Theme 2 Application Flashcards
Inflationary Spiral
UK inflation rate was 24.24% in 1975
Effect of Inflation on Consumers
UK inflation peaked at 11.1% in 2022, leading to the highest cost of living in recent years
Effects of Inflation on Workers
UK real wages fell by 2.6% in 2022, the largest decline in over a decade
Effect of Inflation on Firms
UK food producers faced input cost increases of over 15% in 2023 due to inflation, resulting in a 0.7% decrease in UK investment in Q3 2023 due to reduced animal spirits.
Effect of Inflation on Government
Fiscal Drag - UK gov expected to raise an extra £40bn in tax revenue as inflation increases people’s wages and pushes them into higher tax brackets
Structural Unemployment
Between 1980 and 2000, UK coal mining jobs fell from 230,000 to less than 10,000 as mines were closed
Frictional Unemployment
The average UK graduate takes 3 - 6months to secure a job after finishing university
Seasonal Unemployment
Employment in U.S. agriculture industry drops by over 250,000 jobs every winter.
Cyclical Unemployment
U.S.A. unemployment doubled from 5% to 10% between 2007-2009 due to recession
National Well Being
According to the ONS, the average life satisfaction score in the UK is 7.45/10.
Wealth Effect
UK house prices are 3.9% higher in 2025 than in 2024
Interventionist Supply Side Policy
Installation of a third runway will allow for Heathrow Airport to encompass 100mn passengers yearly.
Market-Based Supply Side Policy
Ireland has very low corporate tax rate of 12.5% creating a tax haven for firms like Amazon.
Demand Side Policy (Expansionary Fiscal)
UK gov has suggested reducing the limit on tax-free savings accounts (ISAs) from £20,000 to £4,000 to encourage consumption and investment.
Technological Advancement (Influencers of LRAS)
Installation of 5G connectivity increased internet speeds. First in Cornwall now in London, Brum etc.
Changes in Productivity (Influencers of LRAS)
Installation of the Elizabeth line to the London
Underground reduced journey time and has Wi-Fi.
Changes in Education and Skills (Influencers of LRAS)
Government subsidisation of apprenticeships and the provision of T-Levels for free as a qualification.
Changes in Migration (Influencers of LRAS)
Rishi Sunak’s skilled Visa programme granted 88,000 visas to skilled migrants
Moral Hazard
The US spent $500bn to bail out banks in 2008.
National Debt
UK gov spent £102mn on servicing (i.e. paying interest on) the national debt in 2023.
The UK national debt is 2.72T as of March 2025.
Time Lag
BoE raised interest rates to 5.25% in August 2023 but inflation only fell significantly in
mid-2024.
Multiplier Effect
The UK gov has pledged to increase defense spending to 2.5% of GDP by 2027.
Benefits of Economic Growth on Firms.
Amazon’s revenue increased by 38% in 2020
Benefits of Economic Growth on Consumers
Percentage of Indians living in absolute poverty fell from 45% in 1993 to below 10% in 2021.
Benefits of Economic Growth on Government
US gov tax revenue increased by 19% in 2021 due to economic recovery
Environmental Policies
In 2020 the European Commission proposed a €1tn investment plan to fund the European Green Deal
Policy Conflict - Environment X Growth
China grew at annual rate of 9.1% between 2000-2019 but contributed to 30% of global emissions by 2021.
Policies to Tackle Income Inequality
In 2016 the govt taxed the 1% of the highest bracket of earner’s more than usual and this generated 27% of all tax revenue.
UK Response to Great Depression
Tariffs, abandoned gold standard, depreciation of 25% -> improved international competitiveness.
UK Response to 2008 Financial Crisis
£375bn QE, 2.5% cut in VAT, cut base rate to 0.5%
Command economy / increase in potential growth as a result of major reform.
1986 Vietnam reforms from pure communism to a more mixed economy.
Free Market characteristics like ability to own businesses (1/3 people do so).
Projected to overtake the UK in GDP by 2050.
