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AS AQA Economics > Macroeconomics, Part 8- Economic Performance > Flashcards

Macroeconomics, Part 8- Economic Performance Flashcards

1
Q

What is WPIDEC?

A

Weaker pound, imports dearer, exports cheaper

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2
Q

What is SPICED?

A

Stronger pound, imports cheaper, exports dearer

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3
Q

Quantitative easing?

A

When the bank of England injects electronically more money into the banking system.

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4
Q

What are two ways the government measures unemployment?

A
  • Claimant count

- Labour force survey

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5
Q

What is the difference between the claimant count and the labour force survey?

A

The claimant count is the number of people officially claiming unemployment benefits, but the labour force survey in just those actively seeking and available for work whether they are claiming unemployment benefits or not.

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6
Q

What is the international labour organisation (ILO)?

A

Compares the amount of unemployment in different countries.

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7
Q

What are the main types of unemployment?

A
  • Seasonal (e.g. tourism, agriculture, construction)
  • Structural (Immobility of labour)(mismatch of skills and jobs)
  • Frictional (people moving between jobs)
  • Cyclical (demand deficient unemployment)
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8
Q

Underemployment definition:

A

When people are counted as looking for an additional job or actively searching for a new job with to replace their current (main) job.
Or, they want to work longer hours in their current job at their basic rate of pay.
Underemployment may be rising even if unemployment is declining.

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9
Q

What are the types of immobility of labour?

A
  • Geographical immobility

- Occupational immobility (a job requires certain skills that someone does not have)

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10
Q

Information deficit definition:

A

When companies don’t know exactly what the equilibrium is so the wage rate might be above the equilibrium.

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11
Q

Why might the equilibrium rise?

A
  • Rise in minimum wage

- Union action

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12
Q

Hysteresis definition:

A

When a recession is so deep and so prolonged that even when recovery happens, GDP doesn’t reach where it would be under other circumstances. It creates a new trade cycle.

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13
Q

Recession definition:

A

Two consecutive quarters with negative economic growth.

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14
Q

GDP definition:

A

The value of total output in one year

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15
Q

Nominal economic growth definition:

A

% increase in GDP from one year to the next

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16
Q

Real economic growth definition:

A

Nominal economic growth minus inflation.

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17
Q

What are the policies to reduce unemployment?

A
  • Fiscal policy: cut income tax, raise tax allowance

- Monetary policy: cut interest rates

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18
Q

How do fiscal policy and monetary policy reduce unemployment?

A
  • A decrease in income tax or increase in tax allowance
  • Increase in disposable income
  • Increase in C
  • Increase in AD
  • Decrease in unemployment (demand for labour…)
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19
Q

Monetary policy definition:

A

The use of interest rates, money supply and exchange rates to achieve economic objectives. Most governments agree not to use exchange rates.

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20
Q

Supply side policies definition:

A

Policies designed to increase the supply or improve the quality of our factors of production

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21
Q

How can the government reduce occupational immobility?

A

Spend money on training to improve or widen skills

22
Q

How can the government reduce geographical immobility?

A

Subsidise housing, pay travel costs

23
Q

How can the government reduce real wage unemployment?

A

Reduce the minimum wage

24
Q

What are the three types of inflation?

A
  • Cost push inflation
  • Demand inflation
  • Printing money
25
Q

What is cost push inflation?

A

The cost of businesses rises and these costs are pushed onto consumers by rising prices

26
Q

Why can the costs of businesses rise?

A
  • The prices of raw materials such as oil rise
  • Workers are asking for more money
  • Rent is increasing because there aren’t enough premises.
27
Q

What is demand inflation?

A

Increases in the number of people who want something and the supply can’t keep up. This happens because people are becoming richer and have more money to spend. This is why governments can cause inflation by lowering taxes. A decrease in interest rates can also cause long term inflationary pressure.

28
Q

How can the government lowering taxes cause inflation?

A
  • Decrease in tax
  • Increase in disposable income
  • Increase in C
  • Increase in AD
  • Increase in demand inflation
29
Q

How can a decrease in interest rates cause inflation?

A

If loans and mortgages fall, people might start taking out loans on things they don’t need as much, like cars. Because the demand for these goods increases, firms will start to increase prices.

30
Q

What is printing money in relation to inflation?

A 
Could be:
-Physically printing money
-Increasing government debt
-Allowing banks to give out larger loans
This means after a while the value of every note starts to fall because demand increase so prices rise
31
Q

What is Keynes’ view on printing money?

A

It takes time for the value of money to fall, so there is a period of time where people can increase consumption, and firms can afford to hire more workers and buy new machinery causing production to increase. This causes an increase in real output before inflation has set in.

