Theme 2: The UK economy - performance and policies Flashcards

Question

What are structural and frictional unemployment (2.1.3) (5,2)

Answer 1

-Structural unemployment is unemployment caused by the long term decline in a sector -This can be the most challenging type of unemployment to deal with, due to the immobility of labour -Occupational immobility of labour is when workers are unable to move jobs due to not having the skills required -Geographical immobility of labour is when workers don't want to move areas, and therefore are limited to certain jobs -Leads to a mismatch of skills supplied and skills demanded -Frictional unemployment is the unemployment between leaving one job and joining another -Sign of a healthy labour market with workers willing to trade jobs

Answer 2

-Unemployment is the proportion of the labour force not in work -Calculated with unemployed population / unemployed + employed -Employment is the amount of the working age population currently in employment -Calculated with employed / working age population -Inactivity is the amount of people in the working age population not actively seeking work -Calculated with inactive / working age population

Answer 3

-Underemployment is when workers on zero/part time contracts want to be working full time -When a workers job doesn't truly represent their skill level -Typical in recessions, when firms want to decrease costs and output without having to make anyone redundant

Answer 4

-Seasonal unemployment is when workers are only employed for certain times in the year, typically in the agricultural and tourism sectors -Can be combatted by improving the mobility of labour -Technological unemployment is the substitution of capital for labour -Firms may decide its cheaper to become capital intensive, and therefore the workers are no longer needed -Voluntary unemployment is when people don't want to work at the current wage rates -May have savings to fall back on, or none of the available jobs appeal to them

Answer 5

-A potential budget deficit may occur -Increased benefits spending and deceased tax revenue -Rise in poverty and inequality -Loss of potential output, as the unemployed leave the workforce -Loss of GDP as the economy is not performing at full output + AD falls

Answer 6

-The UK has historically, and currently, ran a current account deficit -This is not a problem if the deficit can be financed by other parts of the balance of payments -This can represent a high standard of living, with imports for the consumers -It is a problem if the budget deficit is a result of decreased productivity in an economy -A long term money outflow could cause a depreciation in the exchange rate, and imported inflation -Reserves of a foreign currency run low

Answer 7

-Countries rely on incomes through exports -Countries get goods through imports -If there is a recession in one country, this will have knock on effects on anyone who imports there -If a deficit becomes consistent, net incomes continue to leave, reducing domestic demand and possibly creating unemployment

Answer 8

-The balance of payments records the economic transactions between one country and the rest of the world -This comprises of the current, financial and capital accounts -The current account represents the trade in goods, trade in services, investment income and income transfers between one country and the rest of the world

Answer 9

-Economic growth = Higher incomes = Higher imports = (X-M) worsens -Export led growth, however, leads to an improvement in the current account -Low unemployment = higher incomes = higher imports = (X-M) worsens -All of these are at the cost of inflation

Answer 10

-Higher interest rates lead to higher borrowing costs and therefore decreased investment, also making saving more attractive, although investment demand isn't too fluctuant on interest rates -Future sales increase confidence, leading to increased investment -Economic growth leads to increased demand, and firms increase investment to cope with this -Tax breaks and grants make it more profitable to invest -A lower exchange rate will increase demand for exports, and therefore increased investment will occur -Firms' ability to invest depends on their access to credit -Animal spirits, since naive optimism leads to risk taking -Lower costs of production allow firms more profits to invest with

Answer 11

-The value of exports (X) is the value of the flow of money into the country -The value of imports (M) is the value of the flow of money out of the country -The value of net exports is (X-M) -The UK typically has a negative value of net exports -Net exports in the UK only accounts for about 5% of AD

Answer 12

-Net exports effect: At higher prices, exports are less competitive, and therefore (X-M) goes down, and therefore AD falls -Interest rate effect: At higher prices, the MPC is more likely to raise interest rates, however this leads to decreased consumption and investment, and therefore decreased AD -Real wealth effect: As prices fall, people real wealth rises, and therefore people become more confident, consumption rises and therefore AD does to

