Theme 2 - The UK economy - Performance and Policies (2.1 - Economic Growth) Flashcards
Define GDP [1]
(Per capita) [1]
Ref - 2.1.1 - Economic Growth
The total value of all goods and services produced in an economy per year. [1]
Divided by the population of an economy. [1]
Define National Income [1]
Ref - 2.1.1 - Economic Growth
The value of a country’s final output of all new goods and services in a year. [1]
What are the 3 main methods of calculating national income? [3]
Ref - 2.1.1 - Economic Growth
Expenditure Method [1]
Output Method [1]
Income Method [1]
Briefly outline the expenditure method [2]
Ref - 2.1.1 - Economic Growth
This adds up all the annual expenditure [1] from C+I+G+(X-M) [1]
Describe the difference between nominal and real GDP. [3]
Ref - 2.1.1 - Economic Growth
Nominal GDP shows values unadjusted for inflation effects. [1]
Real GDP shows values which have accounted for inflation, [1] therefore the value is more accurate. [1]
Describe the difference between volume and value of a good or service. [2]
Ref - 2.1.1 - Economic Growth
The volume is how much of a good or service is being produced. [1]
The value is the percieved worth of a good or service. [1]
Describe the difference between total GDP and GDP per capita. [2]
Ref - 2.1.1 - Economic Growth
Total GDP is the value of goods and services in an economy per year. [1]
GDP per capita is the same, but GDP is divided by the population of a country. [1]
Describe the key difference between GDP and GNI [2]
Ref - 2.2.1 - Economic Growth
GDP only accounts for net income for goods and services produced within it’s borders. [1]
GNI takes into account net income from production overseas. [1]
Give one reason why comparing economic growth between countries can be inaccurate. [2]
Ref - 2.1.1 - Economic Growth
A developing country may have faster rates of growth, [1] but this does not mean their GDP is higher than emerging or developed countries. [1]
State how to convert nominal GDP into Real GDP [1]
Ref - 2.1.1 - Economic Growth
(Base Index/Current Index) x Nominal GDP [1]
Define Subjective Happiness [1]
2.1.4 - National Happiness
Feelings of wellness and satisfaction that cannot be objectively measured. [1]
State 3 factors that can influence subjective happiness. [3]
2.1.4 - National Happiness
Financial situation - e.g. being in low levels of debt. [1]
Job satifcation - Having an interesting/fulfilling job. [1]
Health - e.g. a lack of health concerns. [1]
Describe what is meant by the Easterlin Paradox. [2]
2.1.4 - National Happiness
Initially as real income rise, subjective happiness increases [1]. But as real incomes rise further, subjective happiness may no longer increase. [1]
Describe 2 reasons for the Easterlin Paradox. [4]
2.1.4 - National Happiness
Importance of non-financial factors [1] - Factors such as health, job satisfaction etc. [1]
Importance of habit [1] - Individuals get used to a higher purchasing power, therefore there is less happiness in more spending. [1]
What are the 3 types of inflation? [3]
Ref - 2.1.2 - Inflation
Inflation - A general increase in the price level. [1]
Disinflation - A general decrease in the rate of inflation. [1]
Deflation - A fall in the price level below 0% [1]
State 2 types of measures of inflation used. [2]
Ref - 2.1.2 - Inflation
- Retail Price Index [1]
- Consumer Price Index [1]
How can CPI be measured? [2]
Ref - 2.1.2 - Inflation
CPI can be measured by using the “basket of goods” [1] which is a basket of 800 of the most common goods and services. [1]
What are the 2 main differences between CPI and RPI? [4]
Ref - 2.1.2 - Inflation
CPI mainly excludes anything relating to housing [1], such as mortgage repayments and house depreciation. [1] (bar CPIH)
RPI excludes high income households (top 4% of earners) [1] and pensioners claiming 75% of their income from the state. [1]
Explain 2 limitations of using CPI as a measure of inflation. [4]
Ref - 2.1.2 - Inflation
CPI does not take into account the quality of goods [1] therefore quality can vary. [1]
CPI does not include housing costs [1] which may impact reliability as the cost of housing may increase. [1]
- (However, CPIH does take into account for housing, countering this argument.)
