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Economics > Revision > Flashcards

Revision Flashcards

1
Q

Definition of economic growth

A

An increase in actual or potential output of an economy

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2
Q

Measure of economic growth

A

Real GDP and real GDP per capita - per person

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3
Q

Causes of economic growth

A 
– Increase Government spending for education
– Increase Immigration
– Increase Labour productivity
– Decrease i/r
– Decrease Exchange Rate
– Decrease income tax
– Decrease Price of raw material
– Decrease wages
– Decrease VAT
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4
Q

Positive output gap

A

Actual output is bigger than potential output

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5
Q

Negative output gap

A

The actual output is smaller than the trend output

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6
Q

Causes of the economic cycle

A

1, Speculative bubbles

  1. Changes in inventory - stocks of finished products
  2. Political cycle
  3. Outside shocks - unexpected
  4. Multiplier / accelerator interaction
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7
Q

Speculative bubbles

A

When people realise the value of their assets is above their true value they sell them

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8
Q

Changes in inventory - stocks of finished products

A

Firms hold stocks of raw materials and finished goods in order to smooth production with changes in demand

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9
Q

Political cycle

A

Once elected, they may try to deflate AD to avoid inflation and the economy over-heating

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10
Q

Outside shocks

A

Unexpected, significant - Natural disaster affecting crops, change in price of oil

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11
Q

Multiplier / Accelerator interaction

A

A change in one of the components of AD leads to a greater overall change in national income

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12
Q

Benefits of economic growth

A
  1. Increase output -> Decrease unemployment -> Increase Yd -> people can buy more -> Increase living standards
  2. Increase output -> Decrease unemployment -> Decrease Government spending on unemployment benefits -> Increase Tax revenue -> Government Budget improves
  3. Increase International status and power in organisations
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13
Q

Costs of economic growth

A
  1. Increase inflation -> decrease Living standards
  2. Environmental damage
  3. Could lead to unemployment if growth is caused by an increase in use of technologies
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14
Q

Unemployment definition

A

Everyone who is willing and able to work but cannot find a job

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15
Q

Measures of unemployment

A
  1. Labour force survey (LFS)

2. Claimant count

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16
Q

Types of unemployment

A
  1. Structural unemployment - inexperienced
  2. Cyclical unemployment - unemployed consumption can’t pay wages
  3. Seasonal - Ski
  4. Frictional unemployment
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17
Q

Costs of unemployment

A
  1. Decrease Standart of living
  2. Stress/mental health
  3. Decrease hygiene increase Fast Food
  4. Difficulties saving for pension
  5. Lower AD could lead to recession
  6. Loss of tax revenue
  7. Increase in crime
18
Q

Benefits of unemployment

A
  1. Less pressure on wage claims

2. Increased selection - Bigger pool of labour

19
Q

Definition of inflation

A

Inflation is a sustained rise in the general price level

20
Q

Definition of disinflation

A

Disinflation is inflation with a lower rate

21
Q

UK inflation target

A

2% ± 1%

22
Q

Measures of unemployment

A

The Consumer Price Index (CPI). 700 Items are measured in price and weighted differently dependent on how important they are. Every month the CPI is checked.

23
Q

Quantity theory of money / Fisher equation

A

MV = PQ

V and Q are assumed to be constant. This means money supply has a direct impact on Price level.

24
Q

Definition of deflation

A

Deflation is a persistent fall in the general price level

25
Q

Types of deflation

A
  1. Malevolent deflation (Bad)

2. Benign deflation (Good)

26
Q

Malevolent deflation

A
  1. Falling prices resulting from a significant downturn in economic activity
    – This causes a collapse of AD, resulting in a fall in output and a rise in unemployment
27
Q

Benign deflation

A

– Falling prices from technological advances and improved productivity
– This improves the economy’s supply-side, causing the SRAS and LRAS to increase
– The price level falls but the output and employment rise

28
Q

Costs of inflation

A

– Erodes the value of money -> consumers can now afford to buy fewer goods and services -> Standart of living decreases
– There is a loss of international competitiveness -> decrease in exports -> decrease in AD and economic growth -> increase unemployment

29
Q

Benefits of inflation

A

– Low and stable demand-pull inflation -> may encourage firms to increase their output as there is demand for their products -> increase overall capacity of the economy
– Workers like increasing in their pay -> even if it is matted by inflation so that their real wages remains unchanged
– Inflation allows firms to reduce real wages -> this can help the efficiency of the labour market

30
Q

Costs of deflation

A

– Consumer may postpone purchases which could decrease AD and because of the negative multiplier effect, this could lead to a recession
–Deflation is often associated with a weak economy
– Deflation increases the real value of savings
– Negative impact on debtors like houseowners

31
Q

Benefits of deflation

A

– Increase in Standart of living
– Increase in international competitiveness
– Increase potential economic growth

32
Q

Balance of payment definition

A

A record of the financial flows between a country and the rest of the world

33
Q

3 accounts BoP

A
  1. Current account
  2. Capital account
  3. Financial account
34
Q

Definition of current account surplus

A

Trade in goods + Trade in services + Primary income + Secondary income > 0

35
Q

Definition of current account surplus

A

Trade in goods + Trade in services + Primary income + Secondary income < 0

36
Q

Factors affecting the current account

A
  1. Productivity
  2. Relative inflation rate
  3. Exchange rate
  4. Economic conditions in other countries
37
Q

Examples of policy objectives conflicts

A
  1. Economic growth –– Current account worsens (Bad for BoP)
  2. Economic growth ––increase inequality
  3. Economic growth –– Demand-pull inflation
  4. Economic growth –– Can cause an increase in structural unemployment
38
Q

Definition Monetary Policy

A

The use of interest rates, the money supply and the exchange rate to try to achieve the government’s objectives.

39
Q

Aim of Monetary policy

A

Monetary Policy is a demand-side policy as it aims to influence AD

40
Q

Inflation target

A

The government states that inflation target 2%+- 1% and the BoE has to achieve it

Economics (8 decks)

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