Answer 13

-An appreciation in the exchange rate means the pound can now buy more foreign currency, and foreign currency can buy less pounds -This leads to imports becoming cheaper and rising, and exports become less competitive and falling, leading to decreased net exports -However. the impact of this depends on whether countries are locked into trade contracts

Answer 14

The business cycle is the pattern of economic growth which changes from boom to recessions or slow growth -Discretionary fiscal policy is the deliberate manipulation of spending and taxation -In a boom, government spending on benefits falls, and tax revenue rises -The government will typically run a budget surplus, to try to pay back some of the national debt -In a recession, government spending on benefits rises, as tax revenue falls -The government will run a budget deficit, to try to pump money into the economy

Answer 15

-Consumption is the spending by households on goods/services, roughly 60% of the UK economy Factors which impact consumption are: -Higher disposable incomes lead to higher consumption -Lower interest rates mean mortgage interest repayments fall, people are less incentivised to save, and consumption financed by borrowing becomes cheaper -Future job prospects and anything that increases confidence will cause a rise in consumption -Higher house prices create a positive wealth effect, as well as allowing people to take out loans against their house -Saving is anything which is not spent, so decreased savings leads to increased consumption

Answer 16

-Aggregate demand is the total market planned expenditure on goods and services produced within the UK within a year -AD = C+I+G+(X-M)

Answer 17

-A recession in a foreign country leads to decreased exports, and decreased net exports -higher incomes lead to higher imports, and decreased net exports -Higher inflation leads to decreased export competitiveness/domestic competitiveness, leading to decreased exports, increased imports, and decreased net exports -An appreciation in the exchange rate leads to decreased net exports -Anything which decreases confidence abroad will lead to decreased exports, and decreased net exports -Protectionism will lead to decreased imports, and increased net exports, however other countries may respond with their own measures

Answer 18

-Investment is the purchase by firms of capital goods, which will help to create assets which will generate future incomes, roughly 10-15% of AD -Gross investment is investment before taking into account the depreciation of assets -Net investment is investment once considering the fall of value of capital (over time machines wear out and become redundant and the investment no longer impacts the economy) -Net investment is more useful when looking at the productivity and potential output of the economy, but there are calculation errors involved

Answer 19

-Aggregate supply is the total value of output of an economy at a given price level at a given point in time -In the short run, it is assumed all factors of production are fixed -The only exception is labour, which can temporarily change productivity -Short Run Aggregate Supply is the relationship between real GDP and price level

Answer 20

-Shifts in the LRAS curve are caused by changes in the productive capacity of the economy Some examples which may cause these changes are -Change in education and training -Change in innovation and technology -Change in migration/demographic changes -Changes in relative productivity -Competition policy -Changes in government policy/regulation

Answer 21

-An LRAS curve is a vertical line, assuming the economy is constantly producing at full capacity -However this full capacity doesn't mean there is no unemployment, as frictional unemployment is necessary -The classical LRAS curve is built upon the assumption that factor prices are fully varaible, so any change in AD will be responded to with a change in SRAS, to ensure that LRAS stays the same

Answer 22

-Movements along the SRAS curve are caused by shifts in AD -These shifts cause a change in the price level, and therefore a change in SRAS

Answer 23

-An increase in innovation may cause increases in the quality of technology, allowing us to produce more and increasing LRAS -The increase in tech may allow other firms to enter the market -An increase in education and training increases the quality/quantity of labour, increasing LRAS -These highly skilled workers can continually innovate, leading to further rises in LRAS -Changes in relative productivity increase the quality of labour/capital, leading to increases in LRAS -The change in productivity means the UK can produce more with the same level of factor inputs, leading to a rise in LRAS

Answer 24

-In the short run, it is assumed the quantity and quality of factors of production all remain the same -The exception is labour, which can change based on productivity -In the long run, it is assumed all factors of production are fully variable in their quality and quantity

