Slatman Theme 2 Flashcards
Define economic growth
Economic growth measures how the rate of GDP of a country changes over a year
GDP Definition
The value of all goods and services produced within a country in a year
What are the three ways of measuring GDP?
Total output
Total of all spending
Total income is received by country home and abroad - GNI
What is GNP?
Also includes earnings overseas
What is real GDP?
GDP without inflation
What is trend growth
The estimated rate of growth of a nations, productive potential
Define unemployment
People who could be working, but aren’t working
What are the different types of unemployment and define them
Frictional - out of work due to personal short-term unemployment
Structural - your skills are no longer relevant (e.g mining in the UK)
Cyclical - economic reasons
Seasonal - parts of the year when there is no work in your job (e.g a b and b owner by the seaside)
What are the consequences for unemployment
- Lower output for the economy so less economic growth
- Big impact on local businesses as they are spending less (less consumption)
- Less tax revenue for the government, so less government investment on things like public services
- Opportunity cost (too much spent on benefits)
What are the demand deficient causes of unemployment
High interest rates
Global recession
Negative multiplier effect
Financial crisis
What are the supply-side causes of unemployment?
Frictional
Structural
Geographical immobility
Technological change
What is the claimant count?
The measure includes people who are eligible to claim the job seekers allowance
What is the criteria for the claimant count?
Out of work
Available for work
Actively seeking employment
Aged 18 to 66
Exclude various people e.g if you have lots of savings
Define economically inactive
Of working age, but not looking for employment and not employed
Positives and negatives of the claimant count
+ very cheap to obtain
+ Easy to collect
+ An accurate measure of those claiming unemployment related benefits
- generally underestimates the amount of unemployed people
What is the labour force survey (LFS)
A survey of 80,000 people across society. It counts of those without the job in the last four weeks and can start within the next two weeks.
What is the criteria for the LFS?
Aged 16 to 70
Without a job in the last four weeks and can start within the next two weeks
Positives and negatives of the LFS
+ it is internationally comparable
+ measures a wider criteria (age and job)
+ it also measures students and retirees
- Can be out of date
- More expensive to create
Definition of inflation
General increases in price - this leads to a fall in the real value of money
Demand issues that can drive up prices
wage increase
Amount of advertising
Weather /time of year
Trends and popularity
Confidence
Supply issues that can drive up prices
Minimum wage rise
Factors of production costs, increasing
What is the consumer price index (CPI)
Excludes, mortgage interest payments
What is the retail price index?
Include mortgage interest payments
What is demand pull inflation?
Consumers have too much money, spend too much and prices start to rise as we outbid each other
What is cost push inflation?
Supplies see an increase in their own costs, so they push them onto the consumer
How do they measure UK inflation
A basket of approximately 650 goods is collected to reflect spending
A price survey is carried out across the UK to get an adjusted UK price for each good
Weights are attached to each good depending on importance
Multiply the weight by the price index for each good and add them all up. Then do new index minus base index to get inflation.
Suggest ways to reduce inflation
High interest rates
Freeze minimum wage
Increase tax
Freeze energy bills
Freeze pay rises
What is the balance of payments?
The balance of payments measures all international economic transactions between the UK and its trading partners
Characteristics of the current account
Net exports/imports, goods and services
Net income (investment income from overseas plus employee wages)
Net transfers (sums sent voluntarily home by migrant abroad)
What is the current account?
Measures all imports and exports
What is the capital account?
Sale of assets
Characteristics of the capital account
Capital transfers (purchase and sale of fixed assets, such as real estate)
Characteristics of the financial account
Foreign direct investment (build factories)
Net portfolio investment (investments in savings and bonds)
Other financial items (hot money)
What supply side policies stimulate production among the nations firms
The labour policy - reducing the costs faced by firms
Capital policy - improving the productivity of human and physical capital
What interventionist supply-side policies are used by the government?
Spending on health care
Building business parks
Increased education and training
Improving transport and infrastructure
Investing in social (council) housing
What market supply-side policies are used by the government?
Reducing corporation tax
privatisation of state industry
Reducing state welfare benefits
Deregulation
Reducing the power of trade Unions
Cutting the red tape
What are the negatives of business parks?
Takes years to build
Causes congestion (negative externality)
Opportunity cost
What is a trade union?
And organised Association of workers in a profession. It seeks to protect workers, paying workers rights.
What can the government do to reduce the power of trade Unions?
Introducing minimum service level so the impact of strikes is less
This would increase the aggregate supply
How much does the UK spend on state benefits per year?
£231bn
What is privatisation?
The opening up of a state monopoly. This market has now opened to competition. For example, the Royal mail used to be the only Postal Service but now there are lots of options. Making it go from government owned business to privately owned
Advantages of privatisation
Increased competition so there is a strive for better quality
More efficiency
Greater consumer choices
Disadvantages of privatisation
Creates a private monopoly
Duplication of services (buses)
Private firms cut costs
What are interventionist supply side policies
Involves government intervention to boost the economy e.g investment
What are market based supply side policies
Policies that encourage competition, market reform, and create incentives so that the market works more efficiently e.g. privatisation
What is the deregulation of labour markets
This is where the government reduce the amount of employee rights. This makes it easier for firms to hire and fire workers.
What is a zero hour contract
They are on call to work whenever you need them. You don’t have to give them work
Benefits of zero hour contracts
Flexible
Costs low
Issues with zero hour contracts
Takes people away from full time hours
What does removing the red tape mean
Removing some regulations there are too many
Benefits of removing the red tape
Trade is more efficient and quicker as less hold ups so less time and money wasted
Benefits of inequality
Creates incentives to get better paid
Encourages investment - incentive to reach greater profits so they invest
Issues with inequality
- Underconsumption of merit goods, overconsumption of demerit goods ( because they are cheaper)
- decreased quality of life
- increased crime
Ways of reducing inequality
Progressive tax system
Paying benefits
Greater investment in areas such as education and healthcare
Benefits of a progressive tax system
Means lower income can contribute more to the economy
Reduces inequality
Negatives of progressive tax system
- Less disposable income for higher income people so reduces incentive to be successful
- discourages risk taking to earn more
What is trickle down economics
Reduce the tax rates for the richest
Money that the rich spend on goods and services will trickle down to poorer households
Why does trickle down economics work
Rich will reinvest into their businesses which creates more jobs for poorer households. Money goes into the circular flow of income
Problems with trickle down economics
May save instead of spend
Spend on other rich people so doesn’t make it to the poor
Advantages of minimum wage
Increased consumption for economy
Decreased inequality
More money in the circular flow
Disadvantages of the minimum wage increase
Some businesses can’t afford it so they get dissolved
Inflation ( passed into consumer)
Redcues company profits so less investment
What is the happiness indicator
The economics of happiness relates economic decisions to a wider measure of welfare. It looks beyond income and wealth
Components of the happiness indicator
Personal safety
Leisure
What is the human development index
A broader measure of society that looks at income, health and education
Advantages of using HDI
Helps the government form policies
Looks at wider elements of society
Disdvantages of using HDI
Not necessarily reliable
Does not measure inequality
What are some other possible indicators of the quality of life in a country
Access to mobile phones
Access to clean running water
What is purchasing power parity
Purchasing power parity (PPP) is an economic theory of exchange rate determination.
Purchasing power parity is a measure of the price of specific goods in different countries and is used to compare the absolute purchasing power of the countries’ currencies
What is deregulation and one positive and one negative
Deregulation is the reduction or elimination of government power in an industry. Removing regulations allows businesses to operate more freely and can stimulate the economy. Critics suggest that deregulation can lead to monopolies and hurt consumers.
