Revision Flashcards
1
Q
What does economics growth measure
A
the rate gross domestic product of a country changes over a year
2
Q
What is GDP
A
the value of all goods and services produced within a country in a year
-therefore it is a measure of a countries output
3
Q
How can GDP be measured
A
-total output of all businesses
-total of all spending by individuals and businesses
-total incomes received by a country, home and abroad
4
Q
what is the difference between real GDP and nominal GDP
A
real accounts for inflation whereas nominal does not
5
Q
What is GDP per capita
A
output per person
6
Q
What is economic growth
A
When the country is making more goods and services
7
Q
What is an economic boom
A
when a country is making a lot more goods and services
8
Q
What is an economic slump
A
when the economy is slowing down a lot
9
Q
What is an economic recession
A
when two consecutive periods of negative economic growth occurs
10
Q
Causes of economic growth
A
-good training of staff
-highly motivated workers
-improved technology
-strong supply of resources
11
Q
What are the 4 types of unemployment
A
-frictional
-structural
-cyclical
-seasonal
12
Q
What is frictional unemployment
A
Out of work due to personal short-term unemployment
13
Q
What is structural unemployment
A
your skills are no longer relevant
14
Q
What is cyclical unemployment
A
economic reasons
15
Q
What is seasonal unemployment
A
parts of the year when there is no work in your job
16
Q
Causes of unemployment
A
demand deficient
Supply side
17
Q
Demand deficient causes of unemployment
A
-high interest rates
-global recession
-negative multiplier effect
-financial crisis
18
Q
Supply side causes of unemployment
A
-frictional
-structural
-geographical immobility
-real wage unemployment
-technological change
19
Q
What is the claimant count
A
It measures people who are eligible to claim the job seekers allowance
20
Q
Who is eligible to claim the job seekers allowance
A
people who are:
-out of work
-available for work
-actively seeking employment
-aged 18-66
-excludes various people (those with savings)
21
Q
How much is job seekers allowance
A
£90.50 a week
22
Q
What are the benefits of using the claimant count
A
-up to date
-cheap to construct
-easy to understand / compare
23
Q
What are the problems with using the claimant count
A
-misses out people (those not entitled e.g. those with savings 16k+)
-some people refuse to claim benefits
-ignores under 18 and over 66
-not used in Europe
24
Q
What is the labour force survey
A
-counts people who are without any kind of job over 4 weeks and are able to start work immediately
25
What are benefits of using the labour force survey
-includes those who have found a job but are waiting to start
-aged 16-70
-considered more accurate
-used in Europe so is good for comparison
26
What is the definition of unemployment
when a person is out of work, but is available to work and is actively seeking a job
27
What is economically inactive
someone who is not looking for employment
E.g. unwell, elderly, young people
28
What is the balance of payments
A record of all the transactions the uk makes with the rest of the world
29
What are the 5 accounts in BOP
-current
-capital
-financial
-net errors and omissions
-reserves and related items
30
What is the current account
-net imports/exportd of goods and services
-net income (from overseas)
-net transfers (sums sent from migrants abroad)
31
what is the capital account
capital transfers (purchase and sale of fixed assets such as real estate)
32
What is the financial account
-foreign direct investment (build factories)
-net portfolio (investments in savings and bonds)
-other financial items (hot money)
33
What is net errors and omissions account
Missing data such as illegal transfers
34
What is reserves and related items account
changes in official monetary reserves including gold and foreign exchange reserves
35
What are imports
what we buy and bring into the country
36
What are exports
what we sell to other countries
37
What are visible transactions
Ones we can see
(E.g. a USA toy sold in the UK)
38
What are invisible transactions
ones we cannot see
(E.g. a German person eating in an English restaurant)
39
Why do countries want more exports and fewer imports
-gives a country more money
-more demand = more jobs
-more jobs = growing economy
40
How can we improve the current account
-reduce foreign consumption
-invest in productivity (training / technology)
-long term investments = schools, motorways
-put a tariff on imported goods
-encourage “buy British”
41
Why do people choose to invest into America
- has a stable market
-has a positive capital account
42
What is inflation
the general increase in prices
43
What does inflation cause
a fall in the real value of money
44
What is the current rate of inflation
2.5%
(Wants to be 2%)
45
Why do prices increase in general
Decrease in supply while demand remains the same
(Demand-pull)
46
What are some problems with inflation
-reduces purchasing power
-higher interest rates
-lower exports
-inefficient government spending
-mostly harms lower income households
-raises cost of living
47
What 2 things can cause inflation
-demand
-supply
48
How does demand cause inflation
