paper 1 Flashcards
1
Q
total spending =
A
total income = total output
2
Q
another phrase for total spending
A
aggregate demand
3
Q
another phrase for total income
A
national income (NY)
4
Q
what are the factors of production?
A
capital, enterprise, labour, land
5
Q
what is land as a factor of production?
A
any natural resource
eg. wheat, sugar, gold
6
Q
what is the reward for land as a factor of production?
A
rent
7
Q
what is labour as a factor of production?
A
any human input
eg. teachers, MPs, police
8
Q
what is the reward for labour as a factor of production?
A
wages
9
Q
what is enterprise as a factor of production?
A
entrepreneur, organises the other factors and takes risks
10
Q
what is the reward for enterprise as a factor of production?
A
profit
11
Q
what is capital as a factor of production?
A
any human made element of the production process
12
Q
what is the reward for capital as a factor of production?
A
interest
13
Q
what are the three methods of measuring national income?
A
income method, expenditure method, output method
14
Q
what are the different aspects of the income method?
A
wages,
rent,
interest,
profit/dividends
15
Q
what are the different aspects of the expenditure method?
A
consumption (consumer) spending,
investment spending (businesses),
government spending,
net exports
16
Q
what are different aspects of the output methods?
A
primary,
secondary,
tertiary,
quaternary
17
Q
define GDP
A
the value of total output in a year
18
Q
what is GDP per capita?
A
GDP divided by population
19
Q
define economic growth
A
percentage increase in GDP from one year to the next
20
Q
what is real economic growth?
A
nominal (money) economic growth minus inflation
21
Q
what are the four stages of the economic cycle?
A
downturn,
boom / peak,
recession,
recovery
22
Q
the demand for labour is..
A
derived from the demand for the goods and services that labour produces
23
Q
what are the three injections into the circular flow of income?
A
government spending,
bank loans for investment,
exports
24
Q
what are the three withdrawals from the circular flow of income?
A
taxation,
savings,
imports
25
what is the macroeconomic consumption function?
AD = C + I + G + (X - M)
26
what is (X - M) also known as?
balance of payments
27
what are the signs of an economic downturn?
1. rising umeployment
2. falling aggregate demand - interest rates may be changed
3. reduced output - maybe not all sectors
4. falling tax revenues - changes in tax rates
5. increased government spending on benefits
6. order books of firms get emptier (construction)
7. stock market falls
9. reduced consumer confidence and spending
28
what are the two poles of the economic spectrum?
communist and capitalist
29
define debt
the accumulation of all the deficits
30
what is the opposite of a deficit?
surplus
31
what is the governments budget deficit?
a document that presents the governments anticipated revenues and proposed spending for a fiscal year
32
how does the government raise cash to cope with a budget deficit?
-borrow money (issue bonds)
-print money
-use previous surplus
-sell government assets
33
what does ceteris paribus mean?
all other things remain equal
34
define interest rates
cost of borrowing reward for saving
35
what is a government issued bond called?
gilt
36
what is a bussines issued bond called?
debenture
37
what is hot money?
funds of money available to be lent to govt and business
38
define exchange rate
the value of one currency, in terms of another
39
what does SPICED stand for?
strong pound imports cheaper exports dearer
40
what does WPIDEC stand for?
weak pound imports dearer exports cheaper
41
its less important what the exchange rate is, whats more important is...
how the exchange rate changes
42
why does the short run aggregate supply curve slope upwards?
because higher prices for goods and services makes output more profitable and enables businesses to expand production by hiring less productive labour and other resources
43
what is quantitative easing?
when the central bank buys back bonds early in order to stimulate aggregate demand
44
define unemployment
anyone between 18 and 67 who is able, available, and actively seeking employment
45
how is unemployment measured?
- claimant count
- labour force survey
46
what are the different types of unemployment?
