Stuff Flashcards
Cyclical unemployment
The impact of economic recession or expansion on employment level
Frictional unemployment
Voluntary employment transitions within an economy
Real wage unemployment
When wages are set above the equilibrium causing supply of labour to be greater than demand
Natural unemployment
The minimum unemployment rate resulting from real or voluntary economic forces
Productivity
The output produced per factor input in a period of time
Production
Converting factors of production into outputs (something to sell)
What can a reduction on productivity cause
Output per worker decreases
Increased average costs so may increase prices of goods to maintain same level of profit
3 advantages of higher productivity
- decrease in price of goods as there is a decrease in AC which may also lead to increased employment
-higher profits to be re-invested back into the business for long term growth
-higher wages for workers
3 ways in which productivity can be increased
-specialisation
-lnvestment to increase human capital
-subsidise firms to upgrade their technology or engage in r&d
Define living standards
The qty and quality of material goods and services available to a given population
How are living standards normally measured
They are normally measured with Gdp
5 reasons why an increase in gdp may not cause a rise in living standards
-increase in production from firms reinvestment -> increase in pollution
What is a better measure of living standards
Purchasing power parity
Adjusts GDP to account for the cost of living.
4 reasons for inflation
-indirect taxes -> cost passed onto consumer
-fall in exchange rate -> increased costs of production -> cost passed onto consumer
-decreasing interest rates -> less incentive to save -> increase in AD -> Demand pull inflation
3 reasons why inflation above 2% is regarded as bad
Idk
Give 5 reasons for unemployment
-occupational immobility
-geographical immobility
-cyclical unemployment
-frictional unemployment
-real wage unemployment
3 reasons why unemployment is regarded as bad
-high levels of unemployment -> decrease in consumption -> decrease in GDP
-burden on government with unemployment benefits
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What Graph would be used to show the relationship between inflation and unemployment
Keynsian LRAS
Reasons to raise taxes
-redistribute income to benefit LIH
-increase spending on public sector e.g. NHS, public transport
-to regulate behaviour e.g. sugar tax to stop spending on sugary foods and drinks to reduce obesity
What is a direct tax
A tax that is directly paid to an individual or entity e.g. income tax
What is an indirect tax
Purchasing power parity
How many units of one countries currency are needed to buy the same basket of goods and services as can be bought with a given amount of another currency
E.g. Norway (high cost of living) there is a downward adjustment to a nations purchasing power parity
Real GDP
The value of national output adjusted for inflation and measured at constant prices
Gross Domestic product
The total value of goods and services produced within a country
Gross national product/Gross national income
The total value produced by factors of production owned by a country, no matter the location
GDP + income from overseas assets
E.g. overseas property investment
How is standard of living measured and how is it improved upon
Measured with real GDP per capita
Improves when a country sustains a rise in real income per capita
Benefits:
Inc human capital
More people in properly paid work
Living wage can help to lift labour productivity
Accessible and high quality public services
Marginal propensity to consume
The proportion of an increase in income that gets spent on consumption
Customs union
Free trade areas where there are also standard tariffs imposed on non-members
Yield
The annual return an investor will get from the bond
The less someone pays for a bond, the higher its yield
Yield = (coupon / market price) x 100
Interest in bonds
The amount that is paid to the bondholder per annum
The amount paid is the coupon
Bank rate
The interest rate a nations central bank charges to its domestic banks to borrow money in order to stabilize the economy
Financial market
a market where financial assets or securities are traded
E.g. bonds, real estate, stock market
Financial institution
a company engaged in the business of dealing with financial and monetary transactions such as deposits, loans, investments, and currency exchange
Personal loans
Loans to individuals to be paid back over a small number of years
Secure - bank can force sale of asset if the loans cost isn’t repaid
Unsecured- much riskier loan therefore higher rate of interest
Equity finance
Raised by selling shares in a company
Person providing finance becomes a shareholder and claims some ownership. Entitles to a share of the firms profits in the form of dividends
Debt finance
Borrowing money that has to be paid back (usually with interest)
Can be borrowed from financial institutions e.g. banks
Money markets
Provide short-term finance to e.g. banks, individuals etc.
Short term debt will have a maturity upto 1 year (can be as little as 24 hours)
Capital markets
Provide firms, governments with medium- longterm finance
Can raise capital by issuing bonds or shares, borrowing from banks
Primary market
For new share and bond issues
Secondary market
Where existing securities are traded(e.g. stock exchange). This increases their liquidity (selling them makes it easier to ‘convert them to spendable cash’)
Foreign exchange markets
Where different currencies are bought and sold
Usually done to allow international trade and investment
Split into 2 markets -
Spot market - transactions happening now
Forward market - transactions that will happen at an agreed time in the future
Main roles of commercial banks
Accept savings
To be financial intermediaries (move funds from lenders to borrowers)
To lend to individuals and firms
To allows payments from one person or firm to another
Split into 2 types:
Retail banking - providing services for individuals and smaller firms (e.g. savings accounts, mortgages)
Wholesale banking - dealing with large firms banking needs
Help firms grow by providing loans and financial advice, and facilitiating overseas trade
Main roles of investment banks
Don’t take deposits from customers
-arrange share and bond issues
-offer advice on raising finance, and on mergers and aqusititions
-buy and sell securities (bonds, shares)
Investment banks also engage in higher risk, but potentially very profitable activities
Name different financial institutions
Pension funds - collect peoples pension savings and invests them into securities. When the client returns, it pays out their savings and the returns generated. They also provide longterm, large scale investment in companies
Insurance firms - charge customers fees to provide insurance cover against all kinds of risk. It is important to the economy e.g. business can ensure against the risk of customers not paying (encouraging trade)
Hedge funds - firms that invest pooled funds
Market bubble
High estimates of future asset prices can lead to market bubbles
Investors expecting price of asset to continue to rise -> investors overpay -> market bubble (prices in the market are much greater than the assets true worth)
Investors lose confidence -> bubble will burst as investors will rush to sell their assets to avoid large losses -> leads to price plummeting ->leaving investors with large debts
