Little Parts Flashcards
Causes of a negative output gap
Increase in spare capacity
AD is insufficient
Consequences of negative output gap
Unemployment
Deflation
Wage inflation
Causes of positive output gap
Demand is high
Factories and workers operate far above capacity
Consequences of positive output gap
Increase in imports due to supply shortages
Current account deficit
Inflation
Terms of trade formula
Average export price / average import price x100
Comparative advantage
A country specialises in producing goods where they have a lower opportunity cost than others
Benefits of IT to developing economies
Economic growth
Reduced unemployment
Negatives of IT to developing economies
Vunrelable to external shocks
Devalue currency due to high exports
Inflation
Disadvantages of IT to developed countries
Currency fluctuations
External shock susceptibility
Advantages of IT to developed countries
Economic growth
Availability of resources
Short run economic growth diagram
Ad shifting outwards on SRAS
Causes of unemployment
Cyclical- negative econ growth
Structural -mismatch in skills
Real wage- wages above equilibrium
Characteristics of money
Portability - easy to carry
Divisability - divided into smaller values
Acceptability - accepted as a medium of exchange
Scarcity-
Durability- survive wear and tear
Stability in value
Functions of money
Medium of exchange
Store of value
Unit of account
Standard of deferred payment
Aggregate demand: expectations
Expectations can consist on:
Future income
Inflation rates
Economic growth
CPI
Measures the change in price level of a basket of goods and services in an economy
Only measures specific area
SRAS
Measures the change in cost of production e.g wages and oil prices
Cost of production increases SRAS inwards VICE VERSA
Marginal tax rate
Change in tax/change in income
Macroeconomic measures
Economic growth- GDP- long term impacts doesn’t take into account
Inflation- CPI and RPI- doesn’t measure other areas
Measuring unemployment- labour force survey - tech required
and claimant count - work in hidden economy
Difference between RPI and CPI
Both measure the average price for a basket of goods
Whereas
CPI doesn’t measure council tax or mortgage interest payments
Labour force survey
A survey which asks are you u employed and actively seeking work
Claimant count
Number of people receiving unemployment benefits
Uk economy key macro trends
Real gdp rising every year since 1955
Manufactured less goods and moved toward tertiary
Current account deficit since 1980s
Migration rising since 1991
Gini coefficient
Measured from 0 - 1 perfectly equal to perfectly unequal
Measure distribution of income across a population
Absolute and relative poverty
Absolute - lack of basic resources needed for survival
Relative - less than a certain percentage of the median income
Keynes view of aggregate supply
Argued economy can be below full employment level in even long run
As in a recession there is excess saving leading to decline in ADV
GNI and GDP difference
GNI measures income received domestically and through foreign income
GDP measures income domestically
Unemployment (E)
Pros
Phillips curve
Elastic supply
Improved CA
Cons
Lower output
Govt budget deficit
Inequality
Causes of econ growth
Lower interest rates
Lower taxation
Increased consumer confidence
Weaker currency
SR- AD
LR- LRAS
Deflation
Good - supply side deflation- lower prices for production
Bad - demand side- lower econ growth or recession
Policy conflicts
Higher growth- inflation , worsened CA
Lower inflation positive CA position - lower growth higher unemployment
Phillips curve
Economic development
Improvement in economic welfare
Higher incomes
Improved literacy
Reduced poverty
Better healthcare
Measured using HDI
HDI
Life expectancy
Mean years of schooling
Income index
Cons
LR NOT SR
depends on other factors
Causes of poverty
Increased unemployment - cyclical
Low econ growth
Structural unemployment
Deflation
