Economic performance Flashcards
1
Q
What are the 4 main points on the economic cycle graph called
A
- Boom
- Recession
- Recovery
- Trough
2
Q
What are the two types of growths that can be drawn on an economic cycle diagram?
A
Actual growth
Trend growth
3
Q
State the shape of the actual growth line on the economic cycle graph
A
Actual growth fluctuates- can be seen as a wobbly line
4
Q
At what point does a positive output gap occur on the economic cycle graph?
A
A positive output gap occurs when actual growth>Trend growth
5
Q
At what point does a negative output gap occur on the economic cycle graph
A
A negative output gap occurs when trend growth> Actual growth
6
Q
What occurs at a boom?
A
!. Positive output gap
2. High profits for firms
3. Low unemployment
4. High consumer and business confidence
5. Inflation
6. Increase in the demand for imports
7
Q
What occurs during a recession?
A
- Declining AD
- increasing unemployment
- falling confidence
- Negative output gap
- Falling inflation
8
Q
What occurs during a recovery?
A
- Rising confidence
- increase in home prices
- increase in investment
- increase in construction
9
Q
What is meant by the term “Economic growth”?
A
Economic growth can be defined as an increase in the real GDP of an economy per anumn caused by shifts in LRAS or AD
10
Q
When does short-run growth occur?
A
When the change causes a shift in AD rightwards
11
Q
What does a shift in AD indicate for growth?
A
Economy begins to utilise spare capacity
12
Q
How can short run economic growth be show on a diagram?
A
AD shifts right closer to YFE
13
Q
How can short run growth be shown on a PPF curve
A
Point moves from under the curve to on the curve
14
Q
What does a negative output gap indicate?
A
Under utilised resources, high unemployment, economic shocks
15
Q
What causes short run economic growth?
A
Interest rates reduce
tax lowers
increase in confidence
increase in government spending
weaker exchange rate
16
Q
What is meant by the term long run growth?
A
Long run growth occurs when the productive capacity of the economy is increased through an LRAS shift right
17
Q
When does LRAS shift?
A
LRAS will shift when there is an increase in the quality/quantity of the factors of production or increases in productive efficiency which lowers cost
18
Q
what are the benefits of economic growth
A
- Increases in household income as firms make more profits so wages increase
- Employment- more income increases standards of living
- Increased profits for firms- investment potentially leading to innovation
- Fiscal dividends- increases in TAX
19
Q
What is meant by the term “Fiscal dividends”
A
A fiscal dividend is the increased government revenue due to economic growth.
20
Q
What are the costs of economic growth?
A
- Higher demand pull inflation erroding purchasing power resulting in a decline in living standards
- Income inequality- incomes are not distributed evenly across the economy
- Environmental costs- may cause pollution and deforestation
- Current account defecit- Incomes increase so imports increase leading to more money being withdrawn from the economy
21
Q
What is meant by the term “Supply side shocks”
A
Supply side shocks are unexpected events which disrupt the supply of a good/service
22
Q
Give 4 examples of supply side shocks
A
- Natural disasters
- Wars
- Pandemics
- Oil price shock
23
Q
What is meant by the term “Demand side shocks”
A
A demand side shock is an unexpected event that causes a shift in AD potentially resulting in demand pull inflation
24
Q
Give 2 examples of a demand side shock
A
TAX cuts
Interest rate change
25
What is inclusive economic growth
Inclusive economic growth is when everyone benefits from economic growth
26
What is balanced growth?
Balanced growth is when there is growth in many sectors of the economy. This means that if one sector declines there is still growth elsewhere
27
What is sustainable economic growth
Sustainable economic growth is a type of long term growth that focuses on satisfying the needs of the current population without compromising the needs of future generations
28
What is meant by the term "Unemployment"
The unemployed consists of those of working age who are willing and able to work and are actively seeking work but do not have a job
29
What are the two ways to measure unemployment?
Claimant count
LFS
30
What is the LFS
The labour force survey is a large scale survey conducted by the office for national statistics. This is sent to around 40000 households who represent a sample of the population
31
What can we use the data collected from the LFS to determine
1 the number of employed people
2 the number of unemployed people
3 the number of economically inactive people
32
What does it mean to be "Economically inactive"?
The economically inactive consists of those of working age who are not willing to work
33
How do you calculate employment rates
Unemployed/ economically inactive
ans x 100
34
What is the claimant count?
The claimant count is the number of people who are claiming government benefits
35
What are the issues with the claimant count?
1. It is difficult to compare against other countries
2. Not everyone who is economically inactive will claim
3. Not everyone can claim
4. Could be frauded
36
What are the issues with the LFS?
1. Small sample size (only 40000 houses to represent entire population)
2. Cots- it is expensive to produce a survey on such a large scale
3. The under employed may be counted as fully employed
37
What are the costs of unemployment for the entire economy?
1. Lost potential output
2. Deterioration of government finances
3. Loss of income
38
What are the benefits of unemployment for an economy
1. Firms have a wider range of people to chose to hire
2. Workers have time to select the best jobs reducing under employment
39
What are the types of unemployment?
1. Frictional
2. Structural
3. cyclical
4. Seosonal
5. Casual
40
What are the types of structural unemployment?
1. Occupational
2. Geographical
3. Technical
41
What is frictional unemployment
Frictional unemployment occurs when people are in between jobs or searching for a new job
42
What is cyclical unemployment
Common during a recession- when there is a lack of demand in a product or service so there is a lack of demand for labour
43
what is meant by seasonal unemployment?
