Economics Theme 2 Flashcards by Harry Welek

What does GDP mean?

The sum of all goods and services produced in one economy in one year

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What is Real GDP?

does consider inflation, using a base year to make comparisons

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What is Nominal GDP?

Nominal GDP is an economic measure that does not account for changes in the price level. It is the market value of all final goods and services in an economy over a period

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What is GNI?

Includes income received from abroad, including dividends

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What is GNH?

Attempts to steer policy objectives towards development and living standard by measuring happiness rather than production and incomes

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What is GNP?

Same as GNI but excludes incomes from non-national claims

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What are the effects of inflation?
10 Answers

Diminishes value of savings
Shoe-leather costs
Menu costs
Disposable Incomes
Costs of living
Discontent
Government Taxation
Unemployment
International competitiveness
Anticipated Inflation

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What is CPI?

Consumer Price Index is a measure of inflation which measures the percentage change in prices

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What is RPI?

Same as CPI but does not include housing costs, whereas CPI uses energy costs

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What are the limitations of using CPI to measure inflation?
5 answers

Quality
Shocks
Differing measures
Unrepresentative
Substitutes

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What are the causes of unemployment?
4 Answers

Structural unemployment
Seasonal unemployment
Frictional unemployment
Cyclical unemployment

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Effects of unemployment to workers?

No longer receiving an income, more difficult to afford goods and services
Human capital depreciates as skills are forgotten
More difficult to get employed

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Effects of unemployment to consumers

Consumers will reduce their spending if their income falls

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Effects of unemployment to consumers

Demand for firms products may fall

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Effects of unemployment to the government

More people claiming Jobseeker’s Allowance
Receives lower income tax
Less financing means may cause an expenditure deficit, which will lead to higher levels of national debt

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What are the 2 measures of unemployment?

ILO Unemployment Rate
Claimant Count

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What is ILO Unemployment Rate?

A sample oh households to make a percentage of how many people are unemployed

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What is the claimant Count?

The number of people claiming Jobseeker’s Allowance

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What is the calculation for Aggregate demand?

AD = C + I + G + (X - M )

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Why would the aggregate demand curve slope downwards?

Real-balance effect
International competitiveness

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What are the main influences on consumption?
5 Answers

Disposable Income
Interest rates
Wealth effect
Consumer confidence
Marginal propensity to consume

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What are the main influences on investment?
6 Answers

Rate of economic growth
Business expectation, Keynes Animal Spirits
Exports
Interest rates
Access to credit
Government intervention

Main influence on the governmment expenditure
2 Answers

Trade cycle
Fiscal policy

Main influences on the trade balance

Real income
Exchange rates
State of the world economy
Degree of protectionism
Non price factors

What does short run mean?

At least one factor of production is fixed

What does long run mean?

All factors of production can be changed

What factors influence short run aggregate supply? 3 Answers

Raw materials and energy Exchange rates Increased taxes

What factors influence long run aggregate supply? 6 Answers

Technological advances Relative productivity Education and skills Government regulation Demographic and migration Competition policy

What is the difference between a Keynesian and a Classical LRAS curve?

Classical is fixed, as if everyones producing efficiently then you should not be able to produce more, Keynesian has a slope going upwards.

What are the different types of inflation

Demand-pull inflation Cost-push inflation Growth in money supply

What does income mean

The money that a person receives in exchange for something, such as wages

What does wealth mean?

The money that a person holds, such as assets

What is a withdrawal?

Taking money out of the circular flow income

What is an injection?

bringing more money into the circular flow of income

What is the marginal propensity to save?

The portion of income that will be leaked into saving

What is the marginal propensity to tax?

The proportion of income that will be leaked due to taxes

What is the marginal propensity to import?

The proportion of income that will be leaked by buying imports

What are the 2 different ways to calculate the MPW

1 - MPC=MPS + MPT + MPM

What is the multiplier?

The process occurs after an injection, which causes the economy to grow beyond the original amount injected

How do you calculate the multiplier?

1 / marginal propensity to withdraw

What is actual growth?

the true amount of growth that is observed in real life

What is potential growth?

The predicted growth of the economy in the long run, using previous treneds, illustrated by the "trend growth rate"

What are the factors that cause growth? 7 Answers

Technological advances Education and skills government regulation demographic and migration investment Natural disasters and war Export led growth

effects of economic growth on consumers and workers?

Increased growth means that the economy is expanding and there will be more jobs increased incomes means people can have increased savings, which increases their wealth increased incomes mean people can consume more more choice and increased production

What are the 7 macroeconomic objectives?

Economic growth Low unemployment Protect the environment balanced government budget balanced balance of payments greater income equality low and stable inflation

what is a deflationary fiscal policy

Where the government tries to reduce the econoomy, they do this by reducing government expenditure, or increase taxation which decreases AD

What is expansionary fiscal policy?

where the government tries to expand the economy, they do this by increasing government spending or by reducing taxation which increases AD

What is the interventionist policies?

Interventionist is where the government has an active role within the economy, by correcting any failures

What is the market-based policies?

Where there is little government intervention, aiming to use free markets to incease efficiency, productivity and aggregate supply

What conditions affect aggregate supply?

Promote competition reform labour market quality of workforce infrastructure quality of production process

Strengths of shifting aggregate supply?

shifting outward will not cause inflation as it creates downward pressure on prices increases production job creation reduces costs of production

weakenesses of shifting aggregate supply

long time lags costly government does not have complete control on aggregate supply data collection is slow and longwinded