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GCSE > Economics Unit 2 > Flashcards

Economics Unit 2 Flashcards

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1
Q

What are banks and building societies?

A

Financial institutions that accept deposits and make loans

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2
Q

What is money?

A

Anything that is generally acceptable as a medium of exchange

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3
Q

What is interest rates?

A

The reward for saving and the cost for borrowing

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4
Q

What does money do?

A

Makes exchange quick and easy
Money can be saved
Provides a measure of value

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5
Q

Are cheques and bank accounts money?

A

No, there just a way of transferring money

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6
Q

Why is the rate for saving lower than the rate for borrowing?

A

The banks act as a intermediary between the savers and borrowers, the difference between the two rates pays for its cost and makes a profit

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7
Q

What are the difference between banks and building societies?

A

Banks are owned by shareholders who expect a dividend therefore their interest rates on borrowing may be higher and saving lower than a building society who are owned by the savers and borrowers which the interest rates will be slightly higher for savers and lower for borrowers

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8
Q

What factors affect saving rates?

A

The greater the minimum deposit for the accountant
The longer the time that the money is tied up
Whether the saver is committed to a regular saving plan
Wether the saver is committed to another type of account within the same bank

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9
Q

What factors affect rates on loans?

A

Risk
- a decrease in risk means interest rates will be lower
Security
- an increase in security means the interest rates will be lower

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10
Q

What are the objectives of the government?

A

Full employment
- everyone who is willing and able to work is
Economic growth
- would like to achieve a steady rate and avoid cyclical changes in GDP
Price stability
- keeping inflation low
Balancing exports and imports
- deficits some years and surpluses other years

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11
Q

What are the main policies of the government?

A

Fiscal
- aimed at changing the level of total aggregate demand in the economy through the changes in taxation and the governments spending
Interest rate
- aimed at changing the level of total aggregate demand by changing the interest rate
Supply-side
- aimed at increasing the economy capacity to produce more goods and services

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12
Q

What is economic growth?

A

Growth in output of the economy overtime

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13
Q

What is gross domestic product?

A

The total value of goods and services produced in the country in a year

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14
Q

What is GDP per capita?

A

GDP divided by the total population

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15
Q

What is economic growth measured in?

A

Rise in output

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16
Q

What are the causes of economic growth?

A

Investment
- spending on capital goods so the economy has the capacity to produce more goods and services in the future
Changes in technology
- technical progress means the quality if capital goods improves so more output is produced
A larger workforce
- economy can produce more if it has more workers (immigration/school levers)
Education and training
- if you increase human capital, you will increase productivity and quality and output
Natural resources
- oil
Government policies
- takes responsibility

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17
Q

What is the evaluation of the causes of economic growth?

A

Increasing the economies capacity to produce more may not lead to a rise in real GDP unless the demand for its good and services is also rising

18
Q

What are the benefits of economic growth?

A

A rise in material living standards
- if GDP rises at a faster rate than the population than GDP per capita rises and everyone has more output available to consume than before
A rise in the welfare of the population
- as the economies capacity rises the government is able to put more resources into health and education which improved the general welfare of the economy
A rise in employment and a fall in unemployment
- as output rises more workers will need to produce it and meet the extra demand
A reduction in poverty
- as output rises so does income the government is able to take more higher income groups and give them to the lower group

19
Q

What is the cost of economic growth?

A

Environmental costs
- greater output can lead to more pollution of the land
Congestion
- economic growth is usually concentrated in one area so transport usually has a higher strain
Loss of non-renewable resources
- economic growth uses resources that cant be replaced
A lower quality of life
- it changes peoples life they may lead a more stressful life
Inequalities of income and wealth
- benefits of growth are unevenly spread
Inflation
- rate of economic growth is too fast for the economy to respond without a rise in the general price level

20
Q

Evaluate the consequence of economic growth?

A

Quality of life, leisure time and the environment we live in

21
Q

What is full employment?

A

When all those who are willing and able to work are in paid employment at the current wage rate

22
Q

What is unemployment?

A

When workers who are able and willing to work are unable to find employment at the current wage rate

23
Q

How do you measure unemployment?

