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ECONOMICS PAPER 2 > economic objectives & the role of the government > Flashcards

economic objectives & the role of the government Flashcards

1
Q

Economic growth

A

Increase in GDP over time

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2
Q

Gross domestic product

A

The value of output produced within a country in a year

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3
Q

Formula to calculate economic growth

A

Change in GDP/ Original GDP * 100

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4
Q

GDP per capita

A

GDP divided by population
it can be used to measure standard of living in a country as it shows how much income people have to buy G+S
However incomes may not be spread evenly within an economy

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5
Q

Boom

A

Economic growth is positive and high over a period of time

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6
Q

Recession

A

GDP falls for two or more consecutive quarters (i.e. 6 months)

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7
Q

What is an impact of a recession

A

Fewer workers are needed to produce a lower level of output. This leads to a increase in unemployment and a decrease in incomes. This may also lead to a fall in spending which leads to fewer goods and services being demanded. In this turn this leads to a fall in output and cycle continues

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8
Q

What are the determinants of economic growth

A

Changes in technology – advances can improve the quality of capital gods
Size of workforce
Natural resources
education and training
investment
government policies

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9
Q

What are the benefits of economic growth

A

EG means that an economy can make more output -> greater amount of G+S available to buy which might decrease prices and increase living standards of consumers
More workers are needed to meet the extra output which creates more jobs and less unemployment

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10
Q

What are the costs of economic growth

A

More production may create more pollution, harming health.
Increased production may harm the environment e.g. water pollution kills fish, which has a negative impact on fishermen
INFLATION demand rises faster than supply more competition G+S between consumers and price level rise

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11
Q

Employment

A

people who are willing and able to work can find a job

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12
Q

Unemployment

A

people who are willing and able to cannot fin a job

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13
Q

Claimant Count

A

a measurement of unemployment using the number of people who claim unemployment- related benefits

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14
Q

Level of unemployment

A

the total number of people who are in the workforce and are without a job

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15
Q

How do you calculate unemployment rate

A

number of unemployed / workforce * 100

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16
Q

What are the 4 types of unemployment

A

1) CYCLICAL - workers without employment due to a fall in total demand for G+S
2) FRICTIONAL - workers without employment as they move from one job to another
3) SEASONAL - workers without employment due to a decrease in demand in certain times of the year
4) STRUCTURAL - workers without employment due to the decline of industry e.g. steel production in the UK

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17
Q

What are the benefits of unemployment

A

International competitiveness
workers may have to accept a lower wage rate to get a job which reduces the costs for firms meaning they can have lower prices and be more price competitive against overseas firms

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18
Q

What are the costs of unemployment

A

Lower standard of living
individuals have less income so can afford fewer G+S that contribute to their wellbeing
Lower income
unemployment related benefits is relatively low and wages are pushed down due to a surplus of workers

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19
Q

Distribution of income

A

Describes how income is divided between individuals and households in a country

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20
Q

Income

A

A flow of money over time, often as a reward for use of a factor of production

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21
Q

What are the types of income

A

Profit - reward for enterprise
Wages - reward for work
Rent - reward for use of land over a period of time
Interest - reward for saving or lending
State benefits - the government transfers income by taxing some people and paying benefits to others

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22
Q

Wealth

A

The monetary value of all assets owned by an individual person, firm or a country at a specific time. E.g. houses, cars, jewlerry

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23
Q

Gross income or pay

A

the full amount paid to an employee before any deductions are made

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24
Q

Price stability

A

when the general price level either stays the same or rises at a low rate over time

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25
Q

Inflation

A

a sustained increase in the general price level
fall in purchasing power where consumers can buy less with the same amount of money = increase cost of living

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26
Q

Real and nominal values

A

the value of an economic variable that takes account of changes in the general price level over time
economic variable based on current prices

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27
Q

Consumer price index ( CPI )

A

A measure of the general price level used to calculate the inflation rate

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28
Q

How do you calculate change in price due to inflation

A

original price / 100 * inflation rate

29
Q

How do you calculate new price after inflation

A

original price * ( 1 + inflation rate / 100 )

30
Q

Causes of inflation ( demand-pull)

A

demand pull inflation - too much demand
total demand rises faster than total supply in a country
one cause is increased incomes, consumers are able to afford more G+S, leads to higher prices. More likely when firms are producing close to its productive capacity -> firms are less able to respond easily and quickly to an increase in demand

31
Q

Causes of inflation ( Cost-push)

A

Cost push = rise in costs
caused by a rise in cost of production which firms try to pass o to consumers to maintain profits -> rise in the general price level
A fall in productivity leads to rise in avg cost as higher proportion of a workers hourly wage is needed to make a single unit of output so this increased wage bill increases cost which leads to higher prices

32
Q

Consequence of inflation for consumers

A

Loss of consumer confidence- difficult for consumers to value different goods and how to decide how to prortisise spending their income so the uncertainty may stop them buying G+S

