JSL BOOK Flashcards
What are the Macro Economic objectives?
- Economic Growth
- Reduce unemployment
- control inflation
- close inequality gap
- protect the environment
- control national debts
- balance of payments
What is economic growth?
Increase in real output of UK goods + services (GDP)
What is the difference between real GDP and Nominal GDP?
Real GDP takes into account inflation - Nominal doesn’t
What is Total and per capita?
Total GDP is all UK goods & services
Per Capita is GDP per person
What is Value?
Is the financial worth
What is Volume?
Is the number of products
What is the Balance of Payments?9
Measures all international economic transactions between the UK and it’s trading partners
What is the Current Account?
- imports of goods & services (balance of payments)
- net income
- net transfers (money sent home from migrants)
What is the Capital account?
- capital transfers (purchase and and sale of fixed assets such as real estate)
What is the financial account?
- Net foreign direct investment
- net portfolio investment
- other financial items
What is the UK’s main exports?
- metals
- Pharmaceuticals
- oil& gas
How much money do migrants send back home?
£11 billion
What happens if a country has a surplus in one account?
They use that surplus to run a deficit into the other account.
Are goods invisible or visible?
Visible
Are services invisible or visible
Invisible
Define the Currenr Account?
A record of all payments for trade in goods and services plus income flow
Define the Financial account?
Record of all transactions for financial investment
What are portfolio investment?
There are financial flows such as the purchase of bonds and savings in banks
What are short term monetary flows?
Known as hot money flows to take advantage of exchange rates!
Why would there be a large deficit on the current account - Competition ( Globally )
Means that global competition is more successful that the UK so they are cheaper
Why would there be a large deficit on the current account - Quality
The other countries are producing better quality, better innovated.
Why would there be a large deficit on the current account - price
Price of other products abroad is cheaper than UK products
Why would there be a large deficit on the current account - ability to export globally
UK’s ability to export is weak because we are at a deficit so cannot support ourselves
Why would there be a large deficit on the current account - brand name.0
The global brand name could be more in trend than other brand names.
What are some effects of a large deficit in the current account?
Employment - companies are loosing revenue and so will have to make redundancies in order to compensate for the loss
Economic Growth - will decline because we are not exporting more than we import.
Evaluative points for a large deficit on the current account.
- Only a problem if we cannot finance it on capital & financial account
- deficit not a problem as long as exports are growing
- importing luxury goods is a sign of a healthy economy
What is inflation?
The general increase in prices
What does inflation lead to?
The fall in the real value of money
What is the Consumer Price Index?
Used in the UK
Excludes mortgage interest payments
What is the Retail Price Index?
Includes mortgage interest payments
- inflation - general price rises
- Deflation - general price falls
What is cost push inflation?
Caused by substantial increases in the cost of important goods or services where no suitable alternative is available - factors of production
What is demand push inflation?
Rises when aggregate demand in an economy outpaces aggregate supply
Consumer is at fault
Demand increases to quickly for supply
What happens to inflation as unemployment falls?
Rises
Why is inflation bad?
Because it decreases the value of money
What are some of the causes of Demand Pull Inflation?9
Pay rises
Job confidence
Low interest rates
What are some of the effects of inflation?
Cause unemployment
Lowers consumer confidence
Businesses become less confident
What is the UK inflation aim?
1% either side of 2%
What is the UK current inflation rate?0
2.74%
Why is the UK inflation rate so low?
Interest rates are extremely low at 0.75% so it increases spending
What causes inflation for the UK?
Brexit Oil prices Low interest rates Increases in food costs Weak £££
What is deflation?9
Reduction if the general level of prices in an economy
What is deflation a real problem in an economy?
Prices are falling and wages are not, it increases inflation
Cost of labour is high which leads to unemployment
Rise in unemployment leads to less spending so prices fall further
Why is a certain level of inflation a good thing?
Shows the economy is growing
Keeps business profitable
Prevents consumers from waiting for lower prices to then purchase
How to calculate inflation?
- find the % price change of the base year
- times the price index by the weighting
- add up all the values you get
- move 2 dp in (divide by 100)
- minus 100 and that’s your inflation!
What is frictional unemployment?
Out of work due to personal short term employment
What is structural unemployment?
Your skills are no longer relevant
What is cyclical unemployment?
Economic reasons
What is seasonal unemployment?9
Parts of the year when there is no work in your job
What figure is counted as full employment?
4%
What are some of the consequences of unemployment?
- people stop spending because they are getting no income
- businesses lose revenue because people are not spending
- lower revenue means businesses don’t invest in capital
Leads to:
Businesses closing
Lower GDP
Consumer confidence decreases
People apply for benefits
What does the Claimant count calculate?
Unemployment
How is the Claimant count calculated?9”
People who are out of work
Available for work
Actively seeking work
Aged 18-65
What does the claimant count include?9
People who are eligible to claim the Job Seekers Allowance
How long is the Job Seekers Allowance available for?
6 months
What is the current uk unemployment rate?
6.4%
What is the uk youth unemployment?
11%
How does government solve unemployment?
- expanding the monetary policy
- expanding the fiscal policy
- education
- trading programmes
- subsidies companies to hire younger people
Advantages of using the Claimant count?
Used information that is already being compiled and is easy and cheap to put together
Disadvantages of using the Claimant count?9
- open to political manipulation
- some people are not counted
- is not internationally recognised so cannot compared with other countries
- under estimated the true level of unemployment.
What does the ILO Survey stand for?
