RST BOOK Flashcards
What are the Economic policies/ indicators?
- Economic growth
- inflation
- unemployment
- interest rates
- exchange rates
- balance of payments
- debt
Give examples of injections that come into the economy?
- exports
- investment
- government
Examples of withdrawals from an economy?
Imports
Taxes
Save
What is true if injections are bigger than withdrawals?
Economic growth and vice versa
3 ways that we measure the amount of economic activity going on?
- Output method - measure the value of output produced by firms
- Expenditure Method - Measure the total expenditure of consumers
- National Income - Measure of the total income for all firms
What does the circular flow show us?
Money is flowing around and the amount changes due to injections and withdrawals
What are the three government policies?
Monetary
Fiscal
Supply side
Define a policy
A strategy used to achieve certain objectives
What is the fiscal policy?
Government spending & taxation
What is monetary policy?
Influence the money supply - government uses interest rates to influence the supply of money
- credit availability (how much you can borrow)
- Quantitative easing
Why do we measure the economy?
Forecasts Record total output Comparisons Plan Identify problems
Why are our figures sometimes inaccurate?
- unrecorded transactions
- black market
- difficult to put a value on some good / services
- accuracies Of reported figures
What is Aggregate Demand?
Total spending on goods & services
What is the Aggregate Demand formula?
AD = C + I + G + (X-M)
What does C stand for?
Consumer expenditure on goods and services Includes durables (can use over and over again) and non-durables eg food and drink
What is Income?
Is wha you get paid
What is Disposable Income?
Is income in your bank after tax
What is discretionary income?
Is money you spend at your own choice (excluding rent,car insurance etc)
What are the Keynes factors that affect consumption?
- income
- distribution of Income
- wealth affect
- change in expectations
- demographic factors
- level of unemployment
Keynes factors that affect consumption - income
As income rises or falls, consumptions and spending also rises and falls
Keynes factors that affect consumption - Distribution of income
Inequality of income
Keynes factors that affect consumption - wealth affect
Is the Change in spending that accompanies a change in perceived wealth
Keynes factors that affect consumption - changes in expectations
Individuals may rush to purchase goods in excess of current needs if they expect a war or fear a shortage
Keynes factors that affect consumption - demographic factors
Large families spend more than small families and demographic changes like age sex occur over a long period.
Keynes factors that affect consumption - level of unemployment
The more people there are receiving a steady income, the more people there are to make discretionary spending choices
What is the Marginal Propensity to Consume?
How much additional income people are willing to consume
What is the Marginal Propensity to Consume equation?
MPC = change is consumed / change in income
What is the change in consumption called?
Average propensity to consume
What is capital investment?
Firms buying machines to produce finished goods
How much of GDP does investment count for?
15-20%
What is depreciation?
Drop in value of a product that is old and used
What factors affect investment levels?
- interest rates (cost of borrowing)
- Economic Growth (changes in demand)
- confidence / expectations
- technological developments (productivity of capital)
- availability of finance from banks
What is the accelerator theory?
States that investment is related to the rate of change of GDP
Example of accelerator theory
- Increase in consumer demand
- Firms get close to full capacity
- firms invest to meet rising demand
What is the negative accelerator?
We’re a decline in growth leads to a decline in companies investment
What is the affect on companies if there is lower corporation tax?
Companies have a larger incentive to invest
What factors affect investment?
Retaining profit affect investment
Government policy affects investment
Government spending & taxation affects investment
Rate of inflation
RISK - Higher risk lower level of investment
Where does the government get it’s money from?
Business rates £30 bn
National Insurance £334 billion
How much is government spending to GDP?
Government spending is 50% of GDP
What are the three types of Government payments?
- Welfare spending (transfer payments)
- public services (recurring spending
- state investment (investment projects)
What is the current government spending on public services?
- Salaries of NHS employees
- Drugs used in healthcare
- Road maintenance project
Government spending on Capital? (New public infrastructure)
- construction of new motorways and bridges
- new equipment in the NHS
- Flood defence schemes
What is the size of the multiplier If an investment of £10 million grows the economy to £100million?
10x
How can government spending affect incomes?
- Welfare State Transfer (benefits)
- Universal Child Benefits / Unemployment benefits
- Public State Pension
- Conditional Welfare Transfers
What are some state provided services?
- education - reduces in equality of market incomes
- Health Care
- social housing
- employment training
What are the UK’s major trade partners)
- Germany
- US
- China
What are the UK’s main imports?
- Machinery ($82.5 billion)
- Vehicles ($72.8 billion)
- Mineral Fuels ($51.8 billion)
What are imports?
Are products that are brought into a country from another
What is the Balance of Payments?
Records all financial transactions made between consumer, businesses and the government on one country with others.
