Chapter 2 Flashcards
Population trends
The population in England is aging and this effecting the state pension age as the government is having to raise it as it cannot support the volume of pension age people.
Living standards and what this includes
This refers to the level of wealth, happiness , comfort, material goods and other necessities are an aisle to people.
One common measuring tool of this is GDP
Different sectors name of the economy
The primary sector - producers of raw materials
Secondary sector - processing of raw materials ie manufacturing.
Tertiary sector - good distribution/ service sector
Quaternary sector - sector providing education, training and R&D
Quinary sector - top level decisions ie government.
Uks growing service sector
80% of the uks GDP is now made up of the service sector.
Productivity and the four that contribute to it
There are four factors effecting productivity
Land
Labour
Capital
Enterprise
Productivity is a measure of the efficiency of the above four and can be calculated by adding all the above and then dividing by output.
Wealth income distribution
Income = the amount received by individuals and households from all sources
Wealth = households or under ideals stock of financial assets including cash, property and investments also chattles
Measuring distribution of wealth
This can be done using the Lorenz curve and the Gini coefficient
Gini coefficient
This ranges between 0 or 100% and is used in connection with a Lorenz curve
= area A/ Area (A + B)
Explaining wealth inequality
Employment changes
Decline of trade unions
Eroding value of minuimum wage
Government policy
Taxation
Technology change
Globalisation
Developing economies
They are fulled by two ways
Internally - when demotic demand grows the economy
Externally - when external trade deals and demand for national products pulls the economy into growth.
Climate change
This is effected by human activity and has not been helped by globalisation and now increases the risks associated with climate change. COP26 and the Paris agreement are meant to help fight these effects.
Globalisation and its effects on global markets
It brings global markets in much closer connection with each other meaning their cycles are far greater linked.
Globalisation definition
Increasing inter connectivity and interrelated nature of business and their financial systems. It also is used to describe how products around the world are becoming similar.
The WTO and the the OECD are set up to help with globalisation and help invigilators the situation the have come about because of them.
Market failure
This occurs when the freely functioning markets fail to deliver an optimum allocation of resources. This prevents equilibrium.
Externalities
These arise from production and or consumption of goods and services that affect other parties. These can be both positive and negative.
Public goods
Pure public goods are the complete opposite from private goods, they are provided by the govement for two main reasons
Non-exludability - they cannot be confined to those who have paid for them
Non-rivalry in consumption - consumption from one doesn’t reduce availability for another to consume.
Merit goods
This is what governments and societies regard a necessary to avoid under consumption. Meaning usually they are subsidies by the GOV.
They can be provided by both public and private sectors however usually generate positive externalities.
Monopoly and oligopoly
When one or a few select companies control the market
Types of Trade agreements
Unilateral trade agreement = when one poses restrictions on another or loosens them. With no response
Bilateral agregreement = between two countries usually lowering trade barriers to promote growth
Multilateral agreements = three or more countries are involved.
Protectionism
This is where a country makes I purposely difficult to import/ trade with another country or purposely easy to. It is about manipulating trade for the benefit of the host country and their objectives.
Economic cycle
This describes the course an economy take usually 7-10years in repeat. The main sectors are recovery, boom and recession. These sectors are splits by wither growth or deceleration.
Recovery - peak - slump - trough
Assets price bubbles and causes for this
This is where a price rises rapidly and leaves usual value and then is followed. Y a reversal of expectations in sharp decline. This is caused by three main conditions
Low interest rates
Asset shortage
Demand pull inflation
Economic shocks
This is an event that provides a significant change within an economy despite occurring outside it. This can be because of supply or repaid devaluation of a currency.
Economic indicators
National income, gross national product and GDP
National income
This is the total income of residents of a country. Which arises from production of goods and services by that country.
Also called net national product
NI = GNP - Capital consumption
Can be useful for:
Standard of living
Comparing wealth
Measuring changes in wealth
GDP
Total value of income/ production from the economic activity.
GDP = c + I + g (x-m)
Consumer spending
Investment
Gov spending
Exports
Imports
Gross national product gnp
GNP = GDP plus net property income from abroad
Injections and withdrawals
Savings = withdrawals
Investment = injections
Imports = withdrawals
Exports = injections
Taxation = withdrawal
Gov spending = injection
Interest rates
This is a monetary policy option. This describes the general increase in price levels.
Inflation indices
This index uses a basket of goods to measure the average increase in price to calculate inflation. CPI (consumer price index) is one metric or RPI (retail price index) in another.
CPI is used by the uk government because - more realistic, compare international economies.
Differences in cpi and rpi
Item included in the basket
Broader range of items in cpi
Different weightings for items
Retail sales… show
Household consumption
Unemployment and types
This measures the rate of people available for work that are not in work currently. The main types of unemployment:
Cyclical - occurs because of market cycle and the general market health or weakness
Frictional - when between jobs either voluntary or not also seasonal.
Structural - this is where what unemployed people can offer and what firms need. Tech can be a reason to cause this type.
Money supply
The toal amount of money within the economy p, including narrow and broad.
Economic indicators and their characteristics
Each indicator can have one of the following
Procyclic - characterised by directional movement that moves in step with the overall movement of the economy
Countercyclic- indication move in the opposite direction to the economic growth.
Indicators are also characterised further by when they take place:
Lead indicators - usually change becofre economy as a whole
Lagging indicator- change after economic change
Coincident indicators- they change approximately at the same time as the economy.
Quantitative analysis
This relays on statistics and numerical data.
Qualitative analysis
Ore subjective and concerned mainly with social, institutional and commercial theams.
Gov economic aims
Sustained growth
Control inflation
Achieve full employee net
Achieve trade balance
Fiscal policy
Government policy on taxation, public borrowing and public spending
Types of taxationTaxation
Direct = income and wealth
Indirect = products and services ie vat
Types of fiscal policy
Expansionary
Contractionary
Neutral
Monetary policy
This is concerned with the amount of money in circulation and with the changes or its price ie interest.
MPC
Part of the BofE, nine members meeting 8 times a year. Deciding on interest rates.
Narrow and broad money
Narrow money - sum of all financial assets that meet a Norris definition ie very liquid and available to finance current spending.
B-road money - this includes the total sum of a wider group of financial assets
Examples of measuring money supply
M0 = this is the measure of notes and coins in circulation outside the BofEand operational deposits.
M4 = measure of notes and coins in circulation with the public plus sterling deposits held with the uk banks and building societies.
How money supply effects inflation, deflation and disinflation
Les money will push up prices and hence increase inflation and then reverse.
How money supply effects interest rates
Interest rates are largely determined by the demand for loanable funds so if there is more money then there is less borrowing so less demand equals less interest.
Relationship between monetary supply and interest rates with unemployment
Fisher equation
MV = PT
Money supply
Velocity of circulation
Price level
Transaction output
Balance of payments
Current account = this accounts for a countries imports and exports. In other workds the short term flows of a country
Capital accounts = this is transactions that don’t affect incomes, production or savings ie a copyright. If it attracted an income then it would be in this account.
Currencies effect on accounts
If a current account has a deficit then a falling currency value can be good as it make imports more expensive so people are pushed to domestic goods.
Market behaviour
The economy as a whole has a big influence on the financial market as prices usually are effected by the economy as the economy effect sentiment.
Persistent share fall equals a bear market
Persistent growth is a bull market
Primary markets
Market for new issues of shares or securities
Secondary market
Where already purchased assets are resold to new owners.
Fixed incomes securities
These can be effected by the interest rate.
