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GCSEs > Economics (paper 2) 📍 > Flashcards

Economics (paper 2) 📍 Flashcards

1
Q

Economic growth definition

A

Growth in real GDP over time

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2
Q

Real GDP

A

GDP adjusted for the impact of inflation

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3
Q

GDP (Gross Domestic Product)

A

The total value of goods and services produced in an economy annually

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4
Q

Economic boom

A

A period of high economic activity and high levels of employment

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5
Q

Recession

A

At least 2 consecutive quarters of negative economic growth

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6
Q

Objectives of Macroeconomics

A

• Economic Growth
• Low unemployment
• Balanced balance of payments
• Price stability

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7
Q

Economic quarter

A

A period of 3 months

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8
Q

Employment rate

A

The percentage of a country’s working population that are employed

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9
Q

Unemployment rate

A

The percentage of the labour force (economically active population) who are unemployed

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10
Q

Claimant count

A

A method of measuring unemployment by counting the number of people claiming unemployment benefits

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11
Q

What are the 4 types of unemployment?

A

• Frictional
• Seasonal
• Structural
• Cyclical

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12
Q

Frictional unemployment definition

A

Unemployment caused by time lags in workers moving between jobs

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13
Q

Seasonal unemployment definition

A

Unemployment caused by a fall in demand at certain times of year

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14
Q

Structural unemployment definition

A

Unemployment caused by the permanent change in the structure of the economy
(eg tech advancement or new industry growth)

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15
Q

Cyclical unemployment definition

A

Unemployment caused by a recession but goes away after a boom

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16
Q

Fiscal policy

A

The use of government spending and taxation to influence aggregate demand and achieve a macroeconomic objective

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17
Q

Monetary policy

A

Policy that aims to control the total supply of money in economy to achieve the governments’ objectives, particularly sustainable price (inflation)
• (Eg adjusting the interest rate)

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18
Q

Aggregate demand

A

Total demand for goods and services in an economy

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19
Q

Aggregate supply

A

Total supply of goods and services in an economy

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20
Q

Benefits of economic growth

A

• Higher average incomes (= better standard of living)
• Lower unemployment (due to higher output demand)
• Improved public services (from more tax revenue)
• Environmental protection
• Investment (more profits)
• Increased consumer confidence

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21
Q

Costs of economic growth

A

• Inflation (from increased demand)
• Pollution (from more production, harming health & env)
• Congestion (more output = more goods transported)
• Depletion of resources (non-renewable resources become at risk of being used up)
• Inequality (uneven spread of economic growth)

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22
Q

What happens during an economic boom?

A

• More goods and services are produced
• GDP rises
• Unemployment rate decreases
• Demand increases as consumers have more real purchasing power
• Excess demand can lead to prices rising (inflation)

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23
Q

What happens during an economic recession?

A

• People are spending less
• Therefore less goods and services are produced
• GDP declines
• Firms no longer need as much workers
• Cyclical unemployment occurs
• Deflation takes place when firms reduce prices to increase demand

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24
Q

Different types of income

A

• Wage/Salary (reward for labour)

• Rent (reward for letting others live in owners property)

• Interest (reward for saving)

• Profit/Dividends (reward for enterprise)

• State benefits (transfer payments from gov)

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25
Q

Reasons for the uneven distribution of income

A

• Income-earning assets are distributed unevenly

• Differences in wages

• Reliance on benefits (unemployment)

• Age (The older tend to have more experience and skills leading to higher paying jobs)

• Gender (Women tend to go for maternity leave + gender bias means they receive lower pay)

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26
Q

Factors that contribute to economic growth (6)

A

• Lower interest rates and tax
• Reduces the cost of borrowing and encourages consumer spending

• Increased wages
• Increases disposable income

• Increased government spending
• Improves services and infrastructure

• Devaluation (fall in the value of exchange rate)
• Allows for more exports as they’re cheaper

• Financial stability
• Encourages banks to lend
• Firms will be more willing to invest

• Technological improvements
• Improves productivity
• Increases revenue

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27
Q

How to calculate rate of growth

A

(Change in GDP / Original GDP) x 100

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28
Q

What does Phillips Curve show?

A

• The inverse relationship between inflation and unemployment
• As unemployment increases, inflation decreases

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29
Q

What are the features of the economic cycle diagram?