International Labour Organisation
How many people does the ILO survey, survey?
80,000
How is the ILO survey conducted?
Counts those who are without any kind of job in the four weeks and are able to start work immediately
Includes people who have found a job and are waiting to start in the next two weeks!
What age range does the ILO survey survey?
16-70
Advantages of the ILO survey?
Considered a far more accurate method
Used in Europe so good for comparisons
What are some criticisms of the UK unemployment figure?
Government made change to the Claimant count
Low- skilled, low paid jobs which contribute little to the UK GDP
What is Purchase Power Parity?
The exchange rate between two countries is equal to the ratio of the currencies respective purchasing power.
How is currency determined?
Living quality of its citizens
Evaluative points in general?
Magnitude
Short term or long term
What are conflicts of objectives?
when you achieve one objectives you end up weakening another
What are the three different elements that make up the human development index?
- health (life expectancy)
- education (Mean years of schooling )
- income (GNI per capita)
What value is the best HDI value?
1
What HDI value is the worst developed country?
0
Which country has the best HDI?
Norway
What is the UK’s HDI ranking?
14th
Why does Norway have such a high HDI?
- 81.6 years old highest life expectancy worldwide!
- 3rd highest GNI
- second wealthiest country in the world
Advantages of using HDI?
- there is worldwide usage of HDI
- looks at wider society
- looks at long term investments
Disadvantages of HDI?
- data from developing countries may not be reliable
- countries exaggerate to get more economic aid
- doesn’t measure unequal distribution with a country
- other measures more suitable
What more useful measures can be used instead of the HDI?
- Access to mobile phone (you can do business)
- access to clean running water ( health issues )
- rate of HIV (shows how well people can access drugs
What is the Diminishing Marginal Utility of Income and Wealth?
Is the additional benefit a person receives from a given increase in income/ wealth diminishes with every increase
Why does the Diminishing Marginal Utility of Income and Wealth actually happen?
- wealth summarises peoples place in society
- the most exclusive houses and restaurants are excessively expansive
What is the trickle down effect?
Wealth of the richest eventually comes down to benefit everybody
Why GDP is important to create happiness?
Can buy more luxuries and pay taxes
- can buy food and drink which can improve health
- investment in education
Why GDP isn’t the sole source of happiness?
- money can’t buy true love
- people may not value income & growth
- higher GDP leads to poorer quality of life
How does supply side economics stimulate the production among the nations firms?
- reduce costs faced by small firms ( labour)
- improving the productivity of humans (capital policies)
- if successful supply side policies will create jobs and cause economic growth
Why cutting Social Welfare Payments is good?
Gives people more of an incentive to work
Working people find it fair because those on benefits are not better off
Cap is flexible if you work more than 16 hours a week
Why reducing Social Welfare payments is bad?
Could lead to homelessness crisis
Emotional stress
Cap is the same everywhere whereas rents are not
What are the advantages of business parks?
- allow greater flexibility
- provides 24 hour security
- are very spacious
- offer latest technology equipment
Disadvantages of business parks?
Prices can be inflated as people are prepared to pay for convenience
Price fixing companies can keep prices high
Usually busy
What is the Deregulation is Labour Markets?
Is were government reduce the amount of Employee Rights, this makes it easier for firms to hire and fire workers
Makes it easier to have a flexible work force
However government continues to regulate minimum wages and health and safety
What is a 0 hour contract?
Is a contract were the employer does not have to provide regular work for the employee, but the employee has to be on call in case they are needed for work.
What are some Pros about a zero hour contract?
- Flexibility - can turn down shifts
- Freedom to find extra work
- More jobs to apply for
- Improve your CV
What are some of the cons about zero hour contracts?
- no fixed income
- missing out on benefits that part / full time employees get
- constantly on call can make you feel restricted.
Evaluative points for zero hour contracts?
Work life balance issues
What is productivity?
Is were you encourage more output for the input required
How productive is the UK?
Ranked 5th out of the G7 leading industrial nations.
Productivity equation? 1
Productivity = No. of goods sold / Average Number of Employees
Productivity equation 2?
Productivity = Sales Revenue / Value of Machines
Productivity equation 3?
Productivity = Sales Revenue / Wage Bill
Give some ways to improve productivity.
- Motivation techniques at work
- Targets for management
- Monitoring staff production
- Better machinery and technology
- Training
Some impacts of the Credit Crunch
- Fall in bank lending let to a fall in investment and lower consumer spending
- Falling house prices created a negative wealth effect, leading to a fall in consumer spending
- Led to a rapid rise of government borrowing, UK responded by a degree of fiscal austerity, austerity led to a further decline in aggregate demand.
Has the UK economy recovered from the credit crunch?
- London economy is 8% larger than it was before the crisis
- UK close to full employment (however productivity has only grown by 0.2%, employers holding onto employees)(interest rates are very low)
How do you improve Productivity?
- Innovation
- Competitiveness
- Research & Development
- Investing in Training if Staff
- Apprenticeships
- Good relationships with staff
What is Capacity Utilisation?
How well you use the resources you already have and if there is anymore.
What explains a fall in productivity?
- Labour Hoarding (forms holding onto employees)
- Low levels of investment
- Falling real incomes ( cheap to hire staff)
What does a falling productivity do?
- Reducing Economic Growth ( not producing to max potential so producing less output)
- Reducing unemployment (Hoarding Labour)
- Controlling Inflation ( Demand for pound decreases)
Evaluative points for productivity.
- Improving productivity is a long-term project
- It is hard to compete with countries
