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Economics A-level > Theme 2 > Flashcards

Theme 2 Flashcards

1
Q

What is GDP?

A

Gross Domestic Product- Measure of growth, value of an economies goods and services produced in a year

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2
Q

What is the difference between real and nominal GDP?

A

Real GDP is adjusted for inflation

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3
Q

What is GDP per capita?

A

Average output per person

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4
Q

What is Gross National Product (GNP)?

A

Gross National Product- The total spending and output of an economy including citizens/businesses operating abroad

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5
Q

What is Gross National Income?

A

Total incomes received by an economy, home and abroad

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6
Q

Is GDP used to compare countries?

A

Yes

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7
Q

What is Purchasing Power Parity (PPP)?

A
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8
Q

What is inflation?

A

General increase of prices of products or services in an economy

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9
Q

What is deflation?

A

Decrease in the prices of products or services in an economy

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10
Q

What is disinflation?

A

Decrease in rate of inflation

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11
Q

What is CPI (Consumer Price Index)?

A

Way of measuring inflation - 650 goods in the basket and change in price is measured of all goods finding a figure for inflation

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12
Q

What is Retail Price Index?

A

CPI but including mortgage interest rates

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13
Q

How to measure CPI?

A
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14
Q

What is demand pull inflation?

A

When an increased demand for products leads to firms putting prices up and inflation

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15
Q

What is cost push inflation?

A

When cost of production increases firms increase prices of products

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16
Q

What is the claimant count?

A

Measures the amount of people eligible to claim job seekers allowance (now universal credit)

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17
Q

Criteria for claiming JSA

A

Out of work, actively seeking employment, available, aged 18-66, excludes various people (those with savings)

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18
Q

Positives of the claimant count

A

-Up to date
-Cheap to construct
-Easy to understand and compare

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19
Q

Negatives of claimant count

A

Misses out on people (those not entitled to benefits)
Some people refuse to claim benefits
Ignores some ages
Not used in Europe

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20
Q

What is the International Labour Organisation (ILO) and Labour Force Survey?

A

LFS is a survey of 80000 people across society to measure unemployment

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21
Q

Benefits of Labour Force Survey

A

Used in Europe so good for comparisons
Considered more accurate

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22
Q

What is under-employment?

A

When someone doesn’t use their skills education and experience at a job

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23
Q

What is structural unemployment?

A

Skills are no longer relevant

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24
Q

What is frictional unemployment?