-frictional
-cyclical (or demand deficiency)
-structural
-hidden
-real wage
-seasonal
47
what is frictional unemployment?
unemployment related to the process of changing jobs, which may involve a period out of work
48
what is cyclical (demand deficient) unemployment?
the category of unemployment whose number varies according to the economic cycle
49
what is structural unemployment?
a mis-match between the skills of those unemployed and the skills that the new jobs required
50
when does structural unemployment happen?
when there is a change in the structure of the economy eg. industry decline (eg shipbuilding)
51
structural unemployment is worsened by....
geographical and occupational immobility of labour
52
what is geographical immobility?
vacancies in another location - housing costs, family ties
53
what is occupational immobility?
you dont have the correct skills
54
what is hidden unemployment?
- known to exist but is not included in the official government figures.
- can also refer to a persons skills being unemployed rather than the person
55
when a national minimum wage was introduced it was..
- above the equilibrium
- leading some economists to conclude that this would lead to unemployment
- this is because it is above the market clearing wage
56
what is says law?
supply creates its own demand
57
what is seasonal unemployment?
people who work in certain industries (eg tourism, beach resorts) may be out of work in winter months
58
what is real wage unemployment?
when a rise in real wages above a market clearing level causes a contraction in labour demand and lower employment
59
why does high unemployment matter?
economic costs:
-loss output = waste of resources
-lower GDP growth = reduced SoL
-loss of skill
fiscal costs:
-related to less tax
-higher welfare
60
what policies have been put in place to deal with unemployment?
- targeted macro stimulus policies to boost growth
- expansion of apprentice schemes
- improving geographical mobility of labour
- measures to stimulate business start ups
- regional development policies
61
what are index numbers?
- a system that measures changes in "a set of variables" that move in different directions by different amounts
- the index gives us an idea of the average movement
62
what does excess demand mean?
too much money chasing too few goods
63
what are the main types of inflation?
demand pull and cost push
64
demand pull inflation occurs when...
there is excess aggregate demand, ie a positive output gap
65
describe demand pull inflation
businesses respond to high demand by raising prices to increase profit margins
66
what stage of the economic cycle is demand pull inflation associated with?
boom
(when SRAS becomes inelastic)
67
what are the main causes of demand pull inflation?
* lower interest rates
* lower income + corporation tax
* increased consumer and business confidence
* increased government spending
* weaker exchange rate - increase net exports
68
what is the economic definition of inflation?
a fall in the value of money from one year to the next
69
what is the non economic definition of inflation?
a general increase in the average price level from one year to the next
70
what are the functions of price?
- signal
- incentive
- ration
71
what are the main causes of demand pull inflation?
1.
1. a depreciation of the exchange rate
72
what are the main causes of demand pull inflation?
1. a depreciation of the exchange rate increases the price of imports and reduces the foreign price of UK exports
2.
a reduction in direct or indirect taxation
- consumers will have more disposable income causing demand to rise
73
what are the main causes of demand pull inflation?
1. a depreciation of the exchange rate
2. a reduction in direct or indirect taxation
3.
rapid growth of the money supply as a consequence of increased bank and building society borrowing
74
what are the main causes of demand pull inflation?
1. a depreciation of the exchange rate
2. a reduction in direct or indirect taxation
3. rapid growth of the money supply as a consequence of increased bank and building society borrowing
4.
rising consumer confidence and an increase in the rate of growth of house prices
75
what are the main causes of demand pull inflation?
1. a depreciation of the exchange rate
2. a reduction in direct or indirect taxation
3. rapid growth of the money supply as a consequence of increased bank and building society borrowing
4. rising consumer confidence and an increase in the rate of growth of house prices
5.
faster rates of economic growth in other countries
76
what is the wealth effect?
for every owner of a house / asset, people have access to additional borrowing which shifts AD right
77
what is collateral security?
security on a loan
78
how does a depreciation in the exchange rate lead to an increase in AD? (imports dearer)
- imports are dearer
- british people switch to UK goods
- AD increases
79
how does a depreciation in the exchange rate lead to an increase in AD? (exports cheaper)
- exports are cheaper
- more exports as overseas people switch to british goods
- ( an increase in demand pull inflationary pressure)
- AD increases
80
evaluate how a depreciation in the exchange rate leads to an increase in AD? (exports cheaper)
- depends on the size of the exchange rate depreciation
- this may not matter as the UK may be below its inflationary targets
81
evaluate how a depreciation in the exchange rate leads to an increase in AD? (imports dearer)
- depends of the size of the exchange rate depreciation
- depends on the price elasticity of demand for imports (maybe no UK substitute goods)
- added advantage - more jobs created
82
how does an increase in the rate of growth of house prices lead to an increase in AD?