Unemployment that occurs due to seasonal changes- people who work temporary jobs for example ice skating ring staff
44
What is meant by casual unemployment
Casual unemployment occurs when workers are hired only when they are needed without guaranteed pay or guaranteed hours
45
What is occupational immobility
occupational immobility occurs when labour loses skill or its skills become worthless so they cannot transfer jobs
46
What is geographical immobility
Geographical immobility occurs when workers are not willing to find work far away
47
What is technical unemployment
Technical unemployment occurs when workers' jobs are replaced by technology- often a result of occupational immobility
48
Ways to improve structural unemployment
1. Training
2. Improve transport
3. Cheaper housing
4. Immigration visas
49
what is on the axis of a structural unemployment graph?
X axis- quantity of labout
y axis- wages
50
What curves are found on the structural unemployment graph?
Actual supply of the labour force (S)
Supply of labour force (S)
Demand for labour (D)
51
What is the difference between actual supply of labour force and supply of labour force?
Supply of labour force refers to the quantity of workers that are willing to take jobs at different wage rates
Actual uplly of labour force refers to the quantity of workers that are willing to take jobs at different wage rates and actually take it
52
What happens if wages are above the equilibrium?
Real wage unemployment where supply of labour is in excess
53
What is meant by real wage unemployment?
Real wage unemployment occurs when there is more people that want jobs than jobs avaliable
54
How can the rest of the world impact UK employment rates?
1. Migration- increases availability of workers (Potentially skilled)
2. Foreign direct investment- Can boost employment due to expanding industries or creating new ones
3. International trades- imports are needed to create goods
55
What is inflation?
Inflation is the rate at which the general price for goods and services rise leading to a decreased purchasing power of an economy
56
How do we determine the inflation rate?
The CPI and RPI
57
What is the CPI?
The consumer price index is a widely used measure of inflation that tracks the changes in price of a fixed basket of goods and services typically purchased by households
58
What is the RPI
The retail price index is a measure of inflation that tracks the changes in price of a fixed basket of goods including housing costs, mortgage interest payments and council tax
59
List 3 things found in the RPI basket of goods.
1. Housing costs
2. Mortgage interest payments
3. Council tax
60
How to calculate inflation rate?
Change in the anual CPI divided by the previous year CPI multiplied by 100
61
What are the two types of inflation
Cost push inflation
Demand pull inflation
62
What macro economic conflicts may occur with inflation
Unemployment vs inflation- Tighter monetary policies may act to increase unemployment as firms may have redundancies in order to reduce costs
Exchange rate vs inflation- interest rates will rise attracting foreign direct investment and making exports more expensive
Fiscal deficit vs inflation- reduces gov spending reducing AD slowing economic growth and reducing unemployment
Standard of living vs inflation- Inflation erodes purchasing power of consumers, may drive those on lower incomes into poverty
63
Why might printing money not result in an inflation
1. High unemployment may lead extra money to not circulate economy
2. money heald in banks- reduces the amount that circulates the economy
3. FDI can absorb extra money
64
What is the difference between a fiscal deficit and a budget defecit
A budget defecit occurs when the government expenditure exceeds the income from tax, however a fiscal deficit refers to the total borrowing requirements of the including loan repayments
65
What is a fiscal deficit?
A fiscal deficit occurs when the government's expenditure exceeds tax revenue, resulting and the government has to borrow the difference
66
What are the pros of inflation?
1. Workers get higher wages
2. Firms encouraged to increase outputs
3. may mean unemployment remains low in a recession
4. Easier to pay off debt
67
Cons of inflation
1. Reduced purchasing power
2. Errosion of savings- interest rates do not rise with inflation- bad for pensioners
3.Reduces export competitiveness- exports are less competitive due to increased price
4. wage price spiral
5. Fiscal drag
68
What is the "wage price spiral"
When inflation is high workers demand higher wages increasing costs of production, increasing inflation resulting in another payrise
69
What are "Shoe leather costs"?
when inflation is high people look to reduce the amount of cash they hold and make frequent trips to the bank to withdraw small amounts of money when needed
70
What is demand-pull inflation?
Demand pull inflation occurs when AD increases faster than AS resulting in an excess demand
71
What is cost push inflation?
Cost push inflation occurs when Costs of production rise and then are passed on to consumers through raised prices
72
Causes of Demand pull inflation
1. Falling interest rates
2. lower tax
3. increased gov spending
4. Weaker exchange rates
73
Causes of Cost push inflation
1. increase in raw material prices
2. increase in wages
3. increase in tax
4. increase in costs of production
74
What is meant by the term "Deflation"
Deflation is the persistant fall in prices in an economy in a year
75
What curve will shift during a period of deflation?
AD shift left
76
What are the dangers of anticipated deflation?
1. Consumers will delay spending
2. increased value of debt
77
What are the two types of deflation?
Demand side- Malignant
Supply side- benign
78
Benefits of supply-side deflation
1. Lower prices for consumers
2. Wages rise
3. Costs of production fall
4 Can increase competitiveness of exports resulting in economic growth
79
What is disinflation?
Disinflation is the decrease in the rate of inflation
80
The price mechanism- applied.
How does the price mechanism reach equilibrium when there is excess demand?
1. Increase demand leads to D1 shift right
2. there is and excess demand at P1
3. Excess demand demonstrates a missallocation of resources
4. Results in demand pull inflation
5. Excess demand sends signals that the price is too low
6. Results in an incentive to increase prices to maximise profits
7. Not all consumers willing to pay new price so there is a contraction on demand curve
8. Rationing out excess demand
9. A new equilibrium is achieved and resources are allocated efficiently at a higher price and output level
81
What is meant by the "Balance of payments"?
The balance of payments is a large spreadsheet that measures the inflows and outflows of money in and out of an economy
82
What is meant by a Trade deficit?
A trade defecit occurs when imports>exports
83
What is meant by a trade surphlus?
A trade surphlus occurs when exports>imports
84
