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Macroeconomics > Development > Flashcards

Development Flashcards

1
Q

Economic Growth

A

Increase in the value of goods and services produced by an economy over time

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2
Q

Economic Development

A

Process that seeks to improve the economic well-being and quality of the people in the country

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3
Q

Sustainable development

A

meets the needs of the present without compromising the ability of future generations to meet their own needs

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4
Q

Primary sector

A

economies that are more reliant on farming and mining

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5
Q

Secondary sector

A

economies that are more reliant on manafacturing

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6
Q

Tertiary sector

A

economies that specialize in services

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7
Q

Developed economies

A

Economy that has a high level of economic activity

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8
Q

Developing economies

A

Countries that have not seen any significant growth due to them being reliant on agriculture etc….

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9
Q

Emerging economies

A

Countries that have had massive economic growth due to advances in technological sectors

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10
Q

per capita income

A

the value of the goods and services available, per person, not just transforming economies.

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11
Q

examples of sustainable development

A

social progress, effective protection of the environment, prudent use of natural resources, maintenance of high and stable levels of economic growth

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12
Q

Why might economic growth not lead to sustainable development

A

increased extraction of primary resources, move from primary to secondary structure (cheap labour), moving to tertiary structure (urbanisation, increase car use, damaging habitats, changing diets)

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13
Q

solution to economic growth without harming the environment

A

offer incentives to lead producers/consumers to change their behaviour

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14
Q

can we have economic growth without harming the environment - it depends

A

Government failure (corruption/inexperience), economic properties (developed may prioritise it), economic situation (priorities)

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15
Q

Can we have economic growth, without harming the environment

A

MNCs invest in infrastructure, MNCs create employment, MNCs using renewable resources

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16
Q

What are the indicators of development

A

per capita income, life expectancy, education, the extent of poverty

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17
Q

What does HDI measure

A

economic development in: per capita income, health and education

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18
Q

What does a HDI score of 1 mean

A

complete development

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19
Q

Life expectancy factors

A

food supplies, war, disease and natural disasters

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20
Q

Features of growth

A

just uses GDP, measure income growth, quantitative, indicator for developed countries

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21
Q

Features of development

A

uses GDP and other measures(life expectancy,literacy), quality of life, qualitative, wider, indicator for devloping countries

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22
Q

Growth increase income/spending in a country

A

higher demand, higher employment, healthier diets, housing, sanitation

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23
Q

Human development correlated with GDP

A

life expectancy (positively), child mortality (negatively), happiness (positively), education (positively)

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24
Q

Economic growth may not lead to sustainable development

A

depletion of natural resources, multinationals exploiting short-term profits, government failure, worse work life balance, inequalities

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25
Q

What does a gini coefficient of 0 mean

A

income/wealth shared equally

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26
Q

Features of income

A

flow of money going to factors of production e.g. wages, rent, interest, profits

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27
Q

Features of income

A

flow of money from the factors of production e.g. wages, rent, interest, profits

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28
Q

Features of wealth

A

value of a stock of assests e.g. ownership of property, shares

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29
Q

Main types of household wealth

A

physical, pension, housing, financial

30
Q

where is the poverty line

A

60% of median income

31
Q

how is inequality of income and wealth measured

A

by the share of national income going to different groups

32
Q

What does the lorenz curve show

A

distribution of income/wealth

33
Q

disadvantage of lorenz curve

A

can not compare a wide range of countries

34
Q

disadvantage of gini coefficient

A

not great at analysing extremities of inequality

35
Q

Inequality effect on AD/SRAS/LRAS/economic development

A

Negatively effects them

36
Q

Absolute poverty

A

living on less than $1.90 a day

37
Q

features of absolute poverty

A

lack of food, lack of sanitation facilities, lack of shelter, education and information

38
Q

features of relative poverty

A

struggle to reach minimum accepted standard of living, no luxuries, refers to conditions which are suitabe to the society they live in

39
Q

Causes of absolute poverty

A

vulnerability to natural disasters, national debt, war & political instibility, history, discrimination and social inequality

40
Q

Causes of relative poverty

A

inequality, inheritance, higher levels of structural and long-term unemployment, regressive taxes, falling relative value of state benefits

41
Q

Extreme poverty effect on AS and AD

A

both shift left

42
Q

Why is inequality a good thing

A

encourages ambition if most talented earn more, lead to trickle down effect

43
Q

What is the trickle down effect

A

richest gain an increase in wealth, they will spend proportion of this extra welth causing an increase in demand for goods and services, causing higher employment and rise in wages. Higher wages may also cause a multiplier effect

44
Q

How can a government reduce inequality

A

progressive taxation policies, means-tested benefits system, improve labour mobility, more government spending on merit goods

45
Q

What does the Phillip’s curve show

A

relationship between unemployment and inflation

46
Q

What is NRU

A

natural rate of unemployment, which is the fixed long term rate, changes in employment revert back to NRU.

47
Q

What is money illusion

A

Individuals usually tend to view their income and wealth in nominal terms. causes a diagonal move on Phillip’s curve.