- wealth effect : additional borrowing
- increased AD
83
how does a boom overseas lead to a rise in AD?
- increase employment overseas
- increase in disposable income overseas
- increase in consumption overseas
- increase in imports overseas
- increase in exports in the UK
- rise in AD
84
when does cost push inflation occur?
when cost of production are increasing
85
what are the causes of cost push inflation?
1.
1. external shocks (commodity price fluctuations)
86
what are the causes of cost push inflation?
1. external shocks (commodity price fluctuations)
2.
a depreciation in the exchange rate
87
what are the causes of cost push inflation?
1. external shocks (commodity price fluctuations)
2. a depreciation in the exchange rate
3.
acceleration in wages
(leads to an inward shift in SRAS curve)
88
what are the causes of cost push inflation?
1. external shocks (commodity price fluctuations)
2. a depreciation in the exchange rate
3. acceleration in wages
(leads to an inward shift in SRAS curve)
4.
firms raise prices to protect their profit margins
89
when are firms better able to raise prices to protect their profit margins?
when market demand is price inelastic
90
a rise in inflation can lead to a rise in...
inflationary expectations
91
complete the phrase : "wages often follow.."
prices
92
define productivity
a measure of efficiency of factors of production in the production process
93
what are the benefits of higher productivity?
- produce goods and services at lower cost per unit
- increase total output from our scarce resources
- helps bring about economic growth for a country in the long term
94
how can labour productivity be measured?
by calculating output per worker or output per hour worked
95
what factors explain the productivity gap?
- relatively low rates of capital investment
- low rates of spending on research and development
- skills of the labour force
- good health care infrastructure
- good transport infrastructure
96
whats another phrase for rules and regulation?
red tape
97
what are some strategies to raise productivity in the british economy?
- making markets more competitive
- extra investment in education and training
- improvements in infrastructure
- encouraging foreign investment
- incentives for increased research and development spending
- improvements in management and entrepreneurship
- a rise in capital investment
- less business regulation and red tape
- incentives for small businesses
98
strategies to raise productivity in the british economy : extra investments in ..
education and training
99
strategies to raise productivity in the british economy : improvements in..
- infrastructure
- management and entrepreneurship
100
strategies to raise productivity in the british economy : encouraging..
foreign investment
101
strategies to raise productivity in the british economy : incentives for..
- small businesses
- increased research and development
102
strategies to raise productivity in the british economy : a rise in..
capital investment
103
strategies to raise productivity in the british economy : less..
business regulation and red tape
104
strategies to raise productivity in the british economy : making markets..
more competitive
105
monetary policy can also be referred to as what type of policy?
demand management policy
106
monetary policy is simply..
too much money chasing too few goods
107
complete the sentence : monetary policy involves changes in...
interest rates, exchange rates and the supply of money and credit
to influence the economy
108
what type of areas does monetary policy involve?
- market interest rates
- bank lending
- inflation targets
- bank of england
- quantitative easing
109
what is the aim on expansionary monetary policy?
trying to get us to spend more
110
what is the aim of contractionary (deflationary) monetary policy?
trying to get us to spend less
111
what does expansionary monetary policy involve?
- fall in nominal and real interest rates
- measures to expand supply of credit
- depreciation of the exchange rate
112
what does contractionary (deflationary) monetary policy involve?
- higher interest rates on loans and savings
- tightening of credit supply (loads are harder to get)
- appreciation of exchange rate
113
what does the tightening of credit supply mean for loans?
loans are harder to get
114
what is the saving ratio?
the percentage of our income that we save
115
complete the flow chart :
- a rise in interest rates (reward for saving) leads to..
- loans are more expensive to repay back
- increased saving
- fall in consumer spending
- fall in aggregate demand
116
complete the flow chart :
- an increase in the cost of borrowing leads to..