-if there’s excess demand, prices will increase
-this can be caused by increases in income, trends, location/weather, media etc…
49
How does supply cause inflation
-if the costs for the producer increase then they’ll be passed onto the consumer
-this could be caused by employee wages, electricity bills, tax and insurance all increasing
50
What is demand pull inflation
When consumers have too much money, they spend too much as prices start to rise as they outbid eachother
51
What is cost push inflation
when suppliers see an increase in their own costs so they push them onto the consumers
52
What is consumer price index
-used in the uk
-excludes mortgage interest payments
53
What is retail price index
-includes mortgage interest payments
54
What is deflation
The general fall in prices
55
How do we measure UK inflation
-a basket of about 650 goods is collected to reflect spending
-a price survey is carried out
-weights are attached depending on importance
-updated each year
56
Example of goods in the inflation basket
-food and beverages
-tobacco
-clothing
-furniture
57
How do we calculate inflation
1 -> base year x price change = price index
2 -> price index x weighting = pw
3 -> add all “pw” together
4 -> divide by 100
5 -> minus the base year
6 -> add the percentage sign
58
What are some solutions to high inflation
-raise interest rates
-raise taxes
-improve efficiency and productivity
59
What are some good things about inflation
-inflate away debt
-people find alternatives
-wages increase
-people feel richer (property)
60
What are some bad things about inflation
-decrease in consumption
-increased inequality
-fewer exports
-less investment
61
What is the Phillips curve
the theory claims that with economic growth, comes more jobs and less unemployment. The problem is this leads to inflation
62
What is AS believed to be in the long run
inelastic as the economy will return to full employment (FOP)
63
What is economic sustainability
Growing the economy using natural resources but without diminishing resources for the future
64
What are benefits of a green economy
-provides clean energy
-less pollution
-creates jobs
-uses renewable energy
-decrease in government spending in the long term
-more reliable so greater consumer confidence
65
Why does reducing unemployment cause inflation
because more people will earn wages so will have more money to spend therefore increasing demand
66
Why does economic growth cause social inequality
because things will become more expensive due to demand pull inflation so those on a lower income wont be able to afford as much
67
Why has economic growth had a negative impact on the environment
because we’re producing more so will use more finite resources and cause greater pollution
68
Why does reducing unemployment have a negative effect on BOP
because if people earn more then they’ll spend it and will import more
69
What is building business parks
when the government spends money building an area of businesses and offering incentives to businesses to go there
(Tax breaks, schools, training grants, transport links…)
70
What are the injections into the circular flow of income
-government spending
-exports
-investment
71
What are the withdrawals from the circular flow of income
-taxes
-savings
-imports
72
What are the methods of measuring economic activity
-expenditure method = everytime money is spent it all adds up
-income method = money earnt
-output method = total output earnings
73
How can we measure how the economy is doing
-unemployment
-GDP
-inflation
-environment
-debt
-inequality
74
What makes up aggregate demand
AD = C 65% + I 15% + G 25% + (X-M) -5%
75
What is aggregate demand
the total demand for goods and service within a particular market
76
What is consumption
what we buy everyday
77
What affects what we buy
-disposable income
-wealth affect
-availability of credit
-rate of interest
-expectation
-composition of households
-unemployment
-determinants of saving
78
What is disposable income
how much money you earn that you can then freely spend
(Higher income = more consumption)
79
what is marginal propensity to consume
the amount of additional income that we spend
80
How do we calculate the marginal propensity to consume
Change in consumption / change in income
81
What is marginal propensity to save
amount of additional income that we save
82
How do we calculate marginal propensity to save
MPC + MPS = 1
83
What is the wealth affect
as your assets increase in value, you spend / consume more
84
What is the availability of credit
the more you can borrow, the more you’ll spend
85
What is the rate of interest
-higher interest = more you pay back = less you can spend
OR
-higher interest = more saving = less spending
86
What is expectations
what we expect to happen to influence our consumption
(E.g. how we wait to buy an item because we expect it to be cheaper on Black Friday)
87
What is composition of households
Who is living in the house can affect what you consume
88
What is unemployment (consumption)
more unemployment = less consumption
89
What are determinants of saving
if you save, you don’t spend
90
What is investment
the purchase of capital / the additon to the economy’s capital stock
91