Answer 25

-A decrease in regulation allows firms to innovate, increasing production and increasing LRAS -Firms will strive to innovate, increasing LRAS, as they sought to increase profits -An increase in migration leads to an increase in the quantity of labour, causing an increase in LRAS -Migration may cause further increases in LRAS by spending in the economy, allowing firms and the government to reinvest -Competition policy should lead to greater efficiency amongst firms -A main objective of the UK government is to increase competition, in order to improve quality, and create growth in the economy

Answer 26

-Aggregate supply is the total planned output of an economy at a given time at a given price level -Short run aggregate supply is the relationship between real GDP and the price level -Long run aggregate supply represents the maximum possible output an economy can produce as determined by its available factors of production

Answer 27

-SRAS shifts when there are changes to the cost of production of a good -Higher raw material prices increase a firms costs of production, causing an inwards shift of SRAS -An appreciation in the exchange rate leads to cheaper imported factors, and increased SRAS -However, this will have a negative effect on demand, as exports fall -An increase in business tax rates lead to a rise in costs of production, and a fall in SRAS -Firms may avoid this by relocating to lower tax areas -This also decreases demand, by decreasing investment

Answer 28

-A Keynesian LRAS curve is built upon the assumption that factor prices are sticky downwards, due to unions and minimum wages This means that changes to AD may not cause SRAS to shift, meaning wages don't change and the economy isn't at YFE -The Keynesian view of the LRAS curve is that the economy doesn't always have to produce the maximum that factors allow, with both a horizontal and vertical section

Answer 29

-There is a time lag with the multiplier -The value of the multiplier may change over time -It is very hard to measure/isolate the multiplier -Future spending/tax may cancel out the effects -The effects depend on the initial state of the economy -The impacts depend on how significant the initial change is -Those on low incomes will have a higher mpc

Answer 30

-The circular flow of income is an economic model showing the flow of goods and services, the factors of production and their payments between households and firms within an economy -Injections into the flow are investment, exports and gov. spending, whereas withdrawals are taxation, investment and saving, and within the flow households give firms money and their services, and firms give households incomes and goods/services

Answer 31

-The effects in the short run are likely different to the effects in the long run -In the short run, SRAS and AD will change -In the long run, AD and LRAS will change -For example, in the short run an increase in government spending would lead to a rise in AD, but in the long run it may lead to an increase in productivity, and LRAS -The change in AD/AS ultimately depends on how significant the change is -Is it a change of £1,000 or £1,000,000,000 -Is it something like consumption, a significant portion of AD, or just net exports

Answer 32

-Income is a flow concept based on the stream generated from all assets -Wealth is a stock concept based on the market value of all assets -Higher wealth will lead to higher incomes generated on assets -These higher incomes can be reinvested into buying more assets, and boosting ones wealth -If there assets are in the form of capital goods, these can help increase output and incomes in the future

Answer 33

-Ceteris paribus is the assumption that all other things remain unchanged, allowing us to analyse the impact of a specific thing -However, in reality, things do not remain unchanged, and certain changes may be amplified/offset -An increase in government spending may be offset if it is funded by a rise in tax -A fall in investment and capital stock could be offset by migrant workers -Increased oil prices may be offset by investment into fuel efficient capital

Answer 34

-An increase in AD leads to an increase in real national output, and an increase in the price level -An increase in SRAS leads to an increase in real national output, and a decrease in the price level -An increase in LRAS leads to an increase in real national output, and a decrease in the price level

Answer 35

-Marginal propensity to consume is the proportion of a change in income which will be spent on consumption -Marginal propensity to save is the proportion of a change in income which will be saved -Marginal propensity to import is the proportion of a change in income which will be spent on imports -Marginal propensity to tax is the proportion of a change in income which will be taxed -MPW=MPT+MPS+MPI, MPW+MPC=1

Answer 36

-The multiplier is the number of times a change in income within the economy exceeds change in net injection which caused a shift in AD -k = 1/mpw = 1/1-mpc