- fall in borrowing
- fall in consumer spending
- fall in aggregate demand
117
state investment plans
capital formation
capital accumulation
118
how do cheaper imports result in a fall in inflationary pressure?
- imports cheaper
- increase demand for imports
- fall in demand for domestic spending
- fall in aggregate demand
- fall in inflationary pressure
119
how do dearer exports result in a fall in inflationary pressure?
- exports dearer
- increase foreign currency price of our exports
- fall in aggregate demand
- fall in inflationary pressure
120
how could an increase in rate of interest in the UK lead to a rise in aggregate demand?
- increase rate of interest in UK
- increase reward for saving in UK
- inflows of hot money into the UK
- increase demand for sterling
- forex graph - increase value of £
- increase aggregate demand
121
what could happen if the bank of england take some sterling?
- sells in exchange for euros
- increase supply for sterling (graph)
122
what is the main aim of quantitative easing?
to support aggregate demand and avoid the risk of a recession becoming a deflationary depression
123
what policy does quantitative easing fall under?
expansionary monetary policy
124
what does the Bank of England use quantitative easing for?
* to increase the supply of money in the banking system
* encourage banks to lend at cheaper interest rates
- especially to small and medium sized businesses
125
when the Bank of England uses quantitative easing, do they print new money?
no, it uses money created by the central bank to buy govt bonds
126
what are the doubts about the effectiveness of quantitative easing?
bank lending has struggled to recover since the end of the recession
127
in the summer of 2015, what did quantitative easing total to?
£375 billion
128
what is the short run?
where there is spare capacity
129
what is the long run?
when there is no spare capacity
130
what factors cause the SRAS curve to shift?
changes in :
- cost of production
- productivity
- taxes and subsidies
131
on the Keynesian LRAS curve or a normal LRAS curve , what does the point Yfe represent?
the economy operating at full capactity
132
what does the LRAS curve represent?
* the full long run productive capacity of the economy
* ie. when were producing just about as much as the factors of production will allow
133
describe what is included in Q^2cell / productive efficiency?
1. labour productivity increases
2. investment
3. infrastructure
4. increase quality of labour
5. competition
6. new rare discoveries
134
what is fiscal policy?
* the use of government spending and taxation
* to influence the pattern of economic activity
* affect the level and growth of AD, output and employment
135
what are the two types of fiscal policy?
expansionary
contractionary
136
what is the aim of contractionary fiscal policy?
to reduce AD
137
what is the aim of expansionary fiscal policy?
to increase AD
138
when was council introduced?
1991
139
what is council tax?
a tax that local residents pay to local authorities
140
what is a duty?
a specific tax at a specific rate on a specific product
141
give 2 examples of dutys
petrol duty
alchohol duty
142
what were Adam Smiths 'canons on taxation'?
- equity
- convenience
- certain
- economy
143
what does equity mean in Adam Smiths 'canons on taxation'?
the tax should be fair and based on the ability to pay
144
what does convenience mean in Adam Smiths 'canons on taxation'?
tax should be easy to pay
145
what does certain mean in Adam Smiths 'canons on taxation'?
the tax payer should be able to know exactly how much tax they must pay
146
what does economy mean in Adam Smiths 'canons on taxation'?
revenue raised must be greater than the cost of implementing the tax
147
following Adam Smiths 'canons on taxation' what more recent canons have been added?
5. flexible
6. efficiency
148
what does flexible refer to in relation to the more recent canons of taxation?
taxes should be easy to change when necessary
149
what does efficiency refer to in relation to the more recent canons of taxation?
tax should achieve what its intended to achieve
eg. reduce consumption of demerit goods
150
why do we have taxes?
1.
2.
1. to raise money to finance public services eg. NHS
2. to influence AD
151
why do we have taxes?
1. to raise money to finance public services eg. NHS
2. to influence AD
3.
4.
3. to influence patterns of spending
4. to help redistribute income and wealth
152
why do we have taxes?
1. to raise money to finance public services eg. NHS
2. to influence AD
3. to influence patterns of spending
4. to help redistribute income and wealth
5.
