Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Economics > Chapter 11 - Economic performance > Flashcards

Chapter 11 - Economic performance Flashcards

1
Q

Whats long run growth

A

The long run expansion of an economy’s productive potential

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Whats short run growth

A

The percentage annual increase in a country’s real GDP

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What factors affect long run growth in a country

A

The quantity of factor resources
Improving technology
Quality of resources

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Characteristics of economic recession

A

Declining aggregate demand for UK output
Contracting employment / rising unemployment
Sharp fall in business confidence & profits
Decrease in fixed capital investment spending
Reduced inflationary pressure
Falling demand for imports
Increased government borrowing
Lower interest rates from central bank

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Characteristics of economic boom

A

Strong and rising level of AD
Often driven by fast growth of consumption
Rising employment and real wages
High demand for imported goods & services
Government tax revenues will be rising quickly
Company profits and investment increase
Increased utilisation rate of existing resources
Danger of demand-pull and cost-push inflation if the economy overheats

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Examples of Short Term Increases in AD

A

Higher consumer spending
Increased capital investment
Domestic investment
Inward investment from overseas

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are Sources of Economic Growth

Changes in AD

A

Rise in government spending on goods and services or a fall in government taxes
Increased exports sold to overseas countries
A reduction in import spending

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Sources of Economic Growth

Changes in AS

A

Higher productivity (factor efficiency)
Increased supply of factor inputs
Technological advances

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

How do you increase supply of factor inputs

A

Expansion of employable labour supply
Increase in the stock of capital inputs
Exploitation of new finds of natural resources

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Benefits from economic growth

A

new jobs in the economy
Higher real incomes – higher living standards
More tax revenues for the government
Higher profits
Rising wealth
Increased funds available for infrastructure

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Risks from economic growth

A

Risk of demand-pull inflation
rising inequality
environmental damage / costs
Over-exploitation of scarce finite resources
Opportunity cost of increased capital investment
Social problems

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Environmental benefits of economic growth

A

As per capita incomes rise
Higher real incomes associated with lower fertility rates
Increased demand for environmental quality

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

environmental impact of economic growth

A

fast growth may create negative externalities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Risks of from economic growth

A

Depletion of non-renewable resources
Environmental impact
Increased pollution / waste / congestion
Concern about sustainability of growth for future generations (Intergenerational equity)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What are 3 Growth and the Environment approaches

A

The free market approach
The social efficiency approach
The conservationist approach

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is tend growth

A

the long-term rate of growth of real GDP

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Supply-side factors

A

investment, education and training and technological change

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is unemployment

A

People able, available and willing to find work and actively seeking work – but not employed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is the claimant count measure

A

The number of people claiming the Jobseekers’ Allowance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Structural unemployment

A

Arises from the mismatch of skills and job opportunities as the pattern of labour demand in the economy changes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Frictional unemployment

A

Transitional unemployment due to people moving between jobs: Includes people experiencing short spells of unemployment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Cynical unemployment

A

There is a cyclical relationship between demand, output, employment and unemployment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Seasonal unemployment

A

Regular seasonal changes in employment / labour demand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Real wage unemployment

A

Created when real wages are maintained above their market clearing level leading to an excess supply of labour at the prevailing wage rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Natural rate of unemployment

A

The rate of unemployment when the labour market is in equilibrium and comprises frictional + structural unemployment.

26
Q

Voluntary unemployment

A

when people choose to remain unemployed rather than take jobs available.

27
Q

Regional unemployment

A

where structural unemployment affect a whole region e.g. South Yorkshire or South Wales after closure of mines.

28
Q

Technological unemployment

A

special case of structural employment arising from labour saving technology

occurs when developments in technology and working practices cause some workers to lose their jobs.

29
Q

Disguised unemployment

A

when people do not have productive full-time employment, but are not counted in the official unemployment statistic

30
Q

Negative consequences of unemployment to the business

A

Fall in demand for goods and services
Fall in demand for businesses further down the supply chain
negative multiplier effects

31
Q

Positive consequences of unemployment to the business

A

Bigger pool of surplus labour is available
Less pressure to pay higher wages
Less risk of industrial / strike action

32
Q

Effects of unemployment for the Government (Fiscal Policy)

A

Increased spending on unemployment benefits
Fall in revenue from income tax
Fall in profits – reduction in revenue from corporation tax
May lead to rise in government borrowing (i.e. a budget deficit)

33
Q

Effects of unemployment for the economy as a whole

A 
Lost output (real GDP) from people being out of work
long-term unemployed may leave the labour force permanently – fall in potential GDP
Increase in the inequality
34
Q

