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Economics > Theme 2 > Flashcards

Theme 2 Flashcards

1
Q

GDP

A

The total output produced by an economy

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2
Q

Circular Flow of income

A

Money moving from firms to households in an endless circular cycle

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3
Q

3 ways to measure GDP

A

Expenditure method (all consumer expenditure), Income Method (all total income for firms), Output Method (value of output produced). All should be equal

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4
Q

Injections to the Circular Flow of income

A

Exports, government spending, investment

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5
Q

Withdrawals from the circular flow of income

A

Imports, savings, taxes

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6
Q

Relationship with the circular flow of income and the multiplier

A

The large the multiplier, the larger the size of the circular flow of income

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7
Q

The multiplier

A

Am initial injection into the economy leading to even bigger increase in national income/ effect on national income and product of an exogenous increase in demand

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8
Q

Multiplier calculation

A

1 divided by MPW, or 1 divided by 1-MPC or 1 divided by MPS

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9
Q

Negative multiplier

A

A reduction in injection leads to an even bigger fall in national income

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10
Q

Ways the multiplier can be increased

A

Increased investment, increased income, decreased price of goods, increased quality

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11
Q

Definite Inflation

A

A general rise in price level

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12
Q

Define Economic Growth

A

Rate the GDP of a country changes over a year

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13
Q

Define Unemployment

A

Total number of people without work as a percentage of the working population

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14
Q

Define Sustainability

A

Fulfilling the needs of current generations without compromising the needs of future generations

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15
Q

Difference between debt and deficit

A

Debt - total amount of government borrowing, deficit - annual difference between government spending against money gaines

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16
Q

Balance of payments

A

A measure of imports and exports

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17
Q

Inequality

A

Number of people below the required level of income

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18
Q

Phillips Curve

A

Graph comparing the levels of inflation to unemployment levels

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19
Q

How do growth and sustainability conflict

A

Increased growth leads to increased production so more C02 pollution

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20
Q

2 measure of inflation

A

Consumer price index, retail price index

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21
Q

Current rates of inflation and debt

A

Inflation- 11.1% Debt - 99.6%

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22
Q

Consumption

A

Our spending in goods and services

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23
Q

How do you calculate Aggregate Demand?

A

Consumption + Investment(in machinery) + Government spending + (Exports- imports)

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24
Q

4 factors that influence consumption

A

Disposable income, Wealth, inflation and rate of interest

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25
Q

What % of AD is consumption

A

65%

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26
Q

Disposable income

A

Income you have after paying taxes

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27
Q

Investment

A

Spending in capital goods

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28
Q

Accelerator Theory

A

Where an investment increases when either demand or income increases (at a faster rate)

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29
Q

3 factors that influence investment

A

Rate of interest, retained profit, accelerator theory

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30
Q

2 taxes that influence consumption the most

A

VAT, indirect taxes

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31
Q

How does the government promote investment

A

Monetary policy changes interest rates

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32
Q

Discretionary income

A

Income after bills

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33
Q

Imports

A

Goods that are bought in from another country

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34
Q

Exports

A

Goods/services that are sold out to another country

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35
Q

Place to measure the value of international trade

A

Balance of payments

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36
Q

3 sections of account measuring international trade

A

Trade balance, net primary income, net secondary income

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37
Q

How does the government raise finance

A

Taxes

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38
Q

How does the government fund borrowing

A

Selling bonds

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39
Q

3 main areas of government spending

A

Healthcare, social security, education

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40
Q

Where does the government announce its spending plans?

A

The Budget

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41
Q

3 benefits the government provides

A

Pensions, childcare benefits, Jobseeker’s Allowance

42
Q

5 taxes

A

Income, property, council, corporate and VAT

43
Q

Privatisation

A

Selling a state industry to the private sector

44
Q

Aggregate Demand

A

The total demand for goods produced domestically, including consumer goods, services and capital goods

45
Q

Aggregate Supply

A

Total amount of goods produced in an economy

46
Q

Difference between short run AS and long run AS

A

In the short run, you assume labour is variable. In the long run, assume always return to full employment and all factors of production are fully utilised ( labour and capital are fixed)

47
Q

Difference between Keyes and classical long run AS

A

Keynes graph assumes that there are factors that prevent always returning to full emplyment