Answer 37

-The impact of a shift of AD depends on how much spare capacity there is in the economy -An increase in C will have a significant impact on AD -Wealth effects can also play a part -The final impact depends on the size of the multiplier

Answer 38

-Higher incomes and consumer confidence leads to higher consumption and therefore higher living standards -There will be more career progression due to more opportunities -Firms will experience higher profits, allowing for higher reinvestment and higher future growth prospects -The government can run a budget surplus, to clear off some government debt -The government will gain more in tax, and have to pay less benefits -Firms can use the money to invest in cleaner tech, improving the environment in the future -The government can use their increased revenue to invest into things such as the NHS, to increase the future standard of living

Answer 39

-Economic growth is growth in GDP over time -A slowdown is when GDP is still growing, but at a lesser rate than before -A recession is 2 consecutive quarters of negative economic growth

Answer 40

-An output gap is the difference between actual GDP and potential GDP -A positive output gap is when actual GDP > potential GDP, accompanied by high growth and inflationary pressures -A negative output gap is when actual GDP < potential GDP, accompanied by low growth and disinflationary pressures -This can be illustrated on a PPF by the economy either being within the PPF or outside of it -This can be illustrated on the business cycle with any area above the long term trend, trapped by actual growth, being a positive output gap, and any area below the long term trend trapped by actual growth being a negative output gap

Answer 41

-The peak of actual GDP is the boom, the downwards trend is the recession, the bottom is the slump and the upwards trend is the recovery -Anywhere in between actual GDP and the long term trend is an output gap, above LTT = +OG, below LLT = -OG

Answer 42

-Global recessions can slow down trade -An absence of capital markets will mean less loans are available, leading to less consumption and investment -Lower birthrates could lead to future shortages in the labour market -Government instability leads to less external investments, and less government spending to finance growth -External constraints such as tariffs may hinder export led growth -Fears of supply shocks may slow down change

Answer 43

-On a Keynesian curve, only negative output gaps occur, which are the difference between Ye and YFE -On a classical curve, output gaps are the distance between YFE and Ye, either positive or negative

Answer 44

-A boom is a period of high levels of economic activity -In a boom there is high economic growth, AD, confidence, capital investment and low unemployment -However, there is also inflationary pressures, and a potential labour skills shortage -A recession is 2 consecutive quarters of negative economic growth -In a recession, there is low demand, confidence, investment, with high unemployment and more firms going out of business -A slump is the bottom of the business cycle, which represents serious economic decline -In a slump, there is low demand, confidence, investment, with high unemployment and more firms going out of business -However, inflation is also low and there is a rise in spare capacity -A recovery is when there are signs that economic growth starts to rise -In a recovery, there is high economic growth, AD, confidence, capital investment and low unemployment -However, there is also inflationary pressures, and a potential labour skills shortage

Answer 45

Short run -The primary cause of economic growth is an increase in AD -This is caused by a rise in C + I + G + (X - M) -This leads to actual economic growth -Economic growth can also occur if there is a rise in SRAS -This will occur if there is a fall in costs of production Long run -For long run economic growth to occur, there must be an increase in the productive capacity of the economy -This leads to potential growth -This is due to changes in LRAS, due to changes in the the quality and quantity of factors of production

Answer 46

-Export led growth is where the driver of growth is the export component of AD -In China, exports often account for over 50% of AD -Under export led growth, the current account improves no matter how imports rise -The problem of export led growth is that exporters become vulnerable to changes in demand in other countries, and changes in the exchange rate

Answer 47

-It is difficult to measure current levels of AD and AS -Potential output is based on estimates of the supply of labour, capital stock, etc, making this information inaccurate -Not all unemployed resources would have the same impact if they were employed -Non-use of resources makes them less useable in the future, reducing the productive potential of the economy

