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Economics - Chapter 8 > Chapter 9 > Flashcards

Chapter 9 Flashcards

1
Q

What are the government’s 6 main economic objectives?

A

Economic growth
Price stability
Minimising unemployment
Stable balance of payments on current account
Balancing the budget
Achieving an equitable distribution of income

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2
Q

Name 5 conflicts between objectives in the short run, causing trade-offs

A
  1. Inflation V Unemployment
  2. Economic Growth V Sustainability
  3. Economic growth V Inflation
  4. Inflation V Balance of Payments
  5. Economic Growth V Reduction in Wealth Inequality
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3
Q

What is policy conflict?

A

When 2 or more policy objectives cannot be attained at the same time. A trade off can occur.

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4
Q

When are policy conflicts more likely to occur?

A

In the short run.

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5
Q

Why might policy conflicts not occur in the long run?

A

In the long run, it may be possible to achieve all the objectives at the same time

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6
Q

How can policy objectives be avoided?

A

By using different policies to achieve different objectives

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7
Q

What are the 3 most important economic objectives?

A

Achieving economic growth
Achieving price stability
Minimising unemployment

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8
Q

In the 1970s, what was the economic objective?

A

The very high inflation meant achieving price stability was a higher priority.

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9
Q

After the 2008 financial crisis, what policy was important than price stability?

A

Economic growth

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10
Q

What is the most recent gov policy objective?

A

The UK gov placed higher priority of elimination of the budget deficit.

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11
Q

What is policy instrument?

A

A tool or set of tools used to try and achieve one or more policy objectives

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12
Q

What is a policy trade-off?

A

The opportunity cost in terms of moving further away from achieving one objective in the process of moving closer to achieving another objective

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13
Q

What is GDP?

A

A measure of national income showing the value of output produced in an economy for a period (1 year period)

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14
Q

What is Real GDP?

A

GDP adjusted for inflation

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15
Q

What is Real GDP per capita?

A

The average income earned by each member of the population, adjusted for inflation

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16
Q

What is Consumer Price Index (CPI)?

A

Average level of prices of a typical basket of goods/services. Is the price index used by the gov to calculate the official rate of price inflation.

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17
Q

What is Retail Price Index (RPI)?

A

An alternative price index which shows the average level of prices of a typical basket of goods/services

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18
Q

What are the 2 measures of unemployment in the UK?

A

Claimant Count
The labour force survey

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19
Q

What is the claimant count?

A

Includes those receiving benefit payments for being unemployed.

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20
Q

What is the labour force survey?

A

Includes all those looking for a job, but are unable to find work, whether they’re receiving benefits or not.

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21
Q

Attaining policy objectives often relies on?

A

Value judgements

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22
Q

What is the balance of payments?

A

A financial record of all transactions between the UK and the rest of the world

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23
Q

What is productivity?

A

The quantity of output produced by a given level of inputs for a time period

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24
Q

What is the current account?

A

A record of the trade in goods and services and flows of income between the UK and rest of the world

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25
Q

What is the basket of goods/services?

A

A range of goods/services bought by the typical household

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26
Q

What is the weighted average?

A

Items that account for a larger proportion of a household budget are given a higher weighting in the price indices used in the UK

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27
Q

RPI includes what measure that the CPI does not?

A

Mortgage interest payments

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28
Q

The CPI is a what?

A

A weighted average

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29
Q

What does Real GDP show?

A

What GDP can ‘buy’ after adjusting for changes in prices over time

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30
Q

A higher GDP per capita means what?

A

That people can buy more, increasing the population’s standard of living

31
Q

What are the other uses of national income data?

A

Determine economic growth
Estimate likely tax revenues
Estimate likely welfare expenditure (i.e. unemployment benefits)
Assess inflationary pressure (if national income is rising rapidly)

32
Q

What are the 6 limitations of national income data?

A

Distribution of income
Composition of GDP
Shadow Economy
Non-marketed output
Negative Externalities
Non-Financial factors

33
Q

What does the distribution of income look at?

A

How income is shared out. A country with a high income inequality has more people with incomes significantly below the average GDP per capita than one with a more equal distribution of income. High levels of income inequality make GDP per capita less reliable in measuring living standards

34
Q

What are the compositions of GDP and what does it mean?

A

Military spending (which directly benefits few people) can be a sig percentage of GDP
Some contributions to GDP (i.e. spending on health and education) increase the living standards more than other contributions

35
Q

Define the term shadow economy

A

The value of transactions not recorded in official national income stats

36
Q

Explain what features of the shadow economy

A

Incomes from legal but unrecorded transactions (often to avoid tax charges)
Transactions which are both illegal and unrecorded (i.e. drugs or prostitution)
Unrecorded transactions add to the living standards of the population but do not show in official GP data
Failure to include the shadow economy understates living standards
Estimates suggest the UK’s shadow economy is worth 10% of actual GDP

37
Q

Explain non-marketed output

A

Many goods and services add to people’s standard of living but don’t show up in official GDP data
Services i.e. DIY and childcare are not included in the GDP if performed by other family members for free.

