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AS Economics > Government Objectives > Flashcards

Government Objectives Flashcards

1
Q

What are the four government objectives?

A

Economic growth, unemployment low, inflation low and balance of payments.

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2
Q

What is G.D.P per capital?

A

Measure of average income per individual in an economy

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3
Q

What would be the case if the economy is expanding?

A

GDP would be increasing e.g. more jobs

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4
Q

What would happen to the economy if GDP was decreasing?

A

Economy would be shrinking e.g. Job cuts

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5
Q

What does the G stand for?

A

Gross

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6
Q

What does gross mean?

A

Excluding depreciation of machinery

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7
Q

What does the D mean?

A

Domestic

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8
Q

What does P stand for?

A

Product

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9
Q

What is GDP good at showing and bad at?

A

Good at showing what happened an dbad at forecasting.

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10
Q

What are the factor that make economic growth occur?

A

Technology, Human Capital, Discovery of raw materials, immigration and increase in population

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11
Q

What is a recession?

A

2 or more quarters of negative economic growth

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12
Q

What is a negative output gap?

A

Difference between recession and trend growth

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13
Q

What is a positive output gap?

A

Difference between boom and trend

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14
Q

Define aggregate demand

A

All demand curve in an economy added together

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15
Q

What is the equation for aggregate demand

A

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

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16
Q

What does the C stand for in aggregate demand equation?

A

Consumption

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17
Q

What is consumption influenced by?

A

Income, interest rates, new technology and confidence

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18
Q

What does the I stand for in aggregate demand equation?

A

Investment

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19
Q

What is investment influenced by?

A

Technology advances, profit levels and corporation tax

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20
Q

What does the G stand for in aggregate demand equation?

A

Government Spending

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21
Q

What is government spending influenced by?

A

Demographic changes and tax revenue

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22
Q

What does the X stand for in aggregate demand equation?

A

Exports

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23
Q

What influences exports?

A

Quality of goods

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24
Q

What does the M stand for in aggregate demand equation?

A

Imports

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25
Q

What are imports influenced by?

A

Income

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26
Q

What are the two types of Aggregate Supply?

A

SRAS and LRAS

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27
Q

What is short run supply affected by?

A

Productivity, cost of production, taxes, subsides and wages.

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28
Q

What are the two types of LRAS?

A

Keynesian and Classical

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29
Q

What is Keynesian?

A

Maximum government intervention

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30
Q

What is Classical supply?

A

Minimum government intervention

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31
Q

Describe the Accelerator effect

A

Increase in GDP means a large increase in investment

32
Q

Give an example of the accelerator

A

Investment in 4G networking goes up to meet rising household and business demand

33
Q

What is the capital-output ratio?

A

Ratio between output and stock of fixed assets

34
Q

What is another term for GDP?

A

National income

35
Q

Describe the multiplier effect

A

A small change in aggregate demand can lead to large change of GDP - ripple effect

36
Q

Example of multiples effect

A

New house building project inject £200m of extra demand and output into economy, many businesses effected directly and other benefit from an increased new flow of money

37
Q

Define unemployment

A

Number of people of working age who aren’t in job

38
Q

What are the two methods of measuring unemployment?

A

Claimant court and labour force survey

39
Q

What are the different type of employment?

A

Structural, frictional, seasonal, technological, regional and cyclical.

40
Q

Define structural unemployment.

A

Industries have collapsed

41
Q

Define frictional unemployment

A

Temporarily where people move between jobs

42
Q

Define seasonal unemployment

A

Work opportunities vary throughout year

43
Q

Define technological unemployment

A

Automation reduces need for work force

44
Q

Define regional unemployment

A

Some areas have more unemployment than others

45
Q

Define cyclical unemployment

A

High and low levels of aggregate demand produces recessions and booms effecting employment

46
Q

What is inflation?

A

Rate of change of average price level over time, measured by changes in prices in average basket

47
Q

What are the two methods of measuring inflation?

A

CPI and RPI

48
Q

Which one CPI or RPI takes into account house prices?

A

RPI

49
Q

Define demand pull inflation

A

Too much money chasing too few goods cause prices to rise

50
Q

Define Cost push inflation

A

Increase in raw materials or capital prices drives over price up

51
Q

Define deflation

A

General fall in average prices

52
Q

What is disinflation?

A

Inflation rising at a slower rate

53
Q

When is disinflation likely to occur?

A

During periods of stagnant growth

54
Q

What is the equation for the monetarist theory of inflation?

A

MV = PT

55
Q

What does the M stand for in MV = PT?

A

Money

56
Q

What does the V stand for in MV = PT?

A

Velocity

57
Q

What does the P stand for in MV = PT?

A

Prices

58
Q

What does the T stand for in MV = PT?

A

Transactions

59
Q

Define balance of payment

A

Difference between imports and export

60
Q

What are the 3 accounts that measure balance of payment?

A

Current account, capital account and financial account

61
Q

What does the current account record?

A

Trade in goods and services as well as investment income and transfers

62
Q

What does the capital account record?

A

International flows of capital

63
Q

What does the financial account record?

A

Foreign direct investment

64
Q

What causes a deficit in BOP?

A

Exporting less than importing

65
Q

What cause surplus in BOP?

A

Exporting more than importing

66
Q

What is BOP influenced by?

A

Productivity, inflation, exchange rates and worldwide economics

67
Q

What are the structural causes of problems with BOP?

A

Underinvestment, relatively low productivity, persistently high inflation and emergence of lower cost competition

68
Q

What are cyclical causes of issues with BOP?

A

Overvalued exchange rate, boom in domestic demand and slump in global prices

69
Q

What is regressive tax?

A

Applied to everyone, affects poor most.

70
Q

How is national income measured?

A

Amount we spend, produce and earn

71
Q

What is a leakage in circular flow of income?

A

Saving, taxes and imports

72
Q

What is a injection in circular flow of income?

A

Government expenditure, investment and exports

73
Q

Demand side shocks

A

Capital investment booms and global credit crunch

74
Q

Supply side shocks

A

Rise in the world price of crude oil or natural gas and unexpected and sizeable change in world prices of foodstuffs used both for direct consumption

75
Q

Define saving

A

Saving involves income that is not consumed by individual

76
Q

Define investment

A

Investment is defined as an addition to the capital stock by firms

77
Q

Define progressive tax

A

More you earn, more you pay

AS Economics (5 decks)

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