A

• Economic boom
• Economic downturn
• Economic recovery
• Long run trend rate of real GDP
• Axis: Real GDP and time

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30
Q

What is the trend rate of growth?

A

The speed limit an economy can grow without overheating

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31
Q

Economics definition

A

The study of production, distribution and consumption of wealth in society

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32
Q

Who is the chancellor of Exchequer?

A

Rachel Reeves

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33
Q

What is the chancellor of Exchequer’s role?

A

• They are the government’s chief financial minister
• Is responsible for raising revenue through taxation or borrowing
• And for controlling public spending

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34
Q

Income definition

A

A flow of money that you receive overtime for providing services of the factors of production

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35
Q

Dividends definition

A

Money paid out of a company’s profit to its shareholders

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36
Q

How does a job’s supply and demand affect income?

A

When jobs are high in demand and supply is low, wages rise therefore income also rises

37
Q

Wealth definition

A

The stock of assets an individual, company or country possess at a certain point in time

38
Q

Examples of wealth

A

• Luxury cars
• Mansions
• Businesses
• Private Jet
• Ps5
• Savings

39
Q

Which examples of wealth generate income?

A

• Property (generates income from rent)
• Businesses (generates income from profit)
• Savings (generates income from interest)

40
Q

What is neither an example of income or wealth?

A

Pension contributions

41
Q

Gross income

A

Income received before taxes are taken or benefits given out

42
Q

Net income

A

Income available after any deductions/additions made (disposable income)

43
Q

Why is wealth unevenly distributed?

A

• Inheritance
• Families may own more possessions/assets which can be passed down

• Savings
• People with enough income may save some of it which receives interest and increases wealth overtime

• Purchasing property (mansions/shares)
• The rich are able to afford shares which make dividends and therefore are able to reinvest to buy more shares increasing company stakes

• Enterprise
• Money can be invested to start a business and its worth/value can increase generating more wealth

44
Q

Example of entrepreneur

A

• Richard Branson

• Started with a record shop that went on to generate lots of revenue from CDs
• Now owns a business empire that’s worth billions of pounds (Virgin Media)

45
Q

Consequences of the differences in income and wealth

A

• Poverty and deprivation
• Poor housing
• Poor health
• Inequality of opportunity

46
Q

General price level definition

A

The average price of a basket of goods and services within an economy over 12 months

47
Q

Deflation meaning

A

When general price levels fall over a period of time

48
Q

What key events occur during inflation?

A

• The general price level increases
• Therefore the cost of living also increases
• As a result the purchasing power decreases

49
Q

Consumer price index meaning (CPI)

A

A method used to calculate inflation through tracking the price change in a basket of goods

50
Q

Benefits of inequality

A

• It provides an incentive where higher income motivates people to be more productive

• It creates a trickle down effect where individuals on higher incomes spend more in an economy leading to more income for those on lower income

51
Q

What effect does inflation have on interest?

A

It makes the rate of interest lower therefore debt becomes cheaper

52
Q

2 causes of inflation

A

• Too much demand (demand-pull inflation)
• A rise in costs (cost-push inflation)

53
Q

What happens during demand pull inflation?

A

• It’s where consumers demand and compete more for goods and services pushing the price level up

• It happens when incomes are high and consumer confidence is increased as a result of low unemployment and an economic boom

54
Q

What happens during cost push inflation?

A

• Happens when the cost of production increases eg fuel, wages, interest on loans
• Since firms want to maintain profit they pass the costs to the consumers
• This leads to a rise in the general price level

55
Q

What’s one benefit of cost push inflation?

A

An increase in the cost of production through wages can lead to increased productivity as workers are more willing to work

56
Q

What’s a wage price spiral?

A

When demand pull inflation leads to cost push inflation and vice versa in a cycle

57
Q

Consequences of inflation for consumers

A

• Loss of consumer confidence (due to lack of price stability therefore they save)
• Shoe leather costs (consumers spend longer looking for the best deal)
• Real income falls (if nominal income is the same, purchasing power falls and cost of living increases)
• Consumers as debtors gain (debt gets cheaper)
• Income redistribution (those working elastic jobs may not get a pay rise as there’s supply surplus)

58
Q

Consequences of inflation for producers

A

• Increased production costs (price of input may increase minimising profit)
• Menu costs (updating pricing information which increases cost)
• Unemployment (cost of production increases so firms lay off workers)
• Producers lose as creditors (value of loans fall)
• Low business confidence (volatile prices make firms less willing to invest reducing productivity)