5. to protect jobs in the country
eg tariff on imports
153
what is included in the government budget?
- planned govt revenue
- planned govt spending
- budget balance
154
in what way is a deficit financed?
- government gilts
- sell government assets
- use previous surplus'
155
define debt?
the accumulation of all the deficits
156
what are the different types of taxes?
- indirect tax
- direct tax
- progressive tax
- proportional tax
157
what are indirect taxes?
taxes on spending
158
what are examples of indirect taxes?
VAT, petrol duty, tariffs on imports
159
what are direct taxes?
taxes on income
160
what are examples of direct tax?
income tax, corporation tax, national insurance, inheritance tax
161
what is the role of His Majesty's Revenue and Customs?
to collect tax
162
what does HMRC stand for?
His Majesty's Revenue and Customs
163
what is the role of the chancellor of he exchequer?
set the tax as part of the governments fiscal policy
164
165
what is proportional tax?
proportional percentage rate of tax is constant
eg. if income tax was 25% across all income levels
166
why does the multiplier effect come about?
because injections of new demands for goods and services into the circular flow of income stimulate further rounds of spending
167
what does the multiplier effect lead to?
- a bigger final effect on the level of national output
- total employment in the labour market
168
what is the equation for the multiplier?
multipler = 1 divided by the sum of propensity to save + tax + import
169
what are the positive effects that stem from the multiplier effect?
when an initial increase in an injection (or a decrease in a withdrawal) leads to a greater final increase in real GDP
170
what are the negative effects that stem from the multiplier effect?
when an initial decrease in an injection (or an increase in withdrawal) leads to a greater final decrease in real GDP
171
what happens if extra incomes stay inside the circular flow of income and spending to the multiplier effect?
* the multiplier effect is likely to be strong
* and the resultant impact on GDP is quite large
172
what does the value of the coefficient depend on?
* the three withdrawals
* and the rate at which money leaves the circular flow as extra income is generated
173
complete the sentence...
at each stage extra money flowing around the circular flow...
gets smaller as money leaks out via savings, imports, and taxes
174
describe the simple multiplier
- assumes no tax or imports
- only leakage is saving
175
describe the more complex multiplier
takes into consideration the three leakages (savings, imports and taxation)
176
what tends to happens to the multiplier when AS is elastic ?
the multiplier is likely to be high
177
what happens to AS when its inelastic?
its harder for AS to expand and meet rising AD
178
what is the multiplier process?
the final impact on national income (NY) of an injection will be greater than the size of the original injection
179
what does the laffer curve show?
the relationship between tax rates and total tax revenue
180
what can be observed about total revenue when tax rates are 100% ?
total tax revenue is most likely not maximised when tax rates are 100% as this disincentives workers from earning wages
181
increases taxes will increase tax revenue up to a point. what is that point?
an efficient tax rate
182
what would happen if taxes would be increased beyond the efficient tax rate?
will see a reduction in tax revenue for three reasons :
- disincentives to work - harder - less entrepreneurship
- emigration
- tax evasion / avoidance
183
why would emigration as a result of increased tax rates, lead to a reduction in tax revenue?
pushing highest income earners, the most productive and the best entrepreneurs out of the county
184
what is the accelerator process?
changes in investment can be directly linked to changes in the rate of GDP growth
185
complete the sentence:
when the rate of GDP growth is high, firms are..
more likely to invest, so rate quickens
186
what is the effect on the share price of an American steel company once govt announces a tariff?
- more profit made
- more dividends paid
- higher demand for share
- price of shares increases
187
what is the effect on the share price in an American car company if the government places a tariff on steel?
- profit falls
- people sell their shares
- demand for shares increases
- price of shares fall
188
what is short run economic growth?
an increase in GDP from one year to the next
189
what is an aggregate supply curve?
illustrates the total amount of goods or services producers are willing to sell at different price levels
190
why does an aggregate supply curve slope upwards and to the right?
at higher price levels, less efficient producers (those with higher costs) can enter the market and cover their higher costs, so making a profit
191
what does the steepness of the slope of the AS curve depend on?
