Economics Paper 2 Key Terms Flashcards
What is economic growth ?
Growth in GDP over time
What is GDP?
Total value of good and services produced in the country in a year
What is a boom ?
Period of high economic activity and high levels of employment
What is a recession ?
Period when the country’s GDP falls for 2 or more consecutive quaters
Give me 3 benefits of economic growth
1) reduction in poverty
2) rise in living standards
3) rise in healthcare
Give me 3 costs of economic growth
1) air pollution leading to global warming
2) inflation
3) environmental costs
What is the claimant count ?
Measures unemployment by the number of people claiming benefits
What is the level of unemployment?
Number of people unemployed in a working population
What is the rate of unemployment?
Percentage of country’s work force that’s is unemployed
What is structural unemployment?
Unemployment caused by a permanent decline of an industry
What is cyclical unemployment?
Unemployment caused by a lack of demand in the economy
What is the difference between gross income and net income ?
Gross income - Income before taxes and benefits
Net income - Income after taxes and benefits
What is inflation ?
A rise in the general price level
What is a budget deficit ?
When the government spending is greater than the government revenue
What is fiscal policy?
A policy that uses government spending and taxation to affect the economy as a whole
What is monetary policy ?
A policy that aims to control the total supply of money in the economy to try to achieve the goverments economic objectives. Like price stability
What are the government’s economic objectives ?
1) economic growth
2 ) low unemployment
3) price stability
4) better in the balance of payments
What are examples of direct taxes?
1) income tax
2) corporation tax
3) inheritance tax
4) pension contributions
5) national insurance
What are examples of indirect taxes?
1) VAT
2) Excise duties
How can a surplus budget reduce pressure of price?
A surplus budget reduces pressure on prices by reducing the risks of demand-pull inflation and helps to keep wages low
How does subsidies help consumers?
Subsidies encourages consumers to consume goods with positive externalities
What are balance of payments?
Balance of payments are the record of all financial transactions between one country and the rest of the world
What are the opportunity costs with government spending ?
1) they must increase debt
2) they must raise taxes to generate more income
3) they must cut spending in another area
How is wealth re-distributed?
1) Through progressive tax
2) Through benefits
3) Through decreasing direct taxes
4) Through national wages
What is quantitive easing ?
Quantitative easing is where the Bank of England buys bonds from financial institutions (mostly from the government) using newly created digital money. This means there is more money in the economy which keep interest rates low and promotes growth and employment.
When does quantitative tightening happen ?
Quantitative tightening happens when the Bank of England sells bonds, or doesn’t re-invest funds from maturing bonds. This means there is less money in the economy, raising interest rates and lowering inflation.
What are the 2 monetary policy choices ?
1) Raise interest rates to help control inflation and improve the balance of payments
2) Lower interest rates to promote employment and economic growth
What does SPICED stand for?
Stronger
Pound
Imports
Cheaper
Exports
Dearer
What does WPIDEC stand for?
Weaker
Pound
Imports
Dearer
Exports
Cheaper
What is supply-side policy?
A policy that increases aggregate supply of goods and services
What is cost push inflation ?
Inflation that occurs when the cost of production increases, causing prices to rise
What Is demand pull inflation ?
Inflation when the demand for goods and services is higher than the economy’s ability to supply them
What are some supply side policies?
1) investing in education
2) reducing direct taxes
3) reducing benefits
4) reducing the power of trade unions
What are the costs of supply side policy?
1) financial costs
2) time lags
3) opposition to policies
4) income inequality
5) unintended consequences
What are the benefits of supply side policies?
1) ability to target different markets
2) reduces inflation
3) increases employment and economic growth
4) improves balance of payments
