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A-level Economics > Theme 2 > Flashcards

Theme 2 Flashcards

1
Q

What is economic growth?

A

A rise in the output in goods and services

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2
Q

What does real GDP take into account?

A

Inflation

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3
Q

What is gross national product (GNP)?

A

The output of the citizens on one country not depending on where they live currently

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4
Q

What does purchasing power parities (PPP) show?

A

The cost of buying a selected basket of goods in one country converted in to US Dollars

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5
Q

Limitations of using GDP to compare living standards?

A
  • Doesn’t show income distribution
  • May need to take PPP into account
  • May be a large black market
  • Gives no indication of welfare
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6
Q

What is inflation?

A

A rise of the general price level

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7
Q

What is deflation?

A

A fall in the general price level

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8
Q

What is disinflation?

A

A fall in the rate of inflation

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9
Q

How is CPI calculated?

A

Send out a survey, weight items in a basket of goods, measure average price changes, update annually

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10
Q

What is RPI?

A

It’s CPI but also takes into account mortgage interest payments and council tax

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11
Q

What is demand pull inflation?

A

Where there is large AD which puts pressure on resources

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12
Q

What is cost push inflation?

A

When firms costs increase and so the prices of products increase

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13
Q

Who is most effect by inflation?

A

Those on the lowest incomes

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14
Q

How can unemployment be measured?

A
  • The claimant count

- The ILO survey

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15
Q

What is underemployment?

A

People who are employed but want to work more hours

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16
Q

Impacts of unemployment…

A
  • Consumers have less disposable income
  • Larger supply of labour so wages fall
  • Government spending on JSA increases
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17
Q

What is structural unemployment?

A

Where the skills obtained are not transferable

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18
Q

What is frictional unemployment?

A

Is when people are moving between jobs temporarily

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19
Q

What is cyclical unemployment?

A

Lack of demand for the goods and services

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20
Q

What are the effects of migration?

A
  • Increase in the size of the workforce
  • Bring new skills so improve innovation and productivity
  • Could substitute domestic workers especially those on the lowest wages
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21
Q

What is the balance of payments?

A

A record of all the financial transactions made between consumers, firms and government from one country to another

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22
Q

What is the BOP made up of?

A
  • The current account
  • The capital account
  • The official financing account
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23
Q

In theory what should the sum of all trade balances equal?

A

Zero

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24
Q

What are the components of AD?

A
  • Consumer spending
  • Capital investment
  • Government spending
  • Exports minus imports
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25
How can the AD curve shift?
- Changes in confidence - Changes in interest rates - Changes in taxes and government spending - Depreciation due to its effect on imports - The amount of credit available
26
What is disposable income?
The amount of a consumers income they can choose what they spend it on
27
What is a consumers marginal propensity to consume?
It is how much a consumer changes their spending following a change in income
28
What is a consumers marginal propensity to save?
It is the proportion of each additional £ that is used for saving
29
What effects consumer spending?
- The interest rate - The amount of consumer confidence - Wealth effects - Tax and income
30
What is gross investment?
The amount a firm invests in assets but doesn't account for depreciation
31
What is net investment?
Gross investment minus depreciation
32
What effects investment?
- Business expectations and confidence - The amount of demand for exports - Interest rates and access to credit - Changes in regulation and policies (Corporation tax)
33
What are automatic stabilisers?
They are policies which offset fluctuations in the economy such as income tax and transfer payments
34
How is the value of the current account worked out?
The value of exports minus the value of imports
35
What are the effects of depreciation on the current account?
Exports are relatively cheaper and imports are relatively more expensive so improving the current account
36
What are non-price factors improving competitiveness?
- Amount of innovation - The quality of products - If its a niche market
37
What does the AS curve show?
The quantity of real GDP which is supplied at different price levels
38
What factors effect the SRAS curve?
- The cost of employment - The cost of inputs - Government regulation and/or intervention
39
What does the LRAS curve show?
The potential supply of an economy in the long run (all factors of production are variable)
40
What is the Keynesian view?
That the price level in economy is fixed until resources are fully employed
41
What factors effect the LRAS curve?
- Technological advances - Changes in productivity - Changes in education and skills - Changes in demographics
42
How does the circular flow of income work?
- Firms and households exchange resources - Households provide the factors of production - Firms supply goods and services
43
What are examples of withdrawals from the economy?
Taxes, Imports and savings
44
What are examples of injections into the economy?
Investments, government spending and exports
45
What is income?
It is the flow of money going to the factors of production such as wages
46
What is wealth?
The stock of assets
47
When does an economy reach equilibrium?
When the rate of injections = the rate of withdrawals
48
What is the multiplier ratio?
Is the ratio of the rise in national income to the initial rise in AD
49
Why does the multiplier occur?
Because one persons spending is another's income
50
What does MPC + MPS equal?
One
51
What is marginal propensity to tax?
Its the proportion of each £ that is taxed by the government
52
What is marginal propensity to import?
Is the proportion of imports purchased with additional income
53
How is the multiplier calculated?
1/(1-MPC) = 1/MPS = 1/MPW
54
Factors which cause economic growth...
- Anything that increases AD - Increased productivity of labour - Improvements in technology - Capital deepening (increase in capital stock)
55
What is potential output?
Is what an economy could produce if all factors of production are used
56
When does an output gap occur?
When there is a difference between the actual level of output and the potential output level
57
What are the difficulties measuring the gap?
- Hard to estimate the trend - The structure of the economy - The changes in exchange rate - Data may not be reliable
58
What are characteristics of a boom period?
- High rates of economic growth - Near full capacity of factors of production - Near full employment - Demand pull inflation - High confidence - Improvements in government finances
59
What is a recession?
Two or more quarters of negative economic growth
60
What are the characteristics of a recession?
- Negative economic growth - Lots of space capacity - High unemployment - Low confidence and inflation - Worsening public finances
61
What is a drawback of economic growth on firms?
Increase in menu costs due to high inflation
62
What are the macroeconomic objectives?
- Long run trend growth of 2.5% - Unemployment to as low as 3% - 2% CPI inflation rate - Balanced BOP - Reduction in the fiscal deficit an debt - Reduce inequality - Protect the environment
63
What are the tools of monetary policy?
- The MPC can alter the base interest rate | - Can implement quantitative easing
64
When is QE used?
When inflation is low and interest rates can't go any lower
65
What are the limitations of monetary policy?
- Banks may not pass new base rate onto consumers - Banks may be unwilling to lend - Only effective if confidence is high
66
What tools does fiscal policy use?
- Changing the rate of tax | - Changing the amount of government spending
67
What are the limitations of fiscal policy?
- Governments may have imperfect information - Large time lag - Can crowd out private sector with borrowing - Effect depends on the multiplier
68
What do supply side policies aim to do?
To improve the long run productive potential of an economy
69
Market based supply side polices?
- Increase incentives for firms and consumers - Promote competition through deregulation and privatisation - Labour market reforms, remove NMW?
70
Interventionist supply side policies?
- Stricter competition regulation - Spend more on education and training - Spend more on healthcare to improve productivity - Spend more on infrastructure

A-level Economics (6 decks)

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