Theme 2 Flashcards
What is nominal GDP
The total value of all goods and services produced in a given time period
What is real GDP
Nominal GDP adjusted for inflation
What is purchasing power parity
The rate of what one currency in one country would have to be converted to buy the same basket of goods in a country with a different currency
3 limitations of using GDP to compare living standards
- Black markets
- Doesn’t take levels of health and environment into account
- Currency conversion
What is gross national income
The total amount earned by a nations people and businesses
Definition for inflation
A general rise in the level of prices over a given time period
What is demand pull inflation
The demand for goods and service exceeds the availability of supply, causing the firm to increase prices
What is cost push inflation
When production costs increase leading to firms having to increase prices to cover the costs
What are the 2 measures of unemployment
Claimant count = records the total number of people claiming benefits
ILO = international labour organisation measures people who are unemployed but are actively seeking for a job
What is structural unemployment
Unemployment resulting from a firms reorganisation. Typically technological advances
What is frictional unemployment
Unemployment due to movement from one job to another
What is cyclical unemployment
Unemployment resulting from the stage of an economy’s business cycle. Typically during economics downturns
What is demand deficiency
Where aggregated demand falls shorts of aggregate supply causing the reduction in production and employment
What is a current account deficit
When a countries imports are greater than they receive in exports
What is the balance of payments
A record of all economic transactions that take place in a country in a given time period
Difference between gross and net
Gross is the whole of (income, investment) net is the total after taking away expenses
Injections and withdrawals
Inject:
- Export
- Government spending
- Consumption
Withdraw:
- Imports
- Taxation
- Saving
Definition of the multiplier
A further increase in demand from an initial investment
Formula for the multiplier
1
_____
1- MPC
Factors causing economic growth
- Technology
- Government spending
- Resources
- Confidence (Animal spirits)
- Employment
Impacts of economic growth
+
More consumption
Improved technology and education
More employment
-
Bigger gap between rich and poor
Inflation
Environmental impacts
Macroeconomics objectives
- economic growth
- low unemployment
- stable inflation
- balance current account
What is a fiscal policy
Use of government spending or taxation to influence economy
What is a monetary policy
Bank of England using interest rates and money supply to influence economy
What are the demand side policies
Monetary and fiscal policies
What are the supply side policies
Market based methods and interventionist methods
What are the market based methods
Floating exchange rates - governments maintaining high exchange rates > reduces prices of imported goods but makes economy less competitive
Trade liberalisation - removing or reducing trade barriers with other countries. Less quality goods
What are the interventionist policies
- Investment in human capital (more employment, better education)
- Providing affordable housing