Answer 48

-Income inequality rises, since unskilled workers are less likely to lead it, and therefore less likely to benefit -Environmental problems such as pollution and depletion of resources may rise with output -However, the government could use growth to invest in cleaner technology -There may be current account problems, as imports rise and (X-M) worsens -However, this is not a problem if growth is export led -Bottlenecks in the economy may occur, as the growth may have high inflation -Growth may lead to higher stress for workers

Answer 49

-Sustained sustainable economic growth -Low inflation (2% ±1) -Low unemployment (3%) -A balanced current account -Reduce public sector debt -Stable exchange rate -Reduce inequalities of wealth -Protect the environment

Answer 50

-A demand side policy is a policy which involves the deliberate manipulation of Aggregate Demand, to achieve macroeconomic objectives -Fiscal policy is the deliberate manipulation of government spending and taxation, in order to influence AD and achieve macroeconomic objectives -Monetary policy is the deliberate manipulation of the money supply, interest rate and exchange rate by the bank of England's monetary policy committee, primarily to target inflation

Answer 51

-Interest rates are the price of money, the cost of borrowing and reward for saving -Higher interest rates lead to lower AD -Higher interest rates increase the cost of borrowing, decreasing spending financed by borrowing (C+I) -Higher interest rates increase the profitability to save, and decrease the amount of spending (C+I) -Higher interest rates increase mortgage interest repayments, and therefore decrease peoples disposable incomes (C) -An increase in interest rates also causes a decrease in (X-M) -An increase in interest rates increases demand to save in UK banks, therefore increasing demand for the £, causing an appreciation of the exchange rate, leading to increased imports and decreased exports

Answer 52

-Blunt policy tool, cannot be targeted to specific groups -Time lag of about 18-24 months -Impacts of interest rates depend on the nature of mortgages (fixed vs variable) -Whether price or GDP changes more depends on the elasticity of the AS curve -Conflicts of objective may occur, as high growth = high inflation -Depends on the confidence of the population, as people may not spend their extra money -If there is a floor of 0%, interest rates may become too low where nothing else can be done -Depends on the income distribution of a country, as the rich are more likely to spend -Higher interest rates lead to higher costs of production -QE may lead to people hoarding the money, and lending it when the economy improves -Ultimately comes don to the value of the multiplier

Answer 53

The role of central banks is to: -Control the supply of money in the economy -Act as a lender of money to banks and the government -Control the base rate -Provide regulatory framework for the financial sector -The monetary policy are 9 people at the bank of England responsible for setting the base rate -They meet up every month to discuss whether there should be changes tp the base rate -They are independent from the government, in order to increase their credibility

Answer 54

-Quantitative easing is the purchase of gilts by the bank of England, in order to make credit easier to access -In times of low economic activity, the bank of England will purchase government bonds from households and firms -This purchase of bonds will increase firms' liquid, increasing their willingness to spend/lend -This will lead to an increase in consumption, investment and AD -Also, an increase in buying bonds will increase the price of bonds -This increase in the price of bonds will decrease the coupon rate of the bonds (yield = coupon payout/price), and therefore firms will kook to other assets to increase their liquidity -This increase in demand for other assets will cause a positive wealth effect, further increasing AD

Answer 55

-A cut in interest rates will lead to lower costs of production, and higher SRAS -A cut in interest rates may stimulate a business investment -The business investment may lead to increased productive capacity, and higher LRAS

Answer 56

-If the bank of England is concerned by low growth and deflation, they may cut interest rates -This reduces savings, and consumption rises -This leads to increased output, employment, price level -If the bank of England is concerned by high inflation, they may raise interest rates -This increases saving, and lowers consumption -This reduces inflation, but reduces growth and employment

Answer 57

-Current expenditure is the day-to-day spending on goods/services (teachers salaries) -Capital expenditure is the long term investment in projects (new hospitals) -Transfer payments are payments to individuals, without any production in return (Child benefits, JSA) -Government expenditure objectives involve: public goods, merit goods, income redistribution, defence -Indirect taxes are taxes on expenditure -Direct taxes are taxes on income and wealth -The government can borrow money if spoending>tax and run a budget deficit