48
Q

What are adaptive expectations

A

if inflation increases n the past year, people will expect a higher rate of inflation in the next year, causes phillips curve to shift right. Higher expectations, worse trade off between inflation and unemployment

49
Q

What determines NRU

A

made from frictional and structural unemployment

50
Q

How can you shift NRU left

A

supply side policies

51
Q

What is wealth

A

it is a stock, can be inherited/built up over time.

52
Q

How has the government tried to achieve a more even distribution of income

A

progressive taxation systems that are used to pay for generous benefit systems helps ensure there is little absolute poverty

53
Q

How do the causes/consequences of poverty depend on the type.

A

absolute poverty is often caused by the nature of developing and emerging countries. (e.g. limited access to key resources, government failure or factors unique to a country). Relative poverty could be from inequality/government failure

54
Q

How is relative poverty and inequality linked

A

High income inequality will create more households in relative poverty.

55
Q

Consequences of absolute poverty

A

Social problems e.g. crime. The country not producing at its full potential (PPF diagram), this is because those in poverty are less likely to prioritise education and be more concerned with short-term objectives like earning a basic income. Could be exacberated by a ‘brain drain’ from the country as many of the brightest/fittest members of the community look to emigrate.

56
Q

How does absolute poverty effect FDI

A

High levels of poverty may make it more difficult for a country to effect FDI because foreign MNCs may not feel that the labour force are capable of meeting their requirements.

57
Q

How does labour market trends cause income inequality

A

the more flexible the labour market (easier to hire and fire), the greater income inequalities tend to be. Countries with strong trade union presence are often more equal as unions fight for a smaller pay gap.

58
Q

How do taxation policies cause income inequality

A

the more emphasis there is on progressive taxation, the less the inequalities. Countries with more proportional or regressive systems tend to have higher inequalities

59
Q

How does government intervention cause income inequality

A

countries like the UK and the Scandinavian countries have strong welfare states and wide access to free (at the point of use) health and education systems. In countries like the USA, these systems are not as robust so there may be more inequality

60
Q

How does wealth inequality cause income inequality

A

Wealthier households can invest their wealth in more profitable ways (e.g. shares/pension schemes/property for renting out- therefore earning more income, often at the expense of less wealthy households.

61
Q

What are the causes of wealth inequality

A

income inequality, government failure, cultural factors - e.g. in the UK, the class system meaning that ownership of large amounts of land and property is in relatively few hands.

62
Q

Consequences of inequality/relative poverty

A

i) social problems- e.g. crime, structural unemployment, uneven standard of infrastructure/housing/opportunities etc.
ii) economic problems- can lead to low worker morale, less incentive to work (rewards are seen to go elsewhere); low productivity; therefore, lower economic growth, less government revenue etc. In short, inequalities can be self-perpetuating.

63
Q

How is the inequalities dependent on

A

size of the inequalities, comparisons with similar, opportunity cost of reducing inequalities (Laffer Curve?); economic position (being relatively poor in the UK may be better off than somebody in the top quintile of a developing country.

64
Q

Why is there a perfectly elastic (horizontal) section of the LRAS

A

Keynesians believe there are sticky prices/sticky wages, suggesting that prices/wages get stuck at a certain low level and increases in AD won’t then increase price level.

65
Q

What do neo-classical economies believe about the Phillip’s curve

A

Believe that economies are totally flexible. SRAS is upward sloping and LRAS is vertical. (no sticky prices/wages) so believe there is NRU.

66
Q

What is the difference between short run and long run phillips curve

A

SRPC is the same trade-off as traditional Phillip’s curve but neo classical economists believe there is no point in doing this as unemployment will return back to NAIRU in the long run and price level has just increased in the long-run.

67
Q

What is NAIRU

A

non accelerating inflationary rate of unemployment. NAIRU=NRU

68
Q

What does LRPC show

A

there is no relationship between unemployment and inflation rate

69
Q

Phillip’s curve analysis

A

In the short run the government believe they can gain popularity by reducing unemployment below NRU. Unemployment shifts left but wages increase because of the temporary increase in demand for labour. As wages rise more workers join the labour force, not realizing that the increase in wages is actually illusion (money illusion). Higher wages create higher prices, when workers realise they are no better off they may again leave the workforce. Also, at higher wage levels companies see less benefit to hiring workers. Both of these factors mean unemployment increases and SEPC shifts right.

70
Q

What diagrams can also have the same analysis as the phillips curve

A

A PPF and SRAS/LRAS diagram showing a positive output gap

71
Q

What is the movements in the Phillip’s curve the same as

A

Movement along SRPC - changes in AD.
Movement to a new SRPC - changes in SRAS
Movement of LRPC is same as movement of LRAS

72
Q

Evaluating the usefulness of the Phillip’s curve

A

Depends on the economic school. Keynesians believe that cyclical unemployment can be permanently reduced/eliminated by policies. This would permanently reduces unemployment rates, albeit with some inflation. Neo-classical economists believe any reduction in unemployment will only be temporary. In the long-run, unemployment will always revert back to NRU. There is no point trying to reduce unemployment as prices are only pushed up. Ultimately, depends upon if you believe in sticky wages/prices, if you do tackle unemployment rates.

Macroeconomics (8 decks)

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