Quick Exam Flashcards
Short run economic growth? + draw diagram
Caused by an increase in AD
*draw diagram *
Long run economic growth + draw diagram
Caused by an increase in productivity
Causes of short run Economic growth
1) lower interest rates
- cheaper to borrow for consumers, cheaper for businesses to invest
2) lower income tax/ corporation tax
- more disposable income, more retained profit
3) high government spending
4) weaker exchange rate
What causes an LRAS shift to the right?
1) Quantity of FOP
2) Quality of FOP
3) Increase in productivity capacity
Causes of Long run economic growth
1) Increase in labour productivity
2) increase in workforce ( immigration)
3) infrastructure improvements
- transport = cheaper to transport goods
- easier to access goods
4) increase competition
The policy objective of sustainable development?
To reduce the negative impact on the environment and future generations
Sustainability?
It refer to meeting the needs of the present without compromising the future.
Limitation of unsustainable growth
1) Resource depletion and resource degradation
2) deforestation
3) over use + burning of fossil fuels
Causes of Unemployment?
1) structural
2) frictional
3) cyclical
Consequences of unemployment ( Economy)
1) lost output
- labour as a resource is lost
2) deterioration of govt finances
- high levels of govt spending on unemployment benefits
- lower tax revenues
3) Hysteresis
- skills outdated and lost
Cost of unemployment (individual)
1) loss of main source of income
2) loss of status
Benefits of unemployment
1) firms benefit from greater pool of workers
2) workers have time to search for best job
- not pressured into taking any job
Balance of payments
A record of economic transactions that take place between a country and the rest of the world
What does the current account measure?
Trade
Components of the current account
1) Trade in goods
2) trade in services
3) income
- measure of flows of income e.g. remittances
4) transfers
- payment of EU fees
- contribution of AID to developing countries
The policy objective of sustainable balance of payments
The uk aim for the current account is to be satisfactory, so there is not a large deficit. This is usually near to equilibrium
Fiscal policy?
The use of government spending and taxation to influence the economy economy
Expansionary fiscal policy?
Increase AD
Contractionary fiscal policy?
Decrease AD
Why might we use expansionary fiscal policy?
1) Boost growth
2) reduce unemployment
3) increase demand pull inflation
Why might we use contractionary fiscal policy?
1) reduce inflation
2) reduce budget deficit and national debt
3) redistribution of income
- higher tax on rich
4) reduce current account deficit
- less disposable income = less imports
Types of government spending
1) current spending
- day to day spending
- payment of public sector wages
2) capital spending
- infrastructure spending
3) welfare spending
- benefits and pensions
4) debt interest payment
Effect of an increase in interest rates on individual
- increased cost of borrowing
- higher mortgage payments
- improved return for savers
- increased cost of bank loans
Effect of increase in interest rates on economy
1) currency will appreciate
- exports less competition; imports cheaper
2) inflation
- will be lower
3) economic growth
- tend to be slower
4) unemployment could rise
Supply side policies
Designed to increase productive capacity of the economy
2 types of SSP
1) interventionist SSP
2) Market based SSP
Aim of interventionist SSP
Try to provide bigger role of government to boost LRAS
Aim of market based SSP
Reduce the role of the government
Interventionist SSP policies
1) govt spending on education
2) govt spending on infrastructure
3) subsidies to promote investmernt
- buying capital
- New r + d
3 groups of market based SSP
1) tax reform
2) labour market reform
3) competition policy
Policies of tax reform
1) lower income tax
- incentive those outside the labour force to join
- incentivise those to work harder
2) lower corporation tax
- firm retain more profit which they can invest
Policies in labour market reform
1) reduce benefit and welfare payments
- strong incentive to work
2) reduce minimum wage
- reduce cost of production
Policies in Competition policy
1) privatisation
2) deregulation
3) trade liberation
Cons of SSP
1) no guarantee of success
2) cost
- some of these policies are very costly
3) time lags
- many years before completion( infrastructure)