What is gross investment
the total amount the the economy spends on new machines / capital
(E.g. if Tesco buys 2 new delivery trucks, gross investment = 2)
92
What is net investment
the increase in number of machines
(E.g. if tescos buys 2 new delivery trucks, but one replaces a broken one, net investment = 1)
93
What are the factors influencing planned business investment
-interest rates and availability of credit
-retained profit
-expected profits
-business taxes
-actual and expected demand for goods and services
-business confidence
-quality of the machine
-price of the machine
94
What is the accelerator effect
a positive relationship between planned capital investment and the rate of change of national income
-a rise in demand for consumer goods and services will cause a larger percentage change in demand for capital goods
95
what is the output gap
the difference between the actual level of GDP and its estimated potential level
96
What is a negative output gap
refers to a situation where an economy’s actual output or real GDP is below its potential output
97
What is a positive output gap
refers to a situation where an economy’s actual GDP is above its potential output
98
What is the trade balance
the difference between the value of exports and imports
99
Factors influencing exports of goods and services
-relative prices of exports in world markets
-non-price demand factors (e.g. design and branding)
-the exchange rate - SPICED
-strength of AD in key export markets
100
What is an exchange rate
rate at which currency can be exchanged for another
101
What is a free floating exchange
-currency value is set by market forces
-strength of currency supply and demand drives external value of a currency in a market
-no interventions by central bank
-currency can appreciate or depreciate
102
Advantages of free floating exchange
-monetary policy autonomy
-shock absorption
-reduced speculative adjustments
-currency reserves
103
Drawbacks of free floating exchange rate
-exchange rate volatility
-currency risk
-inflation pass-through
-loss of exchange rate as a policy tool
104
What is a fixed exchange rate
central bank fixes the currency value -> pegged to one or more currencies
-central bank must hold enough forging exchange reserves to intervene in currency markets when needed to maintain the fixed currency peg
-adjustable peg : occasional realignments mat be needed -> leading to devaluation or revaluation
105
Advantages of a fixed exchange rate
-price stability
-reduced exchange rate risk
-discipline on monetary policy
-foreign investment
106
Drawbacks of a fixed exchange rate
-lack of flexibility
-balance of payments issues
-speculative attacks
-dependence on reserves
107
What is managed floating exchange and how can it be done
When a central bank may intervene in a floating exchange rate to influence the value
-this can be done by:
-buying and selling currency
-use of interest rates
108
what is the positive multiplier
where an initial change in spending leads to a bigger increase in total output
109
What is the negative multiplier
where an initial decrease in an injection leads to a greater final decrease in the level of real GDP
110
How do you calculate the multiplier
(2 ways)
1-> 1/MPS (closed economy)
2-> 1/ MPS + MPM + MRT (open economy)
111
When will you get a higher multiplier
-economy has plenty of spare capacity to meet higher AD
-marginal propensity to import and tax is low
-high propensity to consume any extra income
112
When will you get a low multiplier
-economy is close to capacity limits during a boom phase of an economic cycle
-propensity to import goods and services is high -> extra demand leaks from circular flow
113
What causes a fall in AD
-fall in net exports
-cut in government spending
-higher interest rates
-decline in household wealth and confidence
114
What causes an increase in AD
-depreciation of the exchange rate
-cuts in direct and indirect taxes
-increase in house prices
-expansion of supply credit
-lower interest rates
115
What is short run aggregate supply
is the total output of goods and services that firms in an economy are willing and able to supply at a given price level
116
What is long run aggregate supply
a maximum output when all factors of production are fully and efficiently employed
117
Factors that cause a shift in aggregate supply
-unit wage costs increasing (higher minimum wage)
-labour productivity
-key raw material and component prices
-business indirect taxes, subsidies, VAT, employment tax, environmental tax
-cost of imported materials
-supply shocks
118
What is meant by short term supply
one factor of production is fixed
(E.g. labour = can work overtime at christmas)
119
What is meant by long run supply
both labour and capital are variable
120
What is meant by very long run supply
when all factors of production are variable including technology / regulation
121
What do supply side shocks affect
short run aggregate supply and can also affect a country’s long run productive
(E.g. steep rise in oil and gas prices OR health crisis
122
Factors shifting the long run aggregate supply curve
-higher productivity
-growing population
-increased labour market potential
-innovation and enterprise
-capital investment
