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Economics Paper 2 > Theme 2: Measure Of Economic Growth > Flashcards

Theme 2: Measure Of Economic Growth Flashcards

1
Q

Economic growth

A

Increase in productive capacity of an economy
Economies ability to produce goods/ services increases
Outwards shift in PPF/ LRAS
% change in real GDP per annum

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2
Q

GDP- gross domestic product

A

Total value of goods/ services produced in an economy over a period of time

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3
Q

Real GDP

A

GDP adjusted for inflation

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4
Q

GNI

A

Total value of goods/ services produced by a country over a period of time
Plus the overseas interest payments and dividend

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5
Q

PPP- Purchasing Power Parity

A

How much a typical basket of goods in a country cost compared to one in another country.

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6
Q

Pro of PPP

A

Useful to compare countries and takes into account cost of living
Allows to compare living standard

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7
Q

Limitations of using GDP

A

Inaccuracy of data- not all data included, countries can lie

Quality of goods/ services is not included

Inequalities- some parts of the economy may be growing and others may not

Currencies- cost of living isn’t included

Spending- some spending may increase GDP but not increase standard of living

Qualitative factors- sustainability, quality of life, access of public services

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8
Q

Other ways to calculate growth

A

GNH
Gross national Happiness
Calculates how happy the people are in an economy so their well being

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9
Q

Easterlin Paradox

A

Increases in consumption of material goods will increase happiness if basic needs aren’t met
But if the needs are met any other increase in consumption won’t increase long term happiness

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10
Q

Causes of economic growth

A

Increase in the quantity and quality of the factors of production
Increase exports- goods and services sold abroad leading to export led growth

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11
Q

Impact of economic growth pro

A

Consumption increases
Positive wealth effect
Consumer confidence
Happiness/ quality of life

Investment
Business confidence
More technology

Government revenue
Decrease of the budget deficit

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12
Q

Impact of economic growth CON

A

Increase in poverty/ inequality
Inflation
Risk of structural unemployment

Closure of small to medium enterprises
Producing outdated goods and services

Current vs future spending of government (over spending)

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13
Q

Inflation

A

General and sustained increase of prices in the economy
Decrease the purchasing power of money

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14
Q

Deflation

A

The fall of prices
indicates a slowdown in rate of growth of output in the economy

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15
Q

Disinflation

A

In a reduction in the rate of inflation
Prices are still rising but at a slower rate

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16
Q

Inflation target

A

Low and stable at 2%
Range 1-3%
Set by the Bank of England

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17
Q

How is inflation calculated in CPI

A

5,500 families record spendings over a fortnight in the Living Cost and Food Survey

600-700 items which most spending is recorded and put in the basket of goods

Prices of 710 goods are collected from 20,000 shops in 141 locations and online

Prices are updated every month

Info is collected and put in an average household spending to make an overall index

It takes in the importance of the good so it’s weighted

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18
Q

Limitations of CPI

A

Not fully representative- not representative for non typical household

Spending patterns are different per person and household

Change in quality of goods/ services- price my rise because there is an improvement in the quality of the goods

New products- slow to respond to new products. It changes every year and a few items come in and out of the basket

Doesn’t include housing costs

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19
Q

Types of inflation

A

Demand pull
Cost push

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20
Q

Demand pull causes

A

Excess aggregate demand
Money and credit boom
Economy close to full capacity (inelastic AS)
Positive output gap (AD> potential GDP)

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21
Q

Cost push

A

Rising wages
Increase price of raw materials and components cost from domestic and overseas suppliers
Rise in import prices due to fall in exchange rate - increase import cost

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22
Q

Rising property prices effect on inflation

23
Q

Increasing world oil price

24
Q

Depreciating exchange rate

25
Rapid expansion of money and credit
26
Internal causes of inflation
Large surge in property prices Higher wages/ labour cost Boom in credit and money supply Rise in business tax
27
External causes of inflation
Increase in world oil/ gas prices Inflation in global commodity prices Depreciation in the exchange rate High inflation in other countries
28
Why is inflation an economic problem
Inequality- regressive- takes up a larger % of total income for poorer people Falling real incomes- if there is a lag in the raise in wages then the wages can buy less Cost of borrowing- higher interest rates so higher cost of borrowing Risk of wage inflation- ring labour cost and less profits Business competitiveness- reduce exports Business uncertainty- volatile and high inflation will cause less uncertainty as the businesses cannot predict future costs
29
Winners of inflation
Workers with strong wage bargaining power People with debt if interest is lower than inflation- less to pay back Producers if prices rise faster than costs
30
Losers of inflation
Retired on fixed incomes Lenders and savers if interest rates are negative Workers in low paid jobs
31
Fiscal policy to control demand pull inflation
Contractionary fiscal policy Increase tax Decrease government spending/ subsidies
32
Fiscal policy to control cost push inflation
Decrease tax Max price for goods Subsidies
33
Monetary demand pull inflation
Contractionary monetary policy Increase interest rates Increase exchange rates Decrease money supply
34
Monetary cost push inflation
Decrease interest rates Decrease exchange rates Increase money supply
35
Supply side policies demand pull infaltion
Increase LRAS/ PPF Increase in quality/ quantity of factors of production
36
Unemployment
People who are able and willing to work but they cannot find one They are also actively looking for a job
37
Unemployment measurements
Claimant count International Labour Organisation and UK labour force survey
38
Claimant count
The number of people receiving benefits for being unemployed Provides number of claimants each month and the number of joining and leaving the count each month
39
International labour organisations Uk labour force survey
Those of working age who are without work, able to work and seeking work and have actively looked for work in the last 4 weeks and are available to start in the next 2 weeks
40
Reliable data of claimant count
Criteria to meet for benefit Not all unemployed apply for benefit Benefit fraud
41
Reliable data International labour organisation Uk labour force survey
Estimation Sample size
42
Reliable data for both Claimant count International labour organisation Labour force survey
Exclude part time to full time Those who are not actively seeking employment Not active
43
Types of unemployment
Seasonal Structural Frictional Cyclical
44
Seasonal unemployment
Seasonal changes in employment
45
Structural unemployment
Unemployment caused by the lack of skills to match jobs
46
Frictional unemployment
Unemployment due to people moving between jobs
47
Cyclical unemployment
Unemployment caused by changes in AD causing a change in GDP
48
Causes of structural unemployment
Decline of manufacturing Occupational immobility Geographical immobility Capital replacing labour Foreign workers Long term regional decline Disincentives
49
Cons of unemployment
Lost output, economy in the PPF Fall in real incomes and lower living standards for those affected Drop in tax revenue Higher welfare Budget deficits Labour supply decreases as unemployed move overseas Increase in relative poverty Increase crime
50
Pros of unemployment
Reduce risk of inflation Lower prices Labour available for growing business Self employment
51
Long term effects of unemployment
Loss of work experience Reduced employability Skill depreciation Worsening of human capital Debt as high interest rates Increase stress New jobs in recovery Structural unemployment
52
Why youth unemployment is a problem
Skill gaps less chance of being employed Employees may want experienced workers Fall in retirement rate caused by less pensions
53
Policies to reduce cyclical unemployment
Low I.R causing business lending Depreciation of E.R allows cheaper and more competitive exports Reduction in national insurance Apprenticeship programs Subsidies Decrease corporation tax Tax breaks for research Subsidise new businesses
54
Policies to reduce structural unemployment
Funding for training Teaching new skills Apprenticeship More houses to keep property prices lower and have affordable rent Higher minimum wage Decrease income tax Decrease benefits and increase so no poverty trap

Economics Paper 2 (9 decks)

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