What is the index number? [1]
Ref - 2.1.2 - Inflation
An economic measure which reflects price/quantity compared to the base year. [1]
How would you calculate the index number? [1]
Therefore, how would you calculate inflation using the index number? [2]
Ref - 2.1.2 - Inflation
New Value/Old Value (x100) [1]
- Multiply index number by given percentage change. [1]
- Add up other weighted indexs. [1]
What is demand-pull inflation and how is it caused? [2]
Ref - 2.1.2 - Inflation
- Increase in the general price level caused by higher aggregate demand. [1]
- Caused by an increase in C+I+G+(X-M) [1]
What is cost-push inflation and how is it caused? [2]
Ref - 2.1.2 - Inflation
- Increase in the general price level, due to high costs of production. [1]
- Caused by an increase in costs of production (e.g. Labour costs, indirect taxation etc.) [1]
Explain the concept of wage price spiral in relation to inflation due to the money supply. [3]
Ref - 2.1.2 - Inflation
Higher money supply causes higher inflation due to demand-pull inflation. [1] As inflation increases, workers demand higher wages, [1] so businesses raise their price, causing higher inflation. [1]
Describe 1 effect of inflation on consumers. [3]
Ref - 2.1.2 - Inflation
- High inflation will reduce the value of real incomes. [1]
- So borrowers benefits as real value of debt decreases. [1]
- So savers will be hurt as the reward for saving is less. [1]
Explain 1 effect of inflation on firms. [2]
Ref - 2.1.2 - Inflation
- Reduced international competitiveness as UK exports are more expensive. [1]
- Therefore a firms profits from exports are reduced. [1]
Explain 1 effect of inflation on workers. [3]
Ref - 2.1.2 - Inflation
Rising inflation will reduce the real value of workers wages [1], therefore their purchasing power decreases, [1] which may see a decrease in subjective happiness. [1]
Explain 1 effect of inflation on the government. [2]
Ref - 2.1.2 - Inflation
Increasing inflation reduces the value of the national debt in real terms [1], therefore less money is owed by a country. [1]
Define employment and unemployment. [2]
Ref - 2.1.3 - Employment and Unemployment
Employment - Total number of people who are working for a salary. [1]
Unemployment - People without a job who are able and willing to work for current wages. [1]
Describe the meaning of the term underemployment [2].
Ref - 2.1.3 - Employment and Unemployment
People who are currently employed in a job [1], however are not working to their full capacity/skill. [1]
Describe the characteristics of the claimant count in measuring unemployment. [3]
Ref - 2.1.3 - Employment and Unemployment
Must be unemployed and:
- Registered at the job centre, claiming JSA [1]
- Over the age of 18 [1]
- Able and willing to accept available work. [1]
Describe the characteristics of the ILO in measuring unemployment. [3]
Ref - 2.1.3 - Employment and Unemployment
Must be unemployed and:
- Aged 16-65 [1]
- Been out of work for 4 weeks. [1]
- Ready to start in 2 weeks. [1]
Describe 2 reasons why unemployment measures may not be accurate. [4]
Ref - 2.1.3 - Employment and Unemployment
May underestimate the level of unemployment [1]
- e.g excluding those who are frictionally unemployed. [1]
May overestimate the level of unemployment [1]
- e.g. those who are physically disabled (cannot work) still unemployed. [1]
Explain 1 reason why the claimant count may be lower than the ILO. [3]
Ref - 2.1.3 - Employment and Unemployment
- Youth employment is not included in the measure. [1] 16-18 year olds looking for employment will not be included, [1] therefore the ILO may be higher, especially if there is a surge in youth employment. [1]
State 1 reason why the claimant count may be higher than the ILO. [2]
Ref - 2.1.3 - Employment and Unemployment
People who are self employed may apply for JSA [1], as they are technically not working. [1]
Describe the difference between levels and rates of employment. [2]
Ref - 2.1.3 - Employment and Unemployment
- Levels are the number of people who are in employment [1].
