Economics paper 2 Flashcards
Explain what is meant by economic growth
an increase in the production (GDP) of economic goods and services, compared from one period of time to another
Calculate how economic growth is measured with reference to GDP and GDP per capita
Real GDP per capita is calculated by dividing GDP at constant prices by the population of a country or area.
Taxes + Subsidies = GDP
What are the determinants of economic growth?
- Inflation
- Human resources, natural resources, capital formation and technology
How can investments determine economic growth?
Investment adds to the capital stock; it therefore contributes to economic growth.
How can changes in technology, education and training and the availability of natural resources affect economic growth?
- Technological progress allows for the more efficient production of more and better goods and services
- A country’s economy becomes more productive as the proportion of educated workers increases
- Natural resources have a double-edge effect on economic growth, in that the intensity of its use raises output, but increases its depletion rate. Natural resource is a key input in the production process that stimulates economic growth.
Analyse how government policy can determine economic growth
Gross Domestic Product (GDP) can be employed to assess economic growth.
- Governments influence the economy by changing the level and types of taxes, the extent and composition of spending, and the degree and form of borrowing. Governments directly and indirectly influence the way resources are used in the economy.
Taxation, etc
Advantages and disadvantages economic growth has socially, environmentally and economically?
Economic disadvantage - inflation (by cost pull or demand pull)
Social disadvantage - Increase of output may require some people to work for longer hours
Environmental disadvantage - Includes the increased consumption of non-renewable resources, higher levels of pollution, global warming and the potential loss of environmental habitats
Economic advantage - Higher costs of living and higher incomes
Social advantage - Less poverty
Environmental advantage - With rising real incomes, individuals have a greater ability to devote resources to protecting the environment and mitigate the harmful effects of pollution.
What is employment, unemployment, how Claimant Count is used, recent figures, and historical figures?
Employment - the state of having paid work. (full employment is everyone who is willing and able to work in a job)
Unemployment - A situation where a person actively searches for employment but is unable to find work
How claimaint count is used - The (seasonally adjusted) number of people receiving Job Seekers Allowance.
What is cyclical unemployment?
A lack of employment as a result of changes to an economy’s business cycle.
What is frictional unemployment?
The unemployment which exists in any economy due to people being in the process of moving from one job to another.
What is structural unemployment?
Long-lasting unemployment that comes about due to shifts in an economy.
What is seasonal unemployment?
A situation where workers are unemployed at certain times of the year when demand has decreased.
Evaluate the causes of unemployment for individuals, regions and the government
Occupational immobilities. This refers to the difficulties in learning new skills applicable to a new industry, and technological change
Geographical immobilities. This refers to the difficulty in moving regions to get a job.
Technological change. If there is the development of labour-saving technology in some industries, then there will be a fall in demand for some types of labour which have been replaced by machines.
Structural change in the economy.
Evaluate the consequences of unemployment for individuals, regions and the government
Individuals - Loss of income and living standard
Regions and government - Loss of national output: Unemployment involves a loss of potential national output.
Negative multiplier effects: The closure of a local factory with the loss of hundreds of jobs can have a large negative multiplier effect on both the local and regional economy.
Fiscal costs: The government loses out because of a fall in tax revenues
Social costs: Rising unemployment is linked to social deprivation.
- Explain what is meant by different types of income
There are three types of income- earned, portfolio and passive
Earned income is any income received from a job or self-employment.
Portfolio income is money received from investments, dividends, interest, and capital gains.
Passive income is a source of revenue that continues even after the work is complete, for example, royalties from a book or film.
- Explain what is meant by the distribution of income
- Explain the difference between wealth and income
- Calculate income and wealth
- Evaluate the causes of differences in the distribution of income and wealth
- A statistical measure of how many people earn or receive various amounts of income.
- Wealth is a stock assets, income is a flow of assets
- Work out what is giving them money, that’s income, and what she already has that’s valuable but isn’t giving her money is wealth
- The main factors influencing the distribution of wealth include capital gains benefit, private pension assets, inheritance, and the difference in tax between income and wealth.
BUT - The main factors influencing the distribution of income include people’s decisions about work, saving, and investment as they interact through markets and are affected by the tax system.
What is price stability and inflation?
Price stability - the condition in which the domestic currency retains its purchasing power by maintaining low and stable inflation as measured by the Consumer Price Index
Inflation - the rate of increase in prices over a given period of time.
- Explain the difference between real and nominal values
- Explain how inflation is measured using the consumer price index (CPI)
The nominal value of any economic statistic means the statistic is measured in terms of actual prices that exist at the time. The real value refers to the same statistic after it has been adjusted for inflation. Generally, it is the real value that is more important.
Every quarter, the ABS calculates the price changes of each item from the previous quarter and aggregates them to work out the inflation rate for the entire CPI basket.
Evaluate the causes of inflation
Cost push inflation - an increase in costs of production so an increase in price levels to maintain profits
Demand pull inflation - Total demand rises, supplies of goods and services can’t match so the price level increases
Evaluate the consequences of inflation for consumers, producers, savers, government?
Consumers - Loss of confidence, shoe leather costs, fall in real incomes, lack of purchasing power
Producers - firms are usually less willing to invest – because they are uncertain about future prices, profits and costs, greater flexibility in setting wages and prices, unemploymeny
Savers - your savings are at risk of losing value in ‘real’ terms as you’ll be able to buy less with your money.
Government - More tax revenue, more spending on benefits anf employing labour, gains as a debtor
- Explain the purposes of government spending
- Explain sources of government revenue, including direct taxes and indirect taxes
The UK gov spends money to look after the needs of society
Direct taxes - A tax on income/wealth such as national insurance (taxes paid by employees to fund state benefits)
Indirect taxes - A tax on spending such as VAT (value added tax)
- Explain what is meant by a balanced government budget
- Explain what is meant by a budget surplus
- Explain what is meant by a budget deficit
Balanced budget - gov revenue = or greater then gov expenditure
Budget surplus - can pay off national debt, reduce interest payments
Budget deficit - low economic growth/recession - can stimulate economic growth in a recession and get paid when econ growth is higher, gov will have to borrow the difference between income and expenditure
