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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
What % of AD is consumption
65%
26
Disposable income
Income you have after paying taxes
27
Investment
Spending in capital goods
28
Accelerator Theory
Where an investment increases when either demand or income increases (at a faster rate)
29
3 factors that influence investment
Rate of interest, retained profit, accelerator theory
30
2 taxes that influence consumption the most
VAT, indirect taxes
31
How does the government promote investment
Monetary policy changes interest rates
32
Discretionary income
Income after bills
33
Imports
Goods that are bought in from another country
34
Exports
Goods/services that are sold out to another country
35
Place to measure the value of international trade
Balance of payments
36
3 sections of account measuring international trade
Trade balance, net primary income, net secondary income
37
How does the government raise finance
Taxes
38
How does the government fund borrowing
Selling bonds
39
3 main areas of government spending
Healthcare, social security, education
40
Where does the government announce its spending plans?
The Budget
41
3 benefits the government provides
Pensions, childcare benefits, Jobseeker’s Allowance
42
5 taxes
Income, property, council, corporate and VAT
43
Privatisation
Selling a state industry to the private sector
44
Aggregate Demand
The total demand for goods produced domestically, including consumer goods, services and capital goods
45
Aggregate Supply
Total amount of goods produced in an economy
46
Difference between short run AS and long run AS
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
Difference between Keyes and classical long run AS
Keynes graph assumes that there are factors that prevent always returning to full emplyment
48
2 policies that impact AD
Fiscal and Monetary Policy
49
Exchange Rate Policy
Decrease interest rates, weakens value of currency, cheaper exports
50
Interest Rates
Cost of borrowing, reward for saving
51
Fiscal Policy
Governments decisions on its spending and taxation to change AD
52
2 main tools of Fiscal Policy
Taxation, Government spending
53
Loose Fiscal Policy
Decreased Taxation and Increased Government spending to increase GDP
54
Tight Fiscal Policy
Increased taxation and reduced government spending to reduce inflation
55
How would you reduce inflation using Fiscal Policy
Loos fiscal policy
56
Negatives of reducing inflation using Fiscal Policy
Negative growth, consumption falls
57
Which economist promotes FP
Karl Marx
58
Output gap definition
The difference between potential GDP and actual GDP
59
Monetary Policy
A way to influence the money supply following round the circular flow of income
60
4 tools of monetary policy
Reserve requirement, discount rate, interest on reserves, open market operations
61
Quantitive Easing
Government buying back its own bonds
62
Yield on bonds
A figure that shows the return you get on a bond
63
Rising interest rates impact on BoP
Less demand, so a reduction in imports. Improved exchange rates so exports get more expensive and imports get cheaper
64
Relationship between interest rates and credit available
Increase in interest rates, decreased supply of credit ( and vice-versa )
65
Hot Money
Flow of funds from one country to another to earn short term profit on interest rates differences
66
Liquidity trap
When interest rates are very lower, a further decrease will have minimal or no effects on AD
67
1 trade off from increasing interest rates
Increase in unemployment
68
Who sets the rate of interest?
Bank of England Monetary Policy Committee (MPC)
69
Current Rate of Interest
4.5%
70
Supply side Policy
Measure government takes to increase the availability of goods and services
71
3 main areas supply side policy tries to improve
Lower inflation, lower unemployment, improved economic growth
72
3 measure to increase productivity
Specialisation, training, increased wages
73
3 measure to increase the size of the workforce
Advertisement, increase wage offers, reduce benefits
74
3 measure to improve product markets
Innovation, skilled workforce, customer loyalty
75
Geographic Immobility
How difficult it is for a worker to move between different countries and regions to seek new work
76
Occupational immobility
How difficult it is for a worker to move from one occupation to another
77
Corporation tax
A percentage of a firms profit which must be paid to the government
78
2 drawbacks of supply-side policy
Time-lag, expensive
79
Current rate of VAT
20%
80
What does the MPC do?
Decides what monetary policy action to take
81
Relationship between price and yield of a bond
Price increases, yield decreases (and vice-versa)
82
How do you calculate the multiplier
1/1-MPC or 1/MPS
83
Negative Equity
When a house/belonging is worth less than the mortgage you took out on it
84
How does a rise in house price effect AD?
Wealth affect, increase consumer confidence so AD would increase
85
Automatic Stabilisers?
Automatic fiscal changes as the economy moves through the stages of the business cycle I.e fall in tax during a recession
86
How would you reduce debt using Fiscal Policy?
Cut government spending, increase taxes
87
How does hot money help reduce inflation?
Higher exchange rates, making imports cheaper so more supply
88
Measure to help improve the BoP
Higher interest rates( so higher exchange rates ), higher taxes
89
3 limitations of QE
Lower value of the pound, causes inflation, hurts savers
90
What is deflation?
Reduction of the general level of prices in an economy
91
How can a government avoid deflation?
Lower interest rates, lower taxes, higher government spending
92
How can the government reduce inequality?
Increase spending on benefits, minimum wage
93
What policies can increase economic growth?
Increase spending on benefits, minimum wage
94
Policies to increase economic growth
Fiscal, monetary and supply-side
95
Economic concerns of deflation
Can contribute to lower economic growth
96
2 main causes of the financial crisis 2008
Falling house prices, borrowers unable to repay loans, banks went into crisis
97
3 policies used by the government during the financial crisis
Tax cuts, increase in unemployment insurance, food-stamp benefits
98
ILO survey
Counts those not in work for 4 weeks, age 16-70, considers those underemployed
99
Types of unemployment
Frictional (personal short term unemployment), Structural (skills no longer needed), Cyclical (economic reasons), seasonal (no work for parts of year)
100
Consumer price Index
Basket of goods in a big scale to measure inflation

Economics (7 decks)

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