38
Q

Define non-marketed output

A

Economic transactions that occur without a monetary payment being made in exchange

39
Q

Define PPP

A

Purchasing power parity is the exchange rate that would equalise the price of good and services in different countries

40
Q

Explain negative externalities as national income data

A

Additions to GDP often generate negative externalities, reducing living standards.
Pollution and traffic congestion usually arise out of increased activity but reduce people’s quality of life
Therefore, increases in GDP often overstate improvements to people’s standard of living

41
Q

Explain the non-financial factors involved as national income data

A

Quality of health provision and whether it is free to use.
Education provision, in terms of length and quality
Individual freedom, i.e. of speech and travel
The amount of leisure time enjoyed on average, i.e. number of public holidays and limits on hours worked per week

42
Q

What is policy instrument?

A

A tool or set of tools used to try and achieve one or more policy objectives

43
Q

What is Nominal GDP?

A

GDP not adjusted for inflation

44
Q

What is GNI (Gross National Income) made up of?

A

GDP + net income from abroad

45
Q

What is GNP (Gross National Product) made up of?

A

Total output of the citizens of a country

46
Q

National output can be measured in 2 ways

A

Volume
Value

47
Q

What are booms?

A

Positive economic growth

48
Q

What are recessions?

A

Negative economic growth

49
Q

What is economic depression?

A

Sustained economic downturn

50
Q

What is economic growth?

A

The speed of national output

51
Q

What is deflation?

A

Fall in average price

52
Q

What is disinflation?

A

Slowing down of inflation

53
Q

What is hyperinflation?

A

Rapid price rise and value of money falls

54
Q

How is RPI calculated?

A

By 2 surveys:
First survey = used to find what people spend proportion of income on used to work out relative weighting of each item
Second survey = measures change in price of 700 commonly used goods/services.
The price changes are multiplied by the weightings and converted to index numbers

55
Q

What are the 2 features of CPI?

A

Tends to be lower than RPI.
A bigger population is used for CPI

56
Q

What are the limitations of RPI and CPI?

A

RPI excludes households in top 4% of incomes
CPI covers larger populations and excludes mortgage interest payments and council tax
Surveys can be inaccurate
Basket of goods in RPI change once a year so may miss short term changes

57
Q

Why are RPI and CPI helpful for government policies?

A

They help determine wages and state benefits.
Employers and trade unions use them for wage negotiations.
Gov uses them to decide on increase in state pensions and welfare benefits.
If UK CPI is higher than other countries, they can sell it for more due to less price competition.
Exports will fall and imports, made relatively cheaper by inflation, will increase

58
Q

What is the level of unemployment?

A

The number of people looking for a job, but can’t find one

59
Q

What us the rate of employment?

A

The number of people out of work as a percentage of the labour force. Used as a comparison between countries

60
Q

What are the advantages of the Claimant Count?

A

The data is easy to obtain
Updated monthly and no cost

61
Q

What are the disadvantages of the Claimant Count?

A

Can be manipulated by gov to seem smaller
Excludes people looking for work but who are not eligible to claim JSA

62
Q

What are the advantages of the labour force survey?

A

Data is more accurate
It’s an internationally used measure

63
Q

What are the disadvantages of the labour force survey?

A

Less up to date
Expensive and may be unrepresentative of entire population

64
Q

What negative effects does unemployment have on an economy?

A

High rate of unemployment suggests economy is doing badly
Unemployment causes lower incomes and less spending = firms therefore have to reduce prices and thus make less profit
Unemployment means unused labour, so fewer goods/services are produced
Government had extra cost like welfare benefits so less tax is paid
More crime

65
Q

What does the balance of payments refers to?

A

International flows. It records payment for imports and exports, and is the value of them, not the volume.
If price changes but the volume remains the same, then the value of exports and imports will change

66
Q

What are the 4 sections of the current account?

A

As the current account records the international exchange of goods and services, it’s:
Trade in goods
Trade in services
International flows of income earned as salaries, interest, profit and dividends
Transfers of money from one person or gov to another country

67
Q

What are dividends?

A

Interest from a foreign country

68
Q

What is a surplus of the current account?

A

When the money flowing in exceeds the flow out

69
Q

What is the shortage of the current account?

A

When the money flowing out exceeds the flow in

70
Q

The UK has a what overall in balance of payments?

A

A deficit

71
Q

What does the UK usually have in it’s balance of payments?

A

A surplus in invisible trade and large deficit in visible trade

72
Q

What does deficits show?

A

Competitiveness

73
Q

What do govs avoid in the balance of payments?

A

Long deficits

Economics - Chapter 8 (10 decks)

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