Answer 58

-Automatic stabilisers are changes to government spending and tax which happen automatically with the state of the economy, in order to reduce business cycle fluctuations -Increase in GDP = higher incomes = higher tax, lower benefits -Discretionary fiscal policy is the deliberate changing of G & T -This involves deliberately increasing/decreasing government spending/tax

Answer 59

-In order to pump more net spending into the economy, the government runs a budget deficit, increasing spending and decreasing tax -The positive multiplier magnifies the effect as money cycles through the economy -This leads to increases in real output and inflation -In order to contract the economy, the government runs a budget surplus -The negative multiplier magnifies the effect as money is withdrawn throughout the economy -This leads to reduced inflation and real output

Answer 60

-Strength of the policy depends on the value of the multiplier -Effectiveness of policy depends on the elasticity of the AS curve -Conflicts of objectives -Fiscal policies are effective in deep recessions -Fiscal policies can target specific groups, regions, and can be made to have supply side improvements -Fiscal policies can have negative incentives, disincentivising hard work or getting a job -Unlike monetary policy, fiscal policies harm the governments budget, and may lead to future decreases in spending -For neoclassicals, fiscal policies are mostly iseless -The government only has 2 budgets a year to manipulate G&T -There is a decision making time lag (when the government decides to act vs when they actually act) -Time lag in the policy itself (building the new hospital) -Increases in AD = Increased inflation = Increased workers wages = decreased SRAS -Crowding out may occur (higher G = less factors of production for private sector higher Gov. borrowing = increased demand for money = increased interest rate = decreased C&I)

Answer 61

-The great depression occured through 1929 and most of the 1930s, starting with the wall street crash in october 1929, leading to high unemployment -The initial response of the US government was to do very little -FDR's new deal involved loose monetary policy, large government spending on infastructure -However, some argued the new deal was too late, and WW2 ended the depression -In 1931, deflationary policies were necessary to maintain the value of the £, but decreased GDP -Eventually in september 1931, the UK left the gold standard, but also eased monetary policy -The UK introduced a 10% tariff, but cut interest rates and increased the money supply -However, the recovery was uneven, fully recovering with rearmament

Answer 62

-In 2008, a crash in the housing market caused many banks to collapse -In the US, tax cuts and government spending amounted to $700 billion -Interest rates cut to 0.25% as $2 trillion of QE implemented -UK bought shares in UK banks, cut VAT and increased investment -This raised the budget deficit from 2.3% to 11.3% of GDP -Interest rates cut to 0.5%, $450 billion worth of QE -However, severe recessions could've been avoided if extreme measures used early -QE's arguably main effect was to increase asset prices

Answer 63

-Supply side policies are policies aiming to increase the productive capacity of the economy -These aim to increase the quality/quantity of factors of production Supply side policies can be illustrated with: -An outwards shift of a PPF -An outwards shift of an LRAS curve

Answer 64

-Market based supply side policies are policies which aim to remove anything that prevents the free market system from working efficiently -Interventionist supply side policies are policies where the government gets involved in markets, in order to reduce market failure -Free market economists tend to argue for market based policies, wanting a minimal government, whereas keynsian economists feel the economy is not as efficient as thought, and thus support government intervention to improve it

Answer 65

-Labour market reform -Reducing unemployment benefits/National Minimum Wage leads to less unemployment occuring, decreasing real costs of production and thus shifting LRAS outwards -Decreasing trade union power/increased labour flexibility leads to reduced bargaining power over wages, thus leading to reduced wages and therefore a higher quantity of Factors of Production -More competition means more production, compelling firms to become more efficient -Removing legal monopolies, revitalising stale industry, deregulation -Increasing incentives -Reduced income tax encourages people to work harder/invest more -Reduced benefits incentivise unemployed to get a job