Shoe leather costs - consumers & firms have to compare pricesmof different goods from suppliers. Cost time & effort to find the best deals
Fall in real income - if income risises slower than inflation consumers wiill have less purchasing power

33
Q

Consequence of inflation for producers

A

Increased production cost
Menu costs - firms may have to update pricing information on their goods due to inflation which can increase their production cost e.g. printing & distributing new catalogs
lower exports
loss of buisness confidence - if firms are uncertain about the prices of their input cost & selling price for their goods, this may make them reluctant to invest, which can lead to lower productivity

34
Q

Consequence of inflation for savers

A

Inflation reduces the impact of any interest and may reduce the real value of the money saved, e.g. if someone is saving for a specific target such as a car but the price of the car rises at a faster rate than the person can save

35
Q

Consequence of inflation for government

A

leads to pressure to increase wages for its employees such as NHS & state school costs. This can lead to costly industrial disputes and if wage rises are agreed, increased government spending

36
Q

Types & purpose of government spending

A

Education - to ensure that everyone is equipped with basic skills e.g. reading
Healthcare - to increase the welfare of all e.g. preventing disease

37
Q

Government revenue

A

amount of money the government receives

38
Q

Government spending

A

the total amount of money spent by the government in a given time period

39
Q

Direct tax

A

tax on income and wealth
income tax
corporation tax
inheritance tax
capital gains tax

40
Q

Indirect tax

A

a tax on spending which is imposed on the producer but then may be passed down to consumers through an increase price
VAT
custom duties

41
Q

Balanced budget

A

revenue is equal to government spending

42
Q

Budget surplus

A

revenue is greater than government spending

43
Q

Budget deficit

A

revenue is less than government spending

44
Q

Fiscal policy

A

a policy that aims to control the economy through the use of government revenue and spending

45
Q

What are 5 government objectives

A

1 rise in economic growth
2 lower unemployment
3 price stability / lower inflation
4 improved balance of payments
5 fair distribution of income

46
Q

Government spending is likely to…..

A

increase economic growth
increase employment
increase inflation

47
Q

What are the effects of government spending on different markets

A

Private sector - by building new schools their is more demand for computers, tablets etc. so the profits of firms rise

48
Q

Cost of fiscal policy

A

Consumers may save rather than spend their extra income so economy does not grow as much expected
Firms and consumers might spend their extra money on imports making the balance of payments worse

49
Q

Opportunity cost of fiscal policy

A

If the government spends more on one are e.g. education it will spend less on another e.g. healthcare
If the government spends more it could pay for it by higher taxes. This means that consumers have less income so they spend less meaning that VAT receipts fall

50
Q

Benefits of fiscal policy

A

Reduced unemployment- Government can cut taxes/increase spending> there is more demand for labour. Consumers can spend more so more labour is demanded
Also cutting taxes and increasing spending leads to greater output as consumers purchase more and firms increase investment leading to economic growth

51
Q

Monetary policy

A

aims to control total supply in the economy to try to achieve the governments economic objectives, in particular price stability

52
Q

How can monetary policy affect growth

A

spending and borrowing by consumers increase. Borrowing is cheaper so disposable incomes rise. Rising consumption

53
Q

How can monetary employment affect employment

A

Spending and borrowing by consumers incraese
leads to more demand for UK goods and services so more people are employed to provide these

54
Q

How can monetary policy affect price stability

A

spenidng and borrowing by consumers increase
Borrowing is dearer so people who have a mortgage pay more. Spending encurs a higher opportunity cost so consumption falls leading to a fall in demand for G+S

55
Q

Effects on monetary policy on consumer spending

A

oportunity cost of spending
this falls so consumer spend more and save les. If the fall is large then spending will increase and savings will fall but if small there may be little or no effect

56
Q

Supply-side policy

A

any policy that helps to increase a country productive potential

57
Q

cost of supply-side policies

A

time lags
policies take a long time to become effective so the conditions in the economy may have changed
monetary cost
because policies take a long time, costs can grow beyond estimates, policies such as education/training are labour intensive so costly

58
Q

benefits of supply side policies

A

reduced inflation
product and labour markets become more efficient so output rises to combat increase demand thus keeping inflation under control

59
Q

Externality

A

the impacts of an economic transaction on a third party

60
Q

Positive externality

A

the benefit of an economic transaction for a third party

61
Q

Negative externality

A

the cost of an economic transaction for a third party

62
Q

Taxation

A

government collection of money from individuals and firms

63
Q

Indirect tax

A

a tax raised on spending on G+S

64
Q

Subsidies

A

a sum of money given by government to firms to encourage production and consumption

65
Q
A
66
Q
A
67
Q
A
68
Q
A

ECONOMICS PAPER 2 (2 decks)

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