Economic Activity Flashcards
What is the economic problem?
People have unlimited wants but there aren’t enough resources available to supply all of the wants.
What is scarcity?
Finite resources available to supply infinite wants and so choices must be made about how to use these scarce resources.
What are the 4 factors of production?
C - capital
E - Enterprise
L - Labour
L - Land
7 Macroeconomic objectives?
Economic growth, Stable rate of inflation, Low unemployment, Income equality, Environmental sustainability, Balanced government budget, Current account balance
Definition of Circular Flow of Income:
An economic model showing the flow of goods and services, the factors of production and their payments between households and firms within an economy.
Rewards of the factors of production
Capital - Intrest
Entrepreneurship - Profit
Labour - Wages
Land - Rent
3 injections into the circular flow
Gov. expenditure
Investment
Exports
3 withdrawals into the circular flow
Savings
Taxes
Imports
Define GDP
Gross Domestic Product
The total value of the output of goods and services over a year period
What is C, G, I and X-M
C = Consumer spending G = Gov. spending I = Investment X-M = current account (Exports - Imports)
GNI (gross national income) VS GNP (gross national product)
GNI = GDP plus wages, salaries, and property income of the country's residents earned abroad. GNP = reports how much is earned by the country's citizens and businesses, no matter where it is spent in the world
What is GNI + how to get it
GDP + income from citizens abroad - income by foreigners living in the country
What is the difference between Real and Nominal figures
Nominal= face value figures Real = adjusted for inflation
Whats is the difference between a fall in growth rate and a fall in GDP
Fall in growth rate = still increasing GDP just at a slower rate
Fall in GDP = GDP getting lower
Total v. Per capita
Total = all of it
Per capita = per person
What is meant by a simple closed model (circular flow diagram)
- no foreign trade + no government influence
- only 2 groups: households and firms
What assumptions are made for a simple circular flow model? (4)
- Households spend all their money on goods and services
- Firms spend all their income on factors of production
- There is no government
- There is no foreign trade
Problems of comparing GDP between developed and developing countries?
(4)
- Accuracy of statistics can vary
- often developing countries consume what they produce
- developed countries often increase incomes at expense of quality of life
- developing countries might wish to achieve growth at the expense of health and safety
Limitations of GDP as a measure of living standards
GDP per capita = total GDP/population
Only one measure of living standards
How does the UK measure happiness
The office for national statistics (ONS) uses national welbeing
Relationship between real-incomes and subjective happiness
Easterlin Paradox: as people become richer their reported levels of happiness do not show any signs of increasing
What are the 4 cycles of the business cycle
Boom, recession, slump, recovery
Characteristics of a Slump (5)
- High unemployment
- Lots of firms going out of business
- low demand and inflation
- low/negative economic growth
- low confidence in economy
Characteristics of a Boom (7)
- more economic growth
- more demand
- less unemployment
- inflationary pressure (more inflation)
- Labour skills shortages
- more confidence in the economy
- more capital goods investment
