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Edexcel A-Level Economics (Year 1) > Theme 2 - The UK economy - Performance and Policies (2.1 - Economic Growth) > Flashcards

Theme 2 - The UK economy - Performance and Policies (2.1 - Economic Growth) Flashcards

1
Q

Define GDP [1]

(Per capita) [1]

Ref - 2.1.1 - Economic Growth

A

The total value of all goods and services produced in an economy per year. [1]

Divided by the population of an economy. [1]

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2
Q

Define National Income [1]

Ref - 2.1.1 - Economic Growth

A

The value of a country’s final output of all new goods and services in a year. [1]

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3
Q

What are the 3 main methods of calculating national income? [3]

Ref - 2.1.1 - Economic Growth

A

Expenditure Method [1]
Output Method [1]
Income Method [1]

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4
Q

Briefly outline the expenditure method [2]

Ref - 2.1.1 - Economic Growth

A

This adds up all the annual expenditure from consumer consumption, investment [1] , government spending, and net trade. [1]

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5
Q

Describe the difference between nominal and real GDP. [3]

Ref - 2.1.1 - Economic Growth

A

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]

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6
Q

Describe the difference between volume and value of a good or service. [2]

Ref - 2.1.1 - Economic Growth

A

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]

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7
Q

Describe the difference between total GDP and GDP per capita. [2]

Ref - 2.1.1 - Economic Growth

A

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]

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8
Q

Describe the key difference between GDP and GNI [2]

Ref - 2.2.1 - Economic Growth

A

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]

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9
Q

Give one reason why comparing economic growth between countries can be inaccurate. [2]

Ref - 2.1.1 - Economic Growth

A

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]

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10
Q

State how to convert nominal GDP into Real GDP [1]

Ref - 2.1.1 - Economic Growth

A

(Base Index/Current Index) x Nominal GDP [1]

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11
Q

Explain 1 problem with comparing national income over time in a country. [2]

Ref - 2.1.1 - Economic Growth

A

Quality of goods and services may increase in volume, causing a decrease in price. [1] National income levels would fall as a result, wrongly showing living standards have fallen. [1]

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12
Q

Define Subjective Happiness [1]

2.1.4 - National Happiness

A

Feelings of wellness and satisfaction that cannot be objectively measured. [1]

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13
Q

State 3 factors that can influence subjective happiness. [3]

2.1.4 - National Happiness

A

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]

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14
Q

Describe what is meant by the Easterlin Paradox. [2]

2.1.4 - National Happiness

A

Initially as real income rise, subjective happiness increases [1]. But as real incomes rise further, subjective happiness may no longer increase. [1]

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15
Q

Describe 2 reasons for the Easterlin Paradox. [4]

2.1.4 - National Happiness

A

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]

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16
Q

What are the 3 types of inflation? [3]

Ref - 2.1.2 - Inflation

A

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]

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17
Q

State 2 types of measures of inflation used. [2]

Ref - 2.1.2 - Inflation

A
  • Retail Price Index [1]
  • Consumer Price Index [1]
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18
Q

State 2 other types of RPI [2]

Ref - 2.1.2 - Inflation

A
  • RPIX - Excluding mortgage repayments [1]
  • RPIY - Excluding mortgage repayments and indirect tax [1]
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19
Q

How can RPI be measured? [2]

Ref - 2.1.2 - Inflation

A

RPI can be measured by using the “basket of goods” [1] which is a basket of the most common goods and services. [1]

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20
Q

What are the 2 main differences between CPI and RPI? [4]

Ref - 2.1.2 - Inflation

A

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]

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21
Q

Explain 2 limitations of using CPI as a measure of inflation. [4]

Ref - 2.1.2 - Inflation

A

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.)

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22
Q

What is the index number? [1]

Ref - 2.1.2 - Inflation

A

An economic measure which reflects price/quantity compared to the base year. [1]

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23
Q

How would you calculate the index number? [1]

Therefore, how would you calculate inflation using the index number? [2]

Ref - 2.1.2 - Inflation

A

New Value/Old Value (x100) [1]

  • Multiply index number by given percentage change. [1]
  • Add up other weighted indexs. [1]
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24
Q

What is demand-pull inflation and how is it caused? [2]

Ref - 2.1.2 - Inflation

A
  • Increase in the general price level caused by higher aggregate demand. [1]
  • Caused by an increase in C+I+G+(X-M) [1]
25
Q

What is cost-push inflation and how is it caused? [2]

Ref - 2.1.2 - Inflation

A
  • 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]
26
Q

Explain the concept of wage price spiral in relation to inflation due to the money supply. [3]

Ref - 2.1.2 - Inflation

A

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]

27
Q

Describe 1 effect of inflation on consumers. [3]

Ref - 2.1.2 - Inflation

A
  • 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]
28
Q

Explain 1 effect of inflation on firms. [2]

Ref - 2.1.2 - Inflation

A
  • Reduced international competitiveness as UK exports are more expensive. [1]
  • Therefore a firms profits from exports are reduced. [1]
29
Q

Explain 1 effect of inflation on workers. [3]

Ref - 2.1.2 - Inflation

A

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]

30
Q

Explain 1 effect of inflation on the government. [2]

Ref - 2.1.2 - Inflation

A

Increasing inflation reduces the value of the national debt in real terms [1], therefore less money is owed by a country. [1]

31
Q

Define employment and unemployment. [2]

Ref - 2.1.3 - Employment and Unemployment

A

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]

32
Q

Describe the meaning of the term underemployment [2].