* elasticity of supply and how easy it is for firms to respond by increasing output
* if they cant respond because they're at capacity supply will be inelastic
192
complete the sentence:
stable prices and full employment...
trade off each other
193
what is a budget deficit (full definition) ?
* a statement of planned tax revenue for a year and planned government spending for the same year
* the budget is in deficit because planned spending exceeded revenue from taxation
194
a deficit is also a _______ attempt?
a deliberate attempt to stimulate aggregate demand and example of fiscal policy
195
what does it mean to stimulate the economy?
to increase on encourage a process, to increase AD
196
what are cyclical fluctuations (full definition) ?
* to fluctuate is to increase and decrease
* cyclical fluctuations show the economic cycle
* recessions and booms being the highest and lowest points
197
how many types of 25 markers are there?
2
type A and type B
198
what is a type A 25 marker?
discuss how X (anything) affects Y (macro-objectives)
199
how should you structure a 25 marker, type A ?
choose three arguments plus evaluations
200
what is a type B 25 marker?
they choose one marco objective
201
what is the balance of payments?
value of the exports of goods and services minus the value of the import of goods and services
202
what are the three sections of the balance of payments?
1. the current account
2. the financial account
3. the capital account
203
what is the current account as a section of the balance of payments?
- trade in goods
- trade in services
- net primary income flows
- net secondary income flows
204
what is the financial account as a section of the balance of payments?
- transactions in financial assets
- investment flows
- government transactions
205
what is the capital account as a section of the balance of payments?
- transfer of assets by individuals
206
what is Lloyds?
the biggest insurer of boats
207
what is Marsh?
biggest insurers of satellites
208
what is insurance?
covering the risk of something that may or may not happen
209
what are trade in goods also known as?
visible trade
210
what are trade in goods (visible trade)?
* consumer durables,
* capital goods/technology/software,
* commodities,
* components & basic raw materials,
* foodstuff and beverages
211
what are examples of consumer durables?
household goods, motor vehicles, computers
212
what are some examples of commodities?
oil, gas and other fuels
213
what are some examples of components & basic raw materials?
plastics, copper, tin, rubber, semi-conductors
214
what are trade in services also known as?
invisible trade
215
what are trade in services (invisible trade)?
* tourism and travel,
* insurance and business consultancy services,
* booking and accountancy services,
* data processing and info services,
* music and entertainment,
* shipping
216
what is net primary income also known as?
investment income
217
what is net primary income (investment income)?
- income made from the factors of production
- money coming in - money going out
- factors of production over seas but owned by UK citizens
218
what is net secondary income also known as?
net current transfers
219
what is net secondary income (net current transfers)?
money paid by UK government to world/govt organisations:
eg. EU, IMF, World Bank, remittances
220
what is the International Monetary Fund?
* funded by every country
* helps any country in financial difficulty
221
what is the World Bank?
funded by every country
for development needs
222
what signals an improvement in the balance of payments?
- reduced deficit
- increased surplus
- a move from a deficit to surplus
223
what signals an deterioration in the balance of payments?
- increased deficit
- decreased surplus
- a move from a surplus to a deficit
224
why dont we want high inflation?
- loss of international competitiveness
- people on fixed incomes lose out
- businesses find is difficult to plan
- lenders lose out (and savers)
- menu costs
- shoe leather costs
225
what does loss of international competitiveness mean, when talking about high inflation?
rising prices in the UK makes our goods relatively less competitive
226
evaluate loss of international competitiveness, when talking about high inflation
* could lead to a devaluation of the currency so exports become cheaper again
* the extent to which this is a problem depends on the inflation rate overseas
227
what does the fact people on fixed incomes lose out mean, when talking about high inflation?
real value of an unemployed persons income will go down, so as prices rise they can afford fewer goods, so standard of living falls
228
evaluate the fact people on fixed incomes lose out mean, when talking about high inflation
triple lock guarantee
229
what are the governments macro-economic objectives?
1. encouraging price stability (low inflation)
2. full employment/minimise unemployment
3. maintaining a favourable balance of payments
4. promoting steady economic growth
5. redistributing wealth more equitably
6. reducing the government budget deficit and national debt
230
what is the governments current target for inflation?
