Theme 2 Flashcards
Define GDP
Gross Domestic Product, total value of all goods and services produced in an economy in one year
Define GDP per capita
Total GDP divided by population
What are PPPs?
Purchasing Power Parities, used to compare GDP by taking into account the cost of a basket of goods that could be bought in each of the countries being compared
Define GNP
GDP + net property income from abroad
Define GNI
GNP + net cross country income (e.g. remittances, dividends and interest payments)
Define inflation
A sustained rise in the general price level
Define deflation
A fall in the general level of prices
Define disinflation
A fall in the rate of inflation
How are price levels measured in the CPI?
7000 households are surveyed on 650 goods and services they bought, each item is assigned a weight to show the proportion of income spent on each item, prices of each food recorded and weight considered, compared to previous survey
Why could CPI be considered as a bad measure of inflation?
It does not include housing costs such as rent payments and mortgage interest repayments
What are the three causes of inflation?
Demand-Pull, cost-Push and growth in the money supply
Give two examples of what causes demand-Pull inflation
Increase in population, increase in disposable incomes
Give two examples of what causes cost-Push inflation
Shortages of key products, labour prices
Define cyclical unemployment
Where a lack of spending in the economy causes unemployment (e.g. in a recession)
Define structural unemployment
Where industries are in decline and workers skills are becoming obsolete
Define frictional unemployment
Where people are between jobs
Define seasonal unemployment
Where people are unemployed for some periods of the year
Define classical unemployment
When real wages rise above the equilibrium wage (e.g. NMW) causing unemployment
How does the Labour Force Survey measure unemployment?
Uses a survey to ask people whether they have been out of work for the last 4 weeks and are ready to work within 2 weeks
How does the claimant count measure unemployment?
Records people who are successfully claiming job seekers allowance
Define underemployment
The under use of a worker due to them not fully employing their skills in their job
Define a recession
Two consecutive quarters of negative growth
What are the four components of the current account?
Trading goods, trading services, primary income e.g. investments and secondary income e.g. transfers
Define aggregate demand
Total expenditure on domestic goods and services
What is the formula for marginal propensity to consume?
Change in consumption divided by change in income
What is the formula for aggregate demand?
Consumption + Investment + Government spending + (X-M)
Define aggregate supply
Total supply in UK economy
Define income and wealth
Income is a flow of money and wealth is a stock of net assets
What are the three injections into the circular flow of income?
Investment from banks, government expenditure and export expenditure
What are the three withdrawals from the circular flow of income?
Bank savings, taxes and import expenditure
What are three formulas for the multiplier?
1/(1-MPC) or 1/(MPW) or 1/(MPS + MPT + MPM)
Give two downsides of economic growth
E.g. Inflation & damage to environment
Give three UK macroeconomic objectives
Increase economic growth, low stable inflation (2%) and protect environment
What curve shows the relationship between inflation and unemployment? Explain it
Phillips curve, firms attract workers by increasing wages meaning they must also increase prices
Give two conflicts between macroeconomic objectives
Inflation and growth, growth and protecting the environment
What are the two monetary policy instruments?
Interest rates and quantities easing
Explain quantities easing
Central bank purchases government bonds from financial institutions in order to lower interest rates and increase the money supply to promote lending
How would you conduct an expansionary fiscal policy?
Increase government spending above recurved taxation
How would you conduct a contractionary fiscal policy?
Reduce government spending below received taxation
Explain why data is expressed in PPPs US$ when comparing between countries?
It allows for comparisons between country’s currencies, by comparing how much of a country’s currency is needed to buy the same amount of goods you could buy in that country in the USA