48
Q

2 policies that impact AD

A

Fiscal and Monetary Policy

49
Q

Exchange Rate Policy

A

Decrease interest rates, weakens value of currency, cheaper exports

50
Q

Interest Rates

A

Cost of borrowing, reward for saving

51
Q

Fiscal Policy

A

Governments decisions on its spending and taxation to change AD

52
Q

2 main tools of Fiscal Policy

A

Taxation, Government spending

53
Q

Loose Fiscal Policy

A

Decreased Taxation and Increased Government spending to increase GDP

54
Q

Tight Fiscal Policy

A

Increased taxation and reduced government spending to reduce inflation

55
Q

How would you reduce inflation using Fiscal Policy

A

Loos fiscal policy

56
Q

Negatives of reducing inflation using Fiscal Policy

A

Negative growth, consumption falls

57
Q

Which economist promotes FP

A

Karl Marx

58
Q

Output gap definition

A

The difference between potential GDP and actual GDP

59
Q

Monetary Policy

A

A way to influence the money supply following round the circular flow of income

60
Q

4 tools of monetary policy

A

Reserve requirement, discount rate, interest on reserves, open market operations

61
Q

Quantitive Easing

A

Government buying back its own bonds

62
Q

Yield on bonds

A

A figure that shows the return you get on a bond

63
Q

Rising interest rates impact on BoP

A

Less demand, so a reduction in imports. Improved exchange rates so exports get more expensive and imports get cheaper

64
Q

Relationship between interest rates and credit available

A

Increase in interest rates, decreased supply of credit ( and vice-versa )

65
Q

Hot Money

A

Flow of funds from one country to another to earn short term profit on interest rates differences

66
Q

Liquidity trap

A

When interest rates are very lower, a further decrease will have minimal or no effects on AD

67
Q

1 trade off from increasing interest rates

A

Increase in unemployment

68
Q

Who sets the rate of interest?

A

Bank of England Monetary Policy Committee (MPC)

69
Q

Current Rate of Interest

A

4.5%

70
Q

Supply side Policy

A

Measure government takes to increase the availability of goods and services

71
Q

3 main areas supply side policy tries to improve

A

Lower inflation, lower unemployment, improved economic growth

72
Q

3 measure to increase productivity

A

Specialisation, training, increased wages

73
Q

3 measure to increase the size of the workforce

A

Advertisement, increase wage offers, reduce benefits

74
Q

3 measure to improve product markets

A

Innovation, skilled workforce, customer loyalty

75
Q

Geographic Immobility

A

How difficult it is for a worker to move between different countries and regions to seek new work

76
Q

Occupational immobility

A

How difficult it is for a worker to move from one occupation to another

77
Q

Corporation tax

A

A percentage of a firms profit which must be paid to the government

78
Q

2 drawbacks of supply-side policy

A

Time-lag, expensive

79
Q

Current rate of VAT

A

20%

80
Q

What does the MPC do?

A

Decides what monetary policy action to take

81
Q

Relationship between price and yield of a bond

A

Price increases, yield decreases (and vice-versa)

82
Q

How do you calculate the multiplier

A

1/1-MPC or 1/MPS

83
Q

Negative Equity

A

When a house/belonging is worth less than the mortgage you took out on it

84
Q

How does a rise in house price effect AD?

A

Wealth affect, increase consumer confidence so AD would increase

85
Q

Automatic Stabilisers?

A

Automatic fiscal changes as the economy moves through the stages of the business cycle I.e fall in tax during a recession

86
Q

How would you reduce debt using Fiscal Policy?

A

Cut government spending, increase taxes

87
Q

How does hot money help reduce inflation?

A

Higher exchange rates, making imports cheaper so more supply

88
Q

Measure to help improve the BoP

A

Higher interest rates( so higher exchange rates ), higher taxes

89
Q

3 limitations of QE

A

Lower value of the pound, causes inflation, hurts savers

90
Q

What is deflation?

A

Reduction of the general level of prices in an economy

91
Q

How can a government avoid deflation?

A

Lower interest rates, lower taxes, higher government spending

92
Q

How can the government reduce inequality?

A

Increase spending on benefits, minimum wage

93
Q

What policies can increase economic growth?

A

Increase spending on benefits, minimum wage

94
Q

Policies to increase economic growth

A

Fiscal, monetary and supply-side

95
Q

Economic concerns of deflation

A

Can contribute to lower economic growth

96
Q

2 main causes of the financial crisis 2008

A

Falling house prices, borrowers unable to repay loans, banks went into crisis

97
Q

3 policies used by the government during the financial crisis

A

Tax cuts, increase in unemployment insurance, food-stamp benefits

98
Q

ILO survey

A

Counts those not in work for 4 weeks, age 16-70, considers those underemployed

99
Q

Types of unemployment

A

Frictional (personal short term unemployment), Structural (skills no longer needed), Cyclical (economic reasons), seasonal (no work for parts of year)

100
Q

Consumer price Index

A

Basket of goods in a big scale to measure inflation

Economics (7 decks)

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