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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
Q

How can the AD curve shift?

A
  • 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
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26
Q

What is disposable income?

A

The amount of a consumers income they can choose what they spend it on

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27
Q

What is a consumers marginal propensity to consume?

A

It is how much a consumer changes their spending following a change in income

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28
Q

What is a consumers marginal propensity to save?

A

It is the proportion of each additional £ that is used for saving

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29
Q

What effects consumer spending?

A
  • The interest rate
  • The amount of consumer confidence
  • Wealth effects
  • Tax and income
30
Q

What is gross investment?

A

The amount a firm invests in assets but doesn’t account for depreciation

31
Q

What is net investment?

A

Gross investment minus depreciation

32
Q

What effects investment?

A
  • Business expectations and confidence
  • The amount of demand for exports
  • Interest rates and access to credit
  • Changes in regulation and policies (Corporation tax)
33
Q

What are automatic stabilisers?

A

They are policies which offset fluctuations in the economy such as income tax and transfer payments

34
Q

How is the value of the current account worked out?

A

The value of exports minus the value of imports

35
Q

What are the effects of depreciation on the current account?

A

Exports are relatively cheaper and imports are relatively more expensive so improving the current account

36
Q

What are non-price factors improving competitiveness?

A
  • Amount of innovation
  • The quality of products
  • If its a niche market
37
Q

What does the AS curve show?

A

The quantity of real GDP which is supplied at different price levels

38
Q

What factors effect the SRAS curve?

A
  • The cost of employment
  • The cost of inputs
  • Government regulation and/or intervention
39
Q

What does the LRAS curve show?

A

The potential supply of an economy in the long run (all factors of production are variable)

40
Q

What is the Keynesian view?

A

That the price level in economy is fixed until resources are fully employed

41
Q

What factors effect the LRAS curve?

A
  • Technological advances
  • Changes in productivity
  • Changes in education and skills
  • Changes in demographics
42
Q

How does the circular flow of income work?

A
  • Firms and households exchange resources
  • Households provide the factors of production
  • Firms supply goods and services
43
Q

What are examples of withdrawals from the economy?

A

Taxes, Imports and savings

44
Q

What are examples of injections into the economy?

A

Investments, government spending and exports

45
Q

What is income?

A

It is the flow of money going to the factors of production such as wages

46
Q

What is wealth?

A

The stock of assets

47
Q

When does an economy reach equilibrium?

A

When the rate of injections = the rate of withdrawals

48
Q

What is the multiplier ratio?

A

Is the ratio of the rise in national income to the initial rise in AD

49
Q

Why does the multiplier occur?

A

Because one persons spending is another’s income

50
Q

What does MPC + MPS equal?

A

One

51
Q

What is marginal propensity to tax?

A

Its the proportion of each £ that is taxed by the government

52
Q

What is marginal propensity to import?

A

Is the proportion of imports purchased with additional income

53
Q

How is the multiplier calculated?

A

1/(1-MPC) = 1/MPS = 1/MPW

54
Q

Factors which cause economic growth…

A
  • Anything that increases AD
  • Increased productivity of labour
  • Improvements in technology
  • Capital deepening (increase in capital stock)
55
Q

What is potential output?

A

Is what an economy could produce if all factors of production are used

56
Q

When does an output gap occur?

A

When there is a difference between the actual level of output and the potential output level

57
Q

What are the difficulties measuring the gap?

A
  • Hard to estimate the trend
  • The structure of the economy
  • The changes in exchange rate
  • Data may not be reliable
58
Q

What are characteristics of a boom period?

A
  • 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
Q

What is a recession?

A

Two or more quarters of negative economic growth

60
Q

What are the characteristics of a recession?

A
  • Negative economic growth
  • Lots of space capacity
  • High unemployment
  • Low confidence and inflation
  • Worsening public finances
61
Q

What is a drawback of economic growth on firms?

A

Increase in menu costs due to high inflation

62
Q

What are the macroeconomic objectives?

A
  • 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
Q

What are the tools of monetary policy?

A
  • The MPC can alter the base interest rate

- Can implement quantitative easing

64
Q

When is QE used?

A

When inflation is low and interest rates can’t go any lower

65
Q

What are the limitations of monetary policy?

A
  • Banks may not pass new base rate onto consumers
  • Banks may be unwilling to lend
  • Only effective if confidence is high
66
Q

What tools does fiscal policy use?

A
  • Changing the rate of tax

- Changing the amount of government spending

67
Q

What are the limitations of fiscal policy?

A
  • Governments may have imperfect information
  • Large time lag
  • Can crowd out private sector with borrowing
  • Effect depends on the multiplier
68
Q

What do supply side policies aim to do?

A

To improve the long run productive potential of an economy

69
Q

Market based supply side polices?

A
  • Increase incentives for firms and consumers
  • Promote competition through deregulation and privatisation
  • Labour market reforms, remove NMW?
70
Q

Interventionist supply side policies?

A
  • 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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