Ref - 2.1.3 - Employment and Unemployment

A

People who are currently employed in a job [1], however are not working to their full capacity/skill. [1]

33
Q

Describe the characteristics of the claimant count in measuring unemployment. [3]

Ref - 2.1.3 - Employment and Unemployment

A

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]

34
Q

Describe the characteristics of the ILO in measuring unemployment. [3]

Ref - 2.1.3 - Employment and Unemployment

A

Must be unemployed and:
- Aged 16-65 [1]
- Been out of work for 4 weeks. [1]
- Ready to start in 2 weeks. [1]

35
Q

Explain 1 reason why the claimant count may be lower than the ILO. [3]

Ref - 2.1.3 - Employment and Unemployment

A
  • 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]
36
Q

State 1 reason why the claimant count may be higher than the ILO. [2]

Ref - 2.1.3 - Employment and Unemployment

A

People who are self employed may apply for JSA [1], as they are technically not working. [1]

37
Q

Describe the difference between levels and rates of employment. [2]

Ref - 2.1.3 - Employment and Unemployment

A
  • Levels are the number of people who are in employment [1].
  • Rates are the % of people employed, allowing for easier comparison between countries. [1]
38
Q

State at least 3 of the 5 types of unemployment in an economy. [3-5]

Ref - 2.1.3 - Employment and Unemployment

A
  • Structural unemployment [1]
  • Seasonal unemployment [1]
  • Frictional unemployment [1]
  • Cyclical unemployment [1]
  • Real wage unemployment. [1]
39
Q

Define structural and seasonal unemployment. [2]

Ref - 2.1.3 - Employment and Unemployment

A
  • 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]
40
Q

Define frictional and cyclical unemployment. [2]

Ref - 2.1.3 - Employment and Unemployment

A
  • 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]
41
Q

What is real wage unemployment? [2]

Ref - 2.1.3 - Employment and Unemployment

A

This is when real wages are set too high [1], therefore firms cannot afford to employ every worker. [1]

42
Q

Why are transferrable skills important in maintaining employment? [2]

Ref - 2.1.3 - Employment and Unemployment

A

A lack of skills may lead to structural unemployment [1] if there are no available jobs in their given sector. [1]

43
Q

Explain 1 impact of migration on employment. [3]

Ref - 2.1.3 - Employment and Unemployment

A

Increased supply of labour in the economy, [1] decreasing wages, increasing demand for labour [1], therefore more jobs are made in the economy. [1]

44
Q

Give one reason why migration may not have an impact on employment. [2]

Ref - 2.1.3 - Employment and Unemployment

A

Some migrants may be inactive [1], therefore they are not working, so there is no impact on employment. [1]

45
Q

Describe 1 effect of unemployment on consumers/workers. [2]

Ref - 2.1.3 - Employment and Unemployment

A

Less consumer choice [1], as their income has decreased, therefore purchasing power decreases. [1]

46
Q

Describe 1 effect of unemployment on firms. [3]

Ref - 2.1.3 - Employment and Unemployment

A

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]

47
Q

Describe an effect of unemployment on the government. [1]

Ref - 2.1.3 - Employment and Unemployment

A

Increased government expenditure, as there is more spending on unemployment benefits [1], therefore posing an opportunity cost. [1]

48
Q

Define the balance of payments. [1]

Ref - 2.1.4 - Balance of Payments

A

A record of all transactions associated with imports and exports. [1]

49
Q

State the structure of the current account of the balance of payments. [4]

Ref - 2.1.4 - Balance of Payments

A
  • 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]
50
Q

Describe what is meant by the investment (primary) income. [2]

Ref - 2.1.4 - Balance of Payments

A
  • 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]
51
Q

Describe what is meant by the transfer (secondary) income [2]

Ref - 2.1.4 - Balance of Payments

A

Inflow of secondary income may include aid [1], which is secondary income [1].

52
Q

What is the difference between a current account deficit and a surplus? [2]

Ref - 2.1.4 - Balance of Payments

A

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]

53
Q

State 2 factors which can cause a current account surplus. [2]

Ref - 2.1.4 - Balance of Payments

A

Low economic growth [1]
A weak exchange rate [1]

54
Q

State 2 factors which can cause a current account deficit. [2]

Ref - 2.1.4 - Balance of Payments

A

A strong exchange rate [1]
High economic growth [1]

55
Q

What are the 3 effects of an reduction in the current account deficit? [3]

Ref - 2.1.4 - Balance of Payments

A
  • Increased economic growth [1]
  • Increased employment [1]
  • Demand-Pull inflation [1]
56
Q

Explain how an increasing current account deficit would impact employment. [3]

Ref - 2.1.4 - Balance of Payments

A

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]

57
Q

Explain how the BoP can impact economic growth. [3]

Ref - 2.1.4 - Balance of Payments

A

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]

58
Q

Define the term “credit crunch” [1]

Ref - 2.1.4 - Balance of Payments

A

When there is a sudden reduction in the availability of credit. [1]

Edexcel A-Level Economics (Year 1) (10 decks)

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