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Economics > Chapter 6 > Flashcards

Chapter 6 Flashcards

1
Q

GDP

A

Money value of goods and services produced within a country over a period of time

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2
Q

Why is nominal GDP misleading indicator for economic growth

A

Is nominal GDP may increase because Price increases but not amount of output

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3
Q

Real GDP

A

Value of national output Adjusted for inflation

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4
Q

Causes of recession

A

Fall in aggregate demand or falling aggregate supply

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5
Q

Consequences of recession

A
  • Lower output, firms hire less Labor, unemployment increases, lower incomes in standard of living
  • decrease government tax revenue due to low investment and high unemployment, Government spending has to increase on benefits so this will create a budget deficit so more national debt
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6
Q

Causes of economic growth

A
  • in the short run aggregate demand increase
  • on the long run quantity and quality of resources increase causing an outward shift in PPC so productive capacity increases
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7
Q

Advantages of economic growth

A
  • improved standard of living
  • employment
  • tax revenue increases
  • reduce poverty
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8
Q

Disadvantages of economic growth

A
  • environmental consequences
  • risk of inflation
  • inequalities in income and wealth
  • resource depletion
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9
Q

Employment

A

Use of labor as a factor of production in a productive activity for which payment is made

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10
Q

Why does government Aim for full employment

A
  • Increase standard of living
  • helps achieve economic growth
  • increase tax revenue
  • prevent Brain drain
  • reduces income and wealth inequalities
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11
Q

What happens to patterns and levels of employment when the country becomes more developed

A
  • more people are employed in Tertiary sector
  • increased portion employed informal economy
  • greater female participation
  • Increased portion of people employed in private sector
  • Friends become more flexible to be able to compete internationally
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12
Q

Disadvantages of claimant Count

A

Underestimates unemployment as many people are not eligible for employment benefits

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13
Q

Advantages of labor force survey

A

Can be used to make international comparisons and measures unemployment more accurately

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14
Q

Causes of unemployment

A
  • frictional
  • structural
  • cyclical
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15
Q

Frictional unemployment

A

Time delay between leaving a job and finding another job

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16
Q

Structural unemployment

A

Long-term drop in demand for a product produced by certain industry people who face this type of unemployment usually find it difficult to find a new job as retraining is required

17
Q

Cyclical unemployment

A
  • Demand deficient unemployment
  • Caused by a fall in aggregate demand which causes all produces to reduce output level causing mass unemployment and is experienced during recession
18
Q

Consequences of unemployment

A
  • unemployed suffer from health problems stress and depression
  • Family suffers from fall in income and poor standards of living
  • if an individual is unemployed for a long time They may lose their skill
  • firms lose out due to low consumer spending investments and profits
  • increased poverty and increased crime rate
  • increase government spending on unemployment benefits and healthcare creating budget deficit and increased Government debt
  • economy suffers from being less internationally competitive
19
Q

Protectionism policy

A

Imposing tariffs on imports can decrease demand for imports an increase the demand for domestic goods so firms increase output and hire more labor

20
Q

How to calculate CPI(consumer price index)

A
  • choose basket of goods consumed by average household(sample)
  • choose base year
  • Measure prices in a number of outlets
  • Weight percent of income spent on each product
  • multiply weight by price to get caught and weighted price
  • base index of 100
  • repeatFor the current year
  • WAP Current / WAP Base x 100
21
Q

Causes of inflation

A
  • demand pull(increase aggregate demand more than output level)
  • cost push(increase costs of production so Producers raise price to maintain profit level)
22
Q

Consequences of inflation

A
  • decreased purchasing power so real income decreases and standard of living Decreases
  • savers lose its inflation is higher than interest-rate
  • lenders loose as money received is worthless
  • International competitiveness decreases
  • menu costs
  • shoe leather costs
  • fixed income earners face a decrease in real income
  • decreases business confidence levels
23
Q

Causes of deflation

A
  • non-threatening deflation, higher level of output

- Harmful deflation, fall in level of aggregate demand, occurs during recession

24
Q

Consequences of deflation

A

Caused by harmful deflation

  • unemployment
  • borrow as loose as they’ll pay money that is worth more
  • firms lose due to low consumer spending
  • Government faces lower tax revenue while government spending on welfare benefits increases creating a budget deficit so government needs to borrow
25
Q

Don’t forget

A

The study page 45

26
Q

Factors affecting consumer spending

A
  • disposable income
  • Wealth
  • confidence level
  • interest-rate
  • Increased inflation
  • age
  • Size of household
27
Q

Factors affecting saving

A
  • income
  • Wealth
  • rate of interest
  • tax on savings
  • age structure
  • social attitude
  • range and quality of financial instructions
28
Q

Factors affecting Borrowing

A
  • income increase
  • interest-rate
  • confidence level
  • wealth
  • availability of funds
  • social attitude

Economics (11 decks)

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