2%+-1%
(two percent plus or minus one percent)
231
what are the economic costs of unemployment?
- loss of income
- unemployment in your 20s has effects on living standards of people in their 50s
- increased health risk
- loss of marketable skills (human capital)
232
what are the negative economic consequences for businesses of unemployment?
- fall in demand for goods and services
- fall in demand for businesses further down the supply chain
- consider negative multiplier effects from the closure of a major employer
233
what are the positive economic consequences for businesses of unemployment?
- bigger pool of surplus labour is available
- less pressure to pay higher wages
- less risk of industrial / strike action
234
evaluate the fact that there is a bigger pool of surplus labour available as a positive economic consequences for businesses of unemployment?
its still a problem if there is plenty of structural unemployment
235
what are the consequences for the government of unemployment?
- increased spending on unemployment benefits and other income- related state welfare
- fall in revenue from income tax and taxes on consumer spending
- fall in profits (less corporation tax)
- rise in government borrowing
236
what are the macro-economic costs of unemployment?
- loss output (real GDP) from people being out of work
- unemployment is seen as an inefficient way of allocating resources
- some of the long-term unemployed may leave the labour force permanently
- increase in income inequality
237
what factors cause shifts in short run aggregate supply (AS)?
- input costs
- business taxes, subsidies and imported costs
- supply shocks
238
what input costs may cause shifts in short run aggregate supply (AS)?
- wage costs per unit of output
- labour productivity (high efficiency lowers unit costs)
- raw material and component prices
- interest rates, business rents, fuel, energy costs
239
what business taxes, subsidies and imported costs may cause shifts in short run aggregate supply (AS)?
- VAT, environmental charges
- scale and size of government subsidies to certain industries
- business rates, costs of meeting business regulations
- costs of imported components
240
what are the costs of imported components affected by?
the exchange rate and fluctuations in world commodity prices
241
what supply shocks may cause shifts in short run aggregate supply (AS)?
eg. hurricane, tsunami etc
or political crisis
242
what external factors affect aggregate supply (AS)?
- world oil and gas prices
- energy prices / costs
- other mineral / metal prices
- foodstuff prices
- import tariffs quotas
243
what consumer factors affect the components of aggregate demand?
- stage of economic cycle
- interest rates
- income tax rates
- consumer confidence
244
what government factors affect the components of aggregate demand?
- level of government revenue
- interest rates
- government priorities
245
what business factors affect the components of aggregate demand?
- interest rates
- business confidence
- stage of the economic cycle
- level of spare capacity in the economy
- level of profits
246
what export factors affect the components of aggregate demand?
- stage of economic cycle overseas
- exchange rates
- international competitiveness
- tariffs overseas
247
what import factors affect the components of aggregate demand?
- exchange rates
- state of economic cycle here
- tariffs here
- international competitiveness
248
net investment = ??
capital accumulation minus depreciation
249
what factors affect the LRAS?
1.
2.
1. an increase in the quantity and quality of capital equipment
2. a more highly skilled work force
250
what factors affect the LRAS?
1. an increase in the quantity and quality of capital equipment
2. a more highly skilled work force
3.
4.
3. innovation and improvements in productive processes
4. factor mobility
251
what examples show innovation and improvements in productive processes?
better ways of producing goods and services, improved research and development,
improved production
252
what factors affect the LRAS?
1. an increase in the quantity and quality of capital equipment
2. a more highly skilled work force
3. innovation and improvements in productive processes
4. factor mobility
5.
6.
5. improved attitudes of entrepreneurship
6. encourage more people to join the labour supply
253
define disinflation
percentage increase of inflation was lower than in the previous year
254
what are changes in real GDP used to measure?
economic growth
255
what is factor mobility?
the extent to which factor inputs can easily switch between alternative uses with no loss of efficiency.
256
ceteris parabus,
the LRAS curve of an economy is likely to shift right if theres an increase in...?
factor mobility
257
when does spare capacity occur?
when a business is not making full use of its available capacity