Answer 66

-Improving education and training improves the quality of labour -However, expensive + time lag -Improving health and introducing performance related pay -Longer term policies encourage firms to produce more -Improving infastructure increases productivity and efficiency -HS2 could reduce travel time by train

Answer 67

-Some policies (education) have time lags of many years to have any effect on production costs -Policies may even increase costs in the short run due to fewer workers in the labour market -At low levels of output (Keynsian LRAS), SSPs will have no effect -Opportunity cost of government spending on interventionist policies -Can cause poverty/inequality by cutting the systems in place to aid the poorest in society -Deregulation in the phone industry has led to lower prices and higher quality -SSPs have the positive outcome of higher growth and lower inflation -SSPs lead to long term outcomes, unlike DSPs

Answer 68

-HS2 will be Britains new high speed rail line, connecting London to Birmingham to Manchester -£23 billion currently in the suply chain, with an estimated £98 billion cost (2021) -Will be 530km, and starts running from 2029-2033 -HS2 east, connecting Leeds and Birmingham has been scrapped, and the nnumber of trains running decrease, in efforts to cut costs

Answer 69

-Policy conflicts are when attempts to achieve one policy objective have adverse effects on other policy objectives -An outwards shift in AD may lead to higher growth, but causes higher inflation -An outwards shift in LRAS may lead to higher output, but could lead to environmental damage

Answer 70

-Increased AD = increased output of the economy in response to the rising levels of demand -Increased AD = upwards pressures on prices due to supply constraints -As prices rise, total market value of output rises, leading to increases in incomes and further pressures on the price level However: -Stagflation occurs when an economy experiences low growth and high inflation -Cost push inflation = decreased SRAS = higher inflation and lower growth -1970s oil crisis = 23% inflation but -2% growtj (1973) -The increase in inflation depends on how much spare capacity there is in the economy -AD may rise without creating a bottleneck in the economy -Potential growth (LRAS) leads to decreased inflation

Answer 71

-When unemployment is low, labour shortages may occur, meaning firms compete fiercer to hire staff -This leads to higher wages, which leads to both demand pull and cost push inflation -The Phillips curve is a curve with inflation on the y axis, unemployment on the x, and it is a downwards sloping curve However: -SRAS shifting right leads to higher growth and lower inflation, with lower unemployment to necessitate the higher growth -One reason for SRAS shifting right could be due to oil prices crashing down from $100 (2013) to $50 (2015) -Unemployment also tends to be a lagging indicator of the economy, since workers are only laid off as a last resort

Answer 72

-Higher economic growth = higher incomes -Higher incomes lead to increased imports, and a decreased current account However: -If economic growth is export led, the current account will improve with higher economic growth -If its supply side growth, lower price leads to higher export competitiveness leading to higher economic growth -Higher growth leads to higher resource depletion -Higher growth = higher employment = higher pollution, congestion, travel However: -However, higher growth can lead to higher green taxes or higher government revenue for green spending -The service sector is less taxing on environment (UK SS = 79% of output) -Growth could be propelled by renewable resources

Answer 73

-When there is economic growth, the people who generate the growth take most of the gains, allowing the rich to get richer -Higher demand for labour = higher immigration = higher supply of labour = lower wage rate = higher inequality -However, over time high income earners demand more workers, narrowing the gap

Answer 74

-High inflation leads to a worsened currenct account (not a conflict, bad vs bad) -However, high inflation is sorted by raising the interest rate -Higher interest rates mean it is more attractive to put money in UK banks (hot money flows) -This higher demand for UK banks = higher demand for the pound = higher exchange rates, thus leading to a worsened current account

Answer 75

-If the government runs expansionary fiscal policy, AD will shift up, leading to higher growth -This will also cause higher inflation, leading to contractionary fiscal policy -Increased interest rates increase borrowing costs, and shift the SRAS curve left, decreasing growth -However, this doesn't occur if the UK firms borrow a lot of raw materials from abroad, or dont borrow money