployment caused by real wages being stuck above equilibrium market clearing real wage.
Too much demand too little supply due to high wage

26
Q

Why might wage be unable to go down

A

Due to trade ujions

27
Q

What is the natural rate of unemployment

A

When aggregate labour market is in equilibrium.

Frictional and structural make this up. natural rate

28
Q

Draw natural level of unemployment

A

…

29
Q

Consequences of unemployment

A
  • Reduces international competitiveness
  • Higher taxation
  • Black economy
30
Q

Gov policies to reduce unemployment

A
  • Improve ability to job search
  • Job seekers allowance
  • Supply side policies
31
Q

Explain demand pull inflation

A

Rising price level caused by increase in AD

32
Q

Draw demand pull inflation

A

…

33
Q

Explain cost push inflation

A

Rising price level caused by increase in the cost of production

34
Q

Draw cost push production

A

…

35
Q

Why must governments be able to correctly diagnose cause or causes of unemployment

A

To reduce it

36
Q

What do monetarists believe in regard to inflation

A

Inflation is caused by an increase of money supply

37
Q

What is the quantity theory of money

A

Oldest inflation theory that inflation is caused by increase of money

38
Q

What happens if people expect inflation to increase

A

They spend more now, actually causing this inflation to occur

39
Q

What happens if people expect inflation to fall

A

They spend less so this does occur

40
Q

Disadvantages of inflation

A
  • Distortion of economic behaviour
  • Extreme cases there is a breakdown in the functions of money
  • Reduced competitiveness internationally
41
Q

Two types of deflation and draw

A

Benign- improvements in economies supply side

Malignant- Collapse in AD

42
Q

What happens to inflation and unemployment when there is a
positive output gap
negative output gap

A

Positive- increase and fall

Negative- Decrease and rise

43
Q

What is the short run philips curve and draw it

A

Relationship between rate of inflation and unemployment

44
Q

What is the LR philips curve and explain it

A

It is at the natural rate of unemployment ,impossible to reduce it below this level, without causing hyperinflation

45
Q

What is the correct way of reducing unemployment below its natural rate

A

Any supply side policies

economics (15 decks)

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