What are the 5 types of unemployment

A 
Cyclical
Frictional
Seasonal
Structural
Real-Wage
35
Q

Demand side Policies to Reduce Unemployment

A

Lower interest rates (a monetary policy stimulus)
A lower exchange rate (helps exporters)
Lower direct taxes (fiscal stimulus to spending power)
Government spending on major capital projects (e.g. improving the transport infrastructure)
Employment subsidies
Incentives to encourage flows of foreign investment in the UK

36
Q

Supply-side policies to reduce Unemployment

A

Increased spending on education & training including an emphasis on “lifetime-learning”)
Improved flows of information on job vacancies
Changes to tax and benefits to improve incentives
Measures designed to make the labour market more flexible

37
Q

Effects of falling unemployment to The circular flow and the multiplier

A

Incomes flowing into households will grow

Falling unemployment adds to demand and creates a positive multiplier effect on incomes, demand and output.

38
Q

Effects of falling unemployment to The balance of payments

A

When incomes and spending are growing, there is an increase in the demand for imports. Unless this is matched by a rise in export sales, the trade balance in goods and services will worsen

39
Q

Effects of falling unemployment to government spending

A

With more people in work paying income tax, national insurance and value added tax, the government can expect a large rise in tax revenues and a reduction in social security benefits

40
Q

Effects of falling unemployment to inflationary effects

A

Falling unemployment can also create a rise in inflationary pressure
However this is not really a risk when the economy is coming out of recession, since aggregate supply is likely to be highly elastic because of a high level of spare capacity

41
Q

What is inflation

A

Inflation is a sustained increase in the general price level, leading to a fall in the purchasing power of money.

42
Q

What is deflation

A

Deflation occurs when the rate of inflation becomes negative i.e. the general price level is falling and the purchasing power of money is increasing.

43
Q

WHat is hyperinflation

A

Is a rapid rise in prices - the value of money becomes worthless and people lose all confidence in money both as a store of value and also as a medium of exchange.

44
Q

What is stagflation

A

slow growth and rising unemployment

45
Q

Measure of inflation

A

measured by the annual percentage change in the level of consumer prices.
Main measures are CPI and RPI

46
Q

What is the inflation target of the UK

A

The British Government has set an inflation target of 2% - as measured by the CPI

47
Q

Demand-pull inflation

A

when AD and output is growing at an unsustainable rate leading to increased pressure on scarce resource

48
Q

4 main causes of demand-pull inflation

A
  • A monetary stimulus to the economy. Eg a fall in interest rates resulting in too much demand.
  • A fiscal stimulus e.g. a reduction in direct or indirect taxation or higher government spending leads to higher AD.
  • Depreciation of the exchange rate (This increases the price of imports and reduces the price of UK exports)
  • Faster economic growth in other countries – providing a boost to UK exports.
49
Q

Cost-push inflation

A

occurs when firms respond to rising costs, by increasing prices to protect their profit margins.

50
Q

4 causes of cost-push inflation

A

An increase in component costs.
Rising labour costs - caused by wage increases.
Higher indirect taxes imposed by government.
A fall in the exchange rate

51
Q

Inflation can be reduced by policies that do what

A

slow down the growth of AD or

boost the rate of growth of AS.

52
Q

Monetary policy

A

This involves raising interest rates to reduce consumer and investment spending (so lowering AD). Remember interest rates are set by MPC

53
Q

Fiscal policy

A

To lower AD the government may reduce its own spending on public goods/services or welfare payments. Or it can choose to raise direct (not indirect) taxes, leading to a reduction in real disposable income.

54
Q

What are the 4 government policies to reduce inflation

A

Monetary policy
Fiscal policy
Supply-side policy
Reducing expectations

55
Q

Supply-side policy

A

include those that seek to increase productivity, competition and innovation – all of which should lead to lower prices

56
Q

Reducing expectations

A

The government has succeeded in recent years in convincing businesses that inflation will remain low. This increases business confidence and dissuaded Unions from making excessive pay claims.

57
Q

why might output increase after an increase in the money supply

A
  • Will initially affect those in the financial markets
  • These people will buy more financial assets
  • The increase in the demand for bonds will raise the price of bonds and lower the rate of interest
  • A fall in the interest rate generates an increase in investment
58
Q

What are the UK Government attempting to ensure that our economy has

A

Stable, Low Inflation
Steady & Sustainable Economic Growth
Low Unemployment / High Employment
Rising Living Standards

59
Q

What was the economic concept developed by A. W. Phillips

A

Inflation and unemployment have a stable and inverse relationship

60
Q

Positive output gap

A

when actual output is more than full-capacity output.

61
Q

Negative output gap

A

when actual output is less than what an economy could produce at full capacity

Economics (11 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions