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Economics > Theme 2 AO1 > Flashcards

Theme 2 AO1 Flashcards

1
Q

What is Monetary policy?

A

Monetary policy is where a country’s central bank will change the interest rates, supply of money or exchange rates to influence an economy

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2
Q

what is GDP

A

The total value of all goods and services produced within an economy in a given period of time

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3
Q

What is GDP per capita

A

the average GDP of each person in a country

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4
Q

What are supply-side policies?

A

Policies that aim to increase the supply of goods in an economy

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5
Q

What is the government budget

A

The statement of what the government plans to do in regards to taxation and spending.

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6
Q

What is balance of trade?

A

The difference between the value of a countries total exports and total imports over a given period of time

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7
Q

What is the CPI?

A

It is a way of measuring inflation by using the prices of a basket of popular goods and services over a particular period of time

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8
Q

What is demand-pull inflation?

A

Higher demand > increased prices

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9
Q

What is cost-push inflation?

A

Higher costs for businesses > higher prices being charge to account for higher costs.

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10
Q

What is a budget fiscal deficit?

A

Government spending is greater than government revenue.

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11
Q

What is expansionary fiscal policy?

A

When the government incentives economic growth by cutting taxes and increasing expenditure.

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12
Q

What is contractionary fiscal policy?

A

When the government aims to reduce the budget deficit by increasing taxes and cutting spending.

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13
Q

What is the difference between a budget deficit and national debt?

A

The national debt refers to the total amount of money that the government has borrowed over time and still needs to pay back. A budget deficit is the borrowing of 1 year.

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14
Q

What is Marginal Propensity to Consume (MPC)?

A

It measures the persons attitude to spending. It ranges from 0-1. If it is 1 then a consumer will spend £1 for every extra £1 they receive in income.

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15
Q

What is one type of demand-side policy?

A

Changing direct taxation on households to increase/ decrease consumption.

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16
Q

What are the components (and %s) of AD?

A

Consumption (C) 65%, Business Investment (I) 15-20%, Government spending (G), Net trade (X-M)

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17
Q

What is the most important component of AD?

A

Consumption, it is the largest part of AD. If consumption falls significantly, the economy would rapidly decline.

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18
Q

In regards to investment, what does the term ‘animal spirits’ mean?

A

It emphasises the role of the ‘gut instinct’ on behaviour. If a recession is predicted, businesses may postpone investments.

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19
Q

What does the AD curve show?

A

The relationship between overall price level in the economy and economic growth through real GDP. It slopes downwards because when inflation increases, GDP declines.

20
Q

What causes movement along the AD curve?

A

A change in price level across the economy.

21
Q

What causes a shift in the AD curve?

A

Any of the AD components change.

22
Q

What is gross investment?

A

The total value of all physical capital (machinery, equipment, buildings) that is produced or purchased within an economy over a specific period.

23
Q

What is the net investment calculation?

A

Gross investment value - value of depreciation of existing capital

24
Q

How does the rate of economic growth affect business investment?

A

When the economy is growing at a healthy rate, business will need to invest in new capital to produce more goods or services to meet the new levels of demand.

25
Q

How does the demand for exports affect business investment?

A

Greater demand for exports will incentivise businesses to grow to fulfil foreign orders.

26
Q

How does interest rates affect business investment?

A

Lower interest rates decrease the costs of borrowing for businesses

27
Q

How does access to credit affect business investment?

A

Greater access to credit allows businesses to take out more loans for investment.

28
Q

How do government influences affect

A

Government policies such as subsidies can incentivise businesses to invest more.

29
Q

What is the trade cycle?

A

The fluctuations in economic activity that an economy experiences over a period of time.

30
Q

What are the 4 phases of the trade cycle?

A

Expansion (rising economic activity), Peak (highest economic activity), Contraction (Economic activity declining), Trough (Lowest economic activity).

31
Q

How does the trade cycle influence government expenditure?

A

The government will spend more in the Trough to improve the economy and less in the Peak as it is already high.

32
Q

What is fiscal policy?

A

Government decisions about spending and taxation to influence the economy.

33
Q

What is real income?

A

The income of individuals or nations adjusted to inflation.

34
Q

How does the change in real incomes affect net trade?

A

If income increases, there will be more imports and net trade will decrease.

35
Q

What are exchange rates?

A

The value of one currency for the purpose of converting it to another currency.

36
Q

How does changing exchange rates affect net trade?

A

If a currency depreciates, X is cheaper and M is more expensive.

37
Q

What is the state of the world economy?

A

The overall health and trends of the global economy.

38
Q

How does the change in the state of the global economy affect net trade?

A

If the global economy is experiencing growth, there will be higher exports for countries that are exporters.

39
Q

Define degree of protectionism.

A

Government actions that restrict international trade to protect domestic businesses.

40
Q

How does the degree of protectionism affect net trade?

A

The higher the degree, the less imports a country will have.

41
Q

What non-price factors affect net trade?

A

Quality and innovation, branding, trade agreements.

42
Q

What is a progressive tax?

A

A tax that marginally rises as income rises, causing a rise in the average tax rate.

43
Q

What is a proportional tax?

A

The marginal rate of tax is constant leading to a constant average tax rate.

44
Q

What is a regressive tax?

A

The rate of tax paid falls as incomes rise, the average rate of tax is lower for people on higher incomes.

45
Q

How does MPC affect AD.

A

The higher the MPC, the greater the consumption.

46
Q

How does income tax affect AD?

A

The higher the income tax, the less consumption.

Economics (15 decks)

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