Theme 2 Flashcards
What are the seven government objectives
Debt, sustainability, inflation, inequality, economic growth (gdp), balance of payments and unemployment
What are some supply side economic interventionist policies
Spending on healthcare
Building business parks
Increased education and training
Improving transport and infrastructure
Invest in council housing
What are some supply side market policies
Reducing power of trade unions
Privatisation of the state industry
Lower tariff barriers
Remove unnecessary red tape
Reduce corporation tax
Reduce state welfare benefits
Deregulation
Provide better info about jobs
How would reducing the power of trade unions help
Makes it much easier for firms to hire and fire employees
How would privatisation of state industry help the supply side policy
It makes them more profit oriented which can lead to a more efficient allocation of resources
How would lowering tariff barriers help supply side
helps firms become more efficient and be more innovative
How does removing unnecessary red tape help supply side
Makes trade quicker and easier as they don’t have to go through all of the quality checks when they’re trusted
How does reducing corporation tax help supply side
firms can keep more of their profits and don’t have to increase the prices of their goods or services to the consumer
How does reducing state welfare benefits help supply side
It makes people more likely to get a job as they’ll get more money so reducing unemployment leading to a reduction on government spending and increase in economic growth
How does deregulation help supply side
opening up of state monopoly this market is now open to competition
Free market economy pros
Efficiency- best value in demand only - incentive to be better
Entrepreneurship- rewards for innovation
Choice- increased consumer choice due to innovation
Free market economy cons
Inequalities - huge income differences
Non profitable goods - drugs
Monopolies - market dominance
Pros of a command economy
Maximise welfare - prevent inequality and distribute income fairly
Low unemployment - economic growth
Prevent monopolies - market dominance is prevented by the government
Command economy cons
Poor decision making - lack of information means poor decisions
Restricted choice - consumers have a limited choice
Lack of risk taking and efficiency - no incentive to increase efficiency, take risks or innovate
In a mixed economy what’s the government known as
Public sector
What makes up the private sector
Privately owned businesses
What are the four main macroeconomic indicators
rate of economic growth, rate of inflation, level of unemployment and the state of the balance of payments
Why might comparing the gdp of two countries not be accurate
A high gdp suggests a strong economic performance but high gdp per capita suggests a high standard of living
What’s inflation
The sustained rise in the average price of goods and services over a period of time
Define disinflation, hyperinflation and negative inflation
- When the rate of inflation slows down
- When the prices rise extremely quickly
- When the average price falls
What’s the claimant count
The number of people claiming benefits
What are the two main measures of unemployment
The claimant count and the labour force survey
What’s the labour force survey
The number of people in a survey who aren’t working but are seeking employment
What’s the circular flow of income
a model of the economy in which the major exchanges are represented as flows of money, goods and services, etc. between economic agents.
When would the circular flow of income be in equilibrium
When the injections and withdrawals are equal
What happens when an injection is made into the circular flow of income
The actual change in the national income is greater than the initial injection due to the multiplier effect
What’s aggregate demand
The total spending on goods and services
What’s the formula for aggregate demand
AD = C + I + G + X - M
Consumption + investment + gov spending + exports - imports
What factors affect consumption and saving
Income, interest rates, consumer confidence, wealth effects, taxes and unemployment
What factors affect investments made by firms (aggregate demand)
Risk
Government incentives and regulations
Interest rates
Access to credit
Technical advances
Business confidence (animal spirits)
What causes budget deficit/ surplus
If the government is spending greater/ less than its revenue
What does it mean if aggregate demand is low
Economic growth is slow so the government may overspend to increase ad and boost economic growth
What is trend growth?
The estimated rate of growth of a nations productive potential
What are the different types of unemployment?
Frictional, structural, cyclical and seasonal
What is frictional unemployment?
When your out of work due to personal short term unemployment - made redundant
What is structural unemployment?
When your skills are no longer relevant
What is cyclical unemployment?
When you become unimportant due to economic reasons
What is seasonal unemployment?
When parts of the year when there is no work in your job.
Causes of unemployment (supply side)
Frictional
Structural - mismatch of skills
Geographical immobility
Real wage unemployment
Technological change
Causes of unemployment (demand deficient)
High interest rates
Global recession
Negative multiplier effect
Financial crisis
What are the types of measuring unemployment
Claimant count
LFS survey
Explain claimant count and the characteristics.
This include people who are eligible to claim the jobs seekers allowance
- out of work
- available for work
- actively seeking employment
- aged 18 - 66
- excluded various people
What are the benefits of using claimant count?
Up to date
Cheap
Easy to understand/compare
Problems with claimant count?
Misses some people
Some people will refuse to claim benefits
Not used in Europe
What are the characteristics of LFS survey
- survey of 80,000 people across society
- without any kind of job in the four weeks and are able to start in the next two weeks
- aged 16-70
- includes unemployment
- used in Europe, good for comparisons
Benefits of using LFS survey
- used in Europe
- wider criteria
- measures ‘students’ and ‘retirees’
Problems with using LFS survey?
- Can be out of date
- people may lie
- expensive to make
What does the balance of payments do?
It measures all the international economic transactions between the uk and trading partners.
What is the current account?
How much we import or export and if we’re in surplus of deficit
What is a remittances
Someone who works here from another country and send most of the money back to their home country
What are the interventionist policies?
Spending on healthcare
Building business parks
Increased education and training
Improving transport and infrastructure
Invest in council housing
What are the interventionist policies?
Spending on healthcare
Building business parks
Increased education and training
Improving transport and infrastructure
Invest in council housing
What are the market policies?
Reducing the power of trade unions
Privatisation of state industry
Lower tariff barriers
Remove unnecessary red tape
Reduce corporation tax
Reducing state welfare benefits
Providing better information about jobs
Deregulation
What is a problem of state monopoly?
They can raise prices as high as they want
What are the advantages of deregulation?
Increased competition
More efficiency
More price competition
Greater customer choice
What are the disadvantages of deregulation?
Creates a private monopoly
Duplication of services
Private firms cut costs
Can hold the government to account
What is deregulation of labour markets
Where the government reduces the amount of employee rights. This makes it easier for firms to hire and fire workers, as well as flexible workforces
Budget
Where the government lays out their spending and taxation plans
Consumer price index
Official measure used to calculate the rate of inflation
Cost push inflation
Inflation caused by a decrease in AS
Current account deficit
When more money leaves the country than enters
Cyclical unemployment
Caused by a lack of AD
Deflation
A persistent fall in prices of goods and services
Direct tax
Taxes paid straight to the government by the individual taxpayer
Disinflation
A reduction in the rate of inflation
Disposable income
The money the consumer has to spend after taxes have been paid
GDP
The value of goods and services produced by a country in a given time period
GNI
GDP plus net overseas interest payments and dividends
LRAS
the total output an economy can produce when operating at full output
Output gap
The difference between the long term rate of growth and actual growth