-improvements in infrastructure
-stock of natural resources
123
What is the shape of the Keynesian aggregate supply curve
Horizontal supply line that changes to become vertical
124
Why does the elasticity of the Keynesian supply curve change
starts to drop as economy heads for productive capacity
125
What do the classics believe about aggregate supply
it will always return to full employment
126
What does Keynes believe about aggregate supply
thought that it would be unlikely to return to full employment
127
what is involved in fiscal policy
taxation and government spending
128
What are the governments objectives
-reduce unemployment
-sustainability
-reduce inequality
-control inflation
-BOP
-economic growth
-national debt
129
What must always happen in fiscal policy
one must go up and one must go down
(Tax and gov spending)
130
what is expansionary/lose fiscal policy
-government spending increases
-taxation decreases
131
What is contractionary/tight fiscal policy
-government spending decreases
-taxation increases
132
Which fiscal policy helps to control inflation
tight policy
133
What happens to the deficit in tight fiscal policy
will be reduced because the government will receive more tax revenue
134
What happens to unemployment in tight fiscal policy
will increases as there’s fewer job opportunities
(Less demand)
135
What happens to economic growth in tight fiscal policy
will decrease as there’s less spending
136
What happens to sustainability in tight fiscal policy
will increase as we’re not using as many resources
137
What will happen to BOP in tight fiscal policy
will increases as we’re importing less
138
What will happen to the inequality GAP in tight fiscal policy
decreases as prices are cheaper
139
What will happen to the number of people facing inequality in tight fiscal policy
increase as there’s more unemployment
140
What is a recession
two consecutive periods (1=3 months) of negative economic growth
141
What are some characteristics of a recession
-higher unemployment
-less imports
-lower aggregate demand
-lower demand pull inflation
-increased government spending
142
What are some negatives of a recession
-consumers receive a lower wage
-there’s lower demand
-firms make less profits
-lower real GDP
-higher unemployment
143
What are some positives of a recession
-improvements of BOP
-reduced inflation
-lower external costs
-less output by firms
144
What happens to the deficit in lose fiscal policy
Increases as there’s less tax revenue
145
What happens to unemployment in lose fiscal policy
decreases as there’s more jobs
146
What happens to sustainability in lose fiscal policy
Decreases as there’s more production and use of resources
147
what happens to the inquality GAP in lose fiscal policy
increases as inflation is higher
148
What happens to the number of people facing inequality in lose fiscal policy
decreases as there’s more employment
149
What happens to BOP in lose fiscal policy
decreases as we’re importing more
150
What happens to inflation in lose fiscal policy
Increases as there’s higher demand
151
What does monetary policy do
controls the money supply
152
What are the 4 factors of the monetary policy
-interest rates
-QE
-credit availability
-exchange rates
153
What is the monetary policy transmission mechanism
The ways in which changes in interest rates trigger aggregate demand, output and prices
154
What factors are considered by the BOE when setting interest rates
-interest rates and spare capacity
-bank lending and consumer credit figures
-equity markets (share prices) and house prices
-consumer confidence
-business confidence
-growth of wages, average earnings and unit labour costs
-unemployment figures
-trends in global foreign exchange markets
-international data
155
What is the nominal interest rate
money rate of interest
(The change in interest rates)
156
What is lose monetary policy
-government spending increases
-taxation decreases
157
What is the aim of lose monetary policy
Stimulate economic growth
158
What happens to interest rates in lose monetary policy
decrease
(Borrow more, save less)
159
What happens to credit availability in lose monetary policy
increases
(Borrow more, greater spending)
160
What happens to economic growth in lose monetary policy
increases as there’s more spending
161
What happens to inflation in lose monetary policy
Increases and there’s greater demand
162
What happens to sustainability in lose monetary policy
decreases as there’s more productive so greater use of resources
163
What happens to the inequality GAP in lose monetary policy
increases as inflation raises prices
164
What happens to the number of people facing inequality in lose monetary policy
decreases as there’s more job opportunities
165
What happens to debt in lose monetary policy
decreases as there’s more employment so therefore more tax revenue being collected along with fewer benefits being payed
166
what happens to BOP in lose monetary policy
decreases as there’s more imports
167
What happens to the exchange rate when the interest rate decreases
it will decrease also
BECAUSE :
-drop in demand for £ because “hot money” will flow out of the uk
-supply of £ increases and therefore £ depreciates
“SPICED”