32
Q

What are Monetarists’ views on printing money?

A

Anything which causes inflation is always an issue and must be avoided at all costs, whatever the short term.

33
Q

What is the problem with inflation?

A

Not everything inflates at exactly the same rate

34
Q

Why is low inflation hard to achieve?

A
  • Changing cost of materials
  • Changing cost of labour
  • Changing productiveness
  • Tax (falling or rising)
  • Exchange rates (falling or rising)
  • A growing domestic economy
  • A neighbouring economy growing
  • Falling interest rates
  • The buying of government bonds
  • The printing of money
35
Q

Inflation definition:

A

A fall in the value of money

36
Q

How is inflation measured?

A
  • Consumer price index: Has goods that don’t rise in value that quickly
  • Retail price index: Has goods such as houses that rise in value much ore quickly
37
Q

What are the main causes of demand-pull inflation?

A
  • Very fast growth of demand for borrowing
  • High levels of C
  • Depreciation in the exchange rate (reduces the price of exports so there is increased demand from overseas)
  • A reduction in direct taxation
  • Rapid growth of the money supply as a consequence of increased bank and building society borrowing
  • Rising consumer confidence
  • Increase in the rate of growth of house prices
  • Faster rates of economic growth in other countries
38
Q

What is the wealth effect?

A

There is increased access to borrowing when the prices of goods such as houses increase because then homeowners have a more valuable asset so the banks are willing to lend them more money

39
Q

If AD increases, what will the number of new jobs created depend on?

A

Whether the industries that have increased demand are capital intensive or labour intensive

40
Q

Profit margins definition:

A

The profit as a % of the cost of making the good.

41
Q

Why is high inflation an economic problem?

A
  • Inequality (for lower income families, most of their wealth is in cash)
  • People on fixed incomes lose out
  • Negative real interest rates (if interest rates are lower than inflation)
  • Cost of borrowing (high inflation means high interest rates)
  • Lenders lose out
  • Risks of wage inflation (rising labour costs and lower profits)
  • Loss of international competitiveness
  • Business uncertainty (Businesses won’t be sure about the future cost of production so there might be a decline in capital investment)
  • Menu and shoe leather costs
42
Q

Collusion definition:

A

When businesses get together and (often illegally) agree to all raise prices to benefit themselves.

43
Q

What causes low inflation in the UK?

A
  • Increased competition in markets
  • Success of BOE controlling AD
  • Strong exchange rate keeping import prices low
  • Cheaper imports due to globalisation
  • Rising productivity and new technology
  • A fall in worker’s expectation of inflation
44
Q

What factors affect short run economic growth?

A
  • Interest rates set by the bank
  • Fiscal policy (government spending and taxation)
  • Commodity prices
  • Exchange rates
  • Trading conditions in other countries
  • Confidence of businesses and households
45
Q

What factors affect long run economic growth?

A
  • Investment
  • Productivity
  • Labour supply
  • Research
  • Innovation
  • Enterprise
46
Q

What does economic growth do to a country’s PPF?

A

Increases it

47
Q

What are the benefits of economic growth?

A
  • Higher living standards
  • Employment affects (stimulates jobs)
  • Fiscal dividend (higher economic growth will raise tax revenues and decrease benefits spending)
  • Accelerator effect
48
Q

What is the accelerator effect?

A
  • When AD increases SRAS can increase because firms can use their spare capacity
  • Eventually it gets to a point where spare capacity is hard to find (this causes an increase in price level due to inflation)
  • The accelerator effect speeds up this process because businesses spend money to increase their capacity because their spare capacity is being used up, this is investment
  • This causes LRAS to shift to the right
49
Q

What are the types of government spending?

A
  • Current spending: Spending on day to day things such as teachers’ wages
  • Capital spending: Spending on long term projects e.g. hospitals
50
Q

How do left wing parties think we should fix the country’s debt?

A
  • Borrow more to increase capital spending
  • This will create more jobs which will increase tax revenue
  • The debt can then be paid off and we will have whatever was bought with the extra money we borrowed
51
Q

What are the costs of economic growth?

A
  • Risks of higher inflation and higher interest rates to control inflation
  • Environmental effects
  • Inequalities of income and wealth because lots of the gains are for a small group of people
52
Q

What are some policies to attract FDI?

A
  • Attractive rates of corporation tax
  • Soft loans and tax reliefs / other subsidies
  • Trade and investment agreements
  • Flexible labour markets
  • Special economic zones
  • High quality infrastructure
  • Open capital markets to allow remitted profts
  • Availability of low cost labour

AS AQA Economics (9 decks)

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