A

Claimant count
- measure unemployment according to the number of people claiming unemployment related benefits
Labour force survey
- a survey of a sample of households, counting people as unemployed if they are actively seeking work but do not have a job

24
Q

Is the labour force survey or claimant count better?

A

The labour force survey is more reliable as they are much larger than the claimant count as not everybody who is unemployed is seeking JSA

25
Q

What are the causes and types of unemployment?

A 
Voluntary 
- causing by people not choosing to work
Seasonal 
- seasonal workers not being employed at certain times of the years
Frictional 
- moving between jobs
Structural
- long term changes in the structure of industries when some industries decline, usually long term
Technological 
- capital taking place of labour
Cyclical 
- total fall in aggregate demand in the economy so the fewer workers are needed to produce output and some will be laid of, then the demand will fall and so on. This can lead to mass unemployment
26
Q

What are the consequences of unemployment?

A

Labour resources are wasted
- the economy is not using all of its resources to full capacity so the economy could produce more goods and services
Lower living standards
- workers suffer a lower income due to employment so there living standards are better
Excluded workers
- some people are unemployed for so long they become excluded and employers become reluctant to take them on
Cost to taxpayers
-increased unemployment increase the cost to taxpayers
Budget deficit
- gov spending increases, so tax revenues decrease
Regional problems
- unemployment is not spread evenly through the country
Social problems
- unemployment- loss of self esteem and status

27
Q

What id s the evaluation of the effect of unemployment?

A

Frictional unemployment is necessary for a healthy economy to adapt
- it causes serious problems

28
Q

What is inflation?

A

A sustained rise in the general price level over time

29
Q

What is price stability?

A

When the general level of prices is kept constant or grows at an acceptably low rate over time

30
Q

What is the rate of inflation?

A

The rate at which the general price level rises over time

31
Q

How is inflation measured?

A

Consumer price index

  • finds out the spending pattern of average families in the country and records the prices of everything families buy each month
  • if prices rise from one month to the next the prices are recorded
  • those goods and services that take a higher proportion of family spending are more important in measuring the rate of inflation
32
Q

What are the causes of inflation?

A

Demand pull
Monetary inflation
Cost push

33
Q

Define demand pull inflation?

A

Inflation caused by the excess demand in the economy

34
Q

How does demand pull inflation work?

A

This is caused when the total aggregate demand in the economy increases, the supply of good and services cant rise to match the increase in demand so prices are pulled up
Can come from consumers and firms or the gov spending more
( some economists believe that demand cannot rise unless the supply of money to finance the demand rises therefore it is monetary inflation)

35
Q

Define monetary inflation

A

Inflation caused by growth in the economy’s money supply

36
Q

Define cost push inflation

A

Inflation caused by a rise in the costs of the country

37
Q

How does cost push inflation work?

A

The cost of production rise therefore causing prices to rise, mainly due to wages for example if wages rise quicker than productivity then the cost per unit of output will rise therefore the higher prices are likely to reflect a raise in the price of some goods

38
Q

What are the benefits of price stability?

A

Can plan spending as we know what we can and cant afford

Save our money and make a larger purchase later

39
Q

What are the benefits of inflation?

A

2% inflation rate allows flexibility in a growing economy than just 0% as it allows relative prices to adjust
Low inflation rate acts as an incentive for businesses to invest as they can increase their profits and prices
Debtors gain in times of inflation as the real value of their debt decreases

40
Q

What are the costs of inflation?

A

Show leather - spend more time shopping and looking around
Menu costs - firms have to adjust their prices more often when there is inflation
Income redistribution problems - people with low fixed incomes are worse off as their income fails to keep up with the rising price level
Labour market problems - workers will want to keep up with the rising price level and ask for higher wage while their employers are facing a fall in sales and profits
Balance of payments problem -inflation will be lower in other countries that we trade with making us less competitive
Unemployment - can’t afford to keep workers on
Hyperinflation - wage price spiral will continue leading to wage price spiral

41
Q

What is the evaluation of the consequences of inflation?

A

Low rate beneficial
Other than a low rate it is harmful
Hyperinflation could lead to an economy collapse

42
Q

What is hyperinflation?

A

A rate of inflation so high that the value of money becomes worthless

GCSE (55 decks)

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