- Rates are the % of people employed, allowing for easier comparison between countries. [1]
State at least 3 of the 5 types of unemployment in an economy. [3-5]
Ref - 2.1.3 - Employment and Unemployment
- Structural unemployment [1]
- Seasonal unemployment [1]
- Frictional unemployment [1]
- Cyclical unemployment [1]
- Real wage unemployment. [1]
Define structural and seasonal unemployment. [2]
Ref - 2.1.3 - Employment and Unemployment
- Structural - When patterns of demand and supply in an economy determine unemployment. [1]
- Seasonal - When workers are unemployed during certain times of the year. [1]
Define frictional and cyclical unemployment. [2]
Ref - 2.1.3 - Employment and Unemployment
- Frictional - When workers are unemployed for short periods of time. [1]
- Cyclical - When there is not enough demand in an economy for all workers to receive a job. [1]
What is real wage unemployment? [2]
Ref - 2.1.3 - Employment and Unemployment
This is when real wages are set too high [1], therefore firms cannot afford to employ every worker. [1]
Why are transferrable skills important in maintaining employment? [2]
Ref - 2.1.3 - Employment and Unemployment
A lack of skills may lead to structural unemployment [1] if there are no available jobs in their given sector. [1]
Explain 1 impact of migration on employment. [3]
Ref - 2.1.3 - Employment and Unemployment
Increased supply of labour in the economy, [1] decreasing wages, increasing demand for labour [1], therefore more jobs are made in the economy. [1]
Give one reason why migration may not have an impact on employment. [2]
Ref - 2.1.3 - Employment and Unemployment
Some migrants may be inactive [1], therefore they are not working, so there is no impact on employment. [1]
Describe 1 effect of unemployment on consumers/workers. [2]
Ref - 2.1.3 - Employment and Unemployment
Less consumer choice [1], as their income has decreased, therefore purchasing power decreases. [1]
Describe 1 effect of unemployment on firms. [3]
Ref - 2.1.3 - Employment and Unemployment
As more workers become unemployed, they may work for a lower wage [1], therefore reducing recruitment costs for firms, [1] while also increasing productivity. [1]
Describe an effect of unemployment on the government. [1]
Ref - 2.1.3 - Employment and Unemployment
Increased government expenditure, as there is more spending on unemployment benefits [1], therefore posing an opportunity cost. [1]
Define the balance of payments. [1]
Ref - 2.1.4 - Balance of Payments
A record of all transactions associated with imports and exports. [1]
State the structure of the current account of the balance of payments. [4]
Ref - 2.1.4 - Balance of Payments
- Trade of goods (e.g. exports+imports) [1]
- Trade of services [1]
- Investment (primary) income (e.g. interest) [1]
- Transfers (secondary) income (e.g.EU transactions) [1]
Describe what is meant by the investment (primary) income. [2]
Ref - 2.1.4 - Balance of Payments
- Income made by UK businesses abroad flows back into the UK. [1]
- Income made by foreign businesses in the UK flow out to the foreign country. [1]
Describe what is meant by the transfer (secondary) income [2]
Ref - 2.1.4 - Balance of Payments
Inflow of secondary income may include aid [1], which is secondary income [1].
What is the difference between a current account deficit and a surplus? [2]
Ref - 2.1.4 - Balance of Payments
Deficit - Money in the current account going out of a country > money coming in. [1]
Surplus - Money in the current account going out of a country > money coming in. [1]
State 2 factors which can cause a current account surplus. [2]
Ref - 2.1.4 - Balance of Payments
Low economic growth [1]
A weak exchange rate [1]
State 2 factors which can cause a current account deficit. [2]
Ref - 2.1.4 - Balance of Payments
A strong exchange rate [1]
High economic growth [1]
What are the 3 effects of an reduction in the current account deficit? [3]
Ref - 2.1.4 - Balance of Payments
- Increased economic growth [1]
- Increased employment [1]
- Demand-Pull inflation [1]
Explain how an increasing current account deficit would impact employment. [3]
Ref - 2.1.4 - Balance of Payments
An increase would lead to less competitive exports [1], therefore reducing revenue for firms [1] so they are forced to lay off more workers, increasing unemployment. [1]
Explain how the BoP can impact economic growth. [3]
Ref - 2.1.4 - Balance of Payments
A BoP deficit means that there are more withdrawals (imports) [1] than injections (exports) of the circular flow of income into the economy [1] , therefore economic growth slows down. [1]
Define the term “credit crunch” [1]
Ref - 2.1.4 - Balance of Payments
When there is a sudden reduction in the availability of credit. [1]