A

Unemployed for the short term

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25
Cyclical unemployment
Being unemployed for economic reasons
26
Seasonal unemployment
Parts of the year where there is no work in your job
27
What is the balance of payments?
A record of all the transactions that the UK makes with the rest of the world
28
What is the current account?
Balance of trade (imp and exp) Net income (investment income from overseas and employee wages) Net transfers (sums sent home from migrant abroad)
29
What is the capital account?
Capital transfers (purchase and sale of fixed assets such as real estate)
30
What are the components of Aggregate Demand?
C+I+G+(x-m)
31
What are the factors affecting what products to buy?
-Price of substitutes -Is it necessity -Durability -Social trends -Environment -How much you earn
32
What are factors affecting consumption?
-Availability of credit -Interest rate -Disposable Income -Wealth effect -Expectations -Composition of households -Unemployment -Determinants of saving
33
What is the wealth effect?
As you're assets increase in value, your spending increases
34
What is availability of credit?
How much you can borrow (big purchases means more borrowing leading to further spending)
35
What is Gross Investment?
The total amount an economy spends on new capital (machinery)
36
What is net investment?
Increase in number of machines
37
Factors influencing investment
-Interest and availability of credit -Retained profit -Expected profits -Actual and expected demand -Accelerator effect -Business confidence -Quality of machines & substitutes -Price of machinery
38
39
What is the accelerator effect?
When an increase in GDP leads to rise in investment
40
What is fiscal policy?
Using/changing Government Spending and Taxation to stimulate economic growth or control inflation
41
What happens in expansionary/loose fiscal policy?
It aims to stimulate economic growth by increasing Government spending and decreasing Taxation
42
What happens in contractionary/tight fiscal policy?
Aims to control inflation by decreasing government spending and increasing taxation
43
Macroeconomic impacts of loose fiscal policy
-Increased economic growth -Increased employment -Decreased sustainability -Increased inflation -Less inequality but larger gap -Balcance of payments (m>x)
44
Macroeconomic impacts of tight fiscal policy
-Decreased inflation -Decreased economic growth -Increased unemployment -More sustainable -More inequality but smaller gap
45
Influences on net trade balance
-Real income -Exchange rates -State of the world economy -Degree of protectionism -Non-price factors
46
What is the trade balance?
Difference between value of exports and value of imports
47
What is a trade surplus and deficit
Surplus=when exports exceed imports Deficit=when imports exceed exports
48
What is a fixed exchange rate?
Where a the value of a country's currency is fixed at certain amount by a monetary authority eg bank
49
Benefits of fixed exchange rates
-Price stability -Reduced exchange rate risk -Discipline on monetary policy -Encourages foreign investment
50
Negatives of fixed exchange rates
-Lack of flexibility -Balance of payments issues -Speculative attacks -Dependence on reserves
51
What is a floating exchange rate?
Where the value of a currency changes on its own based on the value of other floating currencies
52
What is a managed-floating exchange rate?
When a central bank intervenes with a floating exchange rate to change its value
53
Negatives of floating exchange rate
-Leads to uncertainty -Fluctuates daily so hard to keep up with -More exchange rate risk
54
Positives of floating exchange rate
-Less power for central banks as changes on its own -Allows for greater change of internal policy
55
Factors influencing a shift in SRAS
-Wage costs -Labour productivity -Prices of raw materials and components -Business taxes -Cost of imported materials -Supply shocks eg hurricane or pandemic
56
What does a Keynesian LRAS curve look like?
Straight then a steep curve upwards (see book)
57
What does a traditional LRAS curve look like?
A vertical line upwards
58
Factors influencing LRAS
-Higher productivity of labour and capital -Growing population and increased labour market participation -Innovation and enterprise -Improvements in infrastructure -Capital investment -Stock of natural resources -Education
59
What is SRAS line like
Normal AS line
60
What is LRAS?
Maximum output when all FOPs are utilised
61
What is SRAS?
At least one FOP is fixed
62
What is a supply side shock?
Affect SRAS and sometimes LRAS eg a pandemic, natural disaster or steep rise in prices of an industry
63
What are the macroeconomic objectives?
-Economic growth -Unemployment -Sustainability -Inflation -Inequality -Balance of payments -Deficit
64
What is the difference between income and wealth?
Wealth is income plus value of assets
65
What is the circular flow of income?
SEE DIAGRAM, shows how income travels around government, consumers and producers
66
What are injections and examples
Injections is sources of money entering the circular flow of income eg: -Investment, government spending and exports
67
What are withdrawals and examples
Money leaving circular flow of income eg: -Taxes, imports and savings
68
What is the multiplier?
Where an initial change in spending leads to a bigger increase in total output
69
What is a negative multiplier?
Decrease in total output
70
How do you calculate the multiplier in closed economy?
1 ----------- MPS
71
How do you calculate the multiplier in open economy?
1 ---------------------- MPS+MPM+MRT
72
What are MPM and MRT
MPM=Marginal propensity to import MRT=Marginal rate of taxation
73
When is the multiplier value high
-lots of spare capacity in the economy -MPM and MRT Is low -MPS is low
74
When is the multiplier value low
-Economy is close to full capacity -MPM and MRT is high -MPS is high
75
What is monetary policy?
Its all to do with controlling the supply of money
76
What are the 4 tools of monetary policy
1. Interest rates 2. QE 3. Credit availability 4. Exchange rates
77
What is the transmission mechanism (monetary policy)?
78
Factors considered by Bank of England when setting interest rates?
-GDP and spare capacity -Bank lending and consumer credit figures -Equity markets -Confidence -Growth of wages, average earnings and unit labour costs -Unemployment figures -International
79
Loose monetary policy
Aims to stimulate GDP by decreasing interest rates and QE
80
Tight monetary policy
Aims to control inflation by increasing interest rates
81
What is privatisation?
The selling of a state industry to the private sector so it becomes owned and ran by shareholders and aims to make a profit.
82
Benefits of privatisation
-Government receives a large lump of sums from selling the business -No longer has to pay for its running costs -Customer gets better service and innovation
83
Drawbacks of privatisation
-Will prices go up as they're profit making? -Quality might be as bad as ever -Theyre no longer answerable to the taxpayer -Will they cancel services to certain areas?
84
What is deregulation?
The opening of a state monopoly. This market is now open for competition.
85
What is removing red tape?
Reducing the amount of checks/paperwork required to carry something out
86
What are the free market based supply-side policies?
-Tax cuts -Deregulation -Trade liberalisation (making trade easier) -Privatisation -Immigration reforms -Gender and diversity inclusion -Decreasing trade union power -Labour market deregulation
87
Interventionist supply-side policies
-Interventions to reduce poverty -Provision of key public and merit goods -Funding for early stage research -State ownership of key businesses -Policies to tackle labour market failure -Building of more social housing
88

Economics A-level (3 decks)

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