59
Q

Consequence of inflation for savers

A

The purchasing power of money is reduced and therefore the real value of saving falls

60
Q

Consequences of inflation for government

A

• They gain as debtors (as real value of debt falls)
• They spend more on benefits (as unemployment increases, benefit claiming does too)
• Government receive more tax income as workers earn more
• They spend more as a major employer as public sector workers demand higher wages

61
Q

Disinflation meaning

A

When the general price levels increase at a lower rate

62
Q

Government spending

A

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

63
Q

Direct tax meaning and examples

A

• Tax on income or wealth
• Eg Income tax, National insurance contributions, Corporation tax, Inheritance tax

64
Q

What is capital gains tax?

A

Tax paid on the profit when an asset is sold

65
Q

What is corporation tax?

A

Tax paid by firms on the profits made

66
Q

Indirect tax meaning and examples

A

• Tax on spending
• Eg VAT and Excise duties

67
Q

What is VAT?

A

20% tax paid on most goods and services

68
Q

What item does VAT not mainly apply to?

A

Food

69
Q

What are excise duties?

A

Taxes on specific goods eg alcohol and petrol

70
Q

Examples of local tax

A

• Council tax (paid on the value of your home)
• Business rates (paid on value of business’ property)

71
Q

Budget deficit

A

• When a government’s expenditure is more then government revenue
• This increases economic growth and employment

72
Q

Budget surplus

A

• When a government’s revenue is greater than their expenditure
• This reduces economic growth and inflation

73
Q

Balanced budget

A

When a government’s revenue is equal to their spending

74
Q

What is the value of one’s personal allowance? (tax free amount)

A

£12,570

75
Q

What do economic agents do?

A

They make decisions about goods and services

76
Q

Costs of fiscal policy

A

• Budget deficit would increase incomes for consumers but there’s no guarantee of them spending it
• As incomes rise, much of the extra income goes to imported goods which increases balance of payment deficit

• This also causes inflation
• Opportunity cost is also present

77
Q

Progressive tax meaning

A

Taking a greater percentage of tax the higher the income

• (This reduces the inequality of income and wealth)

78
Q

Consequences of redistribution of income

A

• People are reluctant to take higher paying jobs
• People are happy to rely on state benefit instead of finding a job
• Some high earners may move abroad to escape tax
• People may engage in tax avoidance/ tax evasion
• High taxes are a disincentive to invest
• These all reduce economic growth

79
Q

What do governments want to maximise?

A

Welfare

80
Q

Redistribution of income meaning

A

When the government adjusts the distribution of income eg through tax in order to reduce inequality

81
Q

What committee sets the interest rates to control inflation?

A

Monetary Policy committee (MPC)

82
Q

Who do the Monetary Policy Committee work for?

A

The Bank of England

83
Q

Effects of monetary policy

A

• If interest rates increase, people save more as reward for saving increases
• Consumers spend less causing profit of firms to decrease
• Unemployment and economic growth decreases

• Debt increases so disposable income and also spending decreases
• Business costs are also increased as products are more expensive

• It also becomes more costly to borrow for services like mortgages
• Consumption and investment decreases of inflation also decreaes

84
Q

Quantitative easing meaning

A

When the government make more money available to financial institutions
• (Form of monetary policy)

85
Q

Effects of quantitative easing

A

• Banks have more money to lend so the supply of money increases and the cost of borrowing falls
• Reward for saving also falls
• With more borrowing, households spend more and businesses invest more

• Assets price rises- as the interest rate decreases, mortgages and housing demand increases

• Disposable income rises as interest rate and borrowing costs fall

• External value of the currency falls - ‘hot money’ flow between countries in response to IR leaves money behind increasing its supply

• Therefore employment levels increase from increased spending & demand so economic growth and inflation occurs

86
Q

What are inferior goods?

A

Goods where when people’s income rise the demand for it falls

87
Q

What are the main objectives of quantitates easing?

A

• Economic growth
• Inflation (price stability)

88
Q

Liquidity meaning

A

How easily an asset can be convert into cash without affecting its price

89
Q

Governments bonds meaning

A

Loans you give to the government in exchange for a promise to get your money back with interest

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