Theme 2 - The UK economy – performance and policies Flashcards
This theme focuses on macroeconomic concepts. Students will develop an understanding of: ● measures of economic performance ● aggregate demand ● aggregate supply ● national income ● economic growth ● macroeconomic objectives and policy.
Define automatic stabilisers
Automatic fiscal changes as the economy moves through different stages of the business cycle such as, if the economy enters a recession, the government may decide to take less in tax, so less tax revenue, and increased spending on welfare benefits when the unemployment rate is rising
What is the claimant count?
- measure of unemployment, counts the number of people claiming unemployment-related benefits such as the Job Seekers allowance. They have to prove they are actively looking for work
Evaluation of claimant count
- not every unemployed person is eligible for or even bothers claiming JSA
- unemployed people with partners on high income not eligible for JSA
- Some employed people claim unemployment benefits
What is the circular flow of income?
Where firms and households interact and exchange resources in an economy
households give firms factors of production in exchange for factor incomes (dividends, wages, rents)
firms supply households with goods and services in exchange for consumer spending
income = output = expenditure
circular flow expands = GIX
circular flow contracts = SIT
What is the multiplier effect?
When an initial increase in AD leads to an even bigger increase in national income
Define the following and their effects on the multiplier effect :
- Marginal propensity to save
- Marginal propensity to consume
- Marginal propensity to tax
- The proportion of each additional pound of household income that is used for saving
- higher mps – multiplier decreases
- The proportion of each additional pound of household income that is used for spending
- higher mpc – multiplier increases
- The proportion of each pound that is taxed by the government.
- higher rate of tax –multiplier decreases
- The amount imports increase or decrease with a rise or decline in disposable income
- consumers spending income on imports rather than domestic goods or serviced – multiplier size decreases
MPC + MPS = ?
1
What is the multiplier ratio?
The ratio of the number of times the increase in national income is larger than the initial injection in AD
Define marginal propensity to consume
measure of the proportion of an increase in income that a person or household is willing to spend on consumption rather than save
formula - change in consumption/ change in income
Define real GDP
the value of the total goods and services produced in an economy, in a given time period e.g. year, adjusted for infaltion
formula for calculating real GDP
Nominal GDP/ GDP deflator x 100
formulas for calculating the multiplier
1/ (1- MPC)
1/MPW
MPW = MPS + MPT (tax) + MPM (import)
Define speculation
If speculators think that the a currency will appreciate in the future, demand for it will increase in the present, as they believe a profit can be made by selling it in the future
Define market rigging
the manipulation of financial markets to gain unfair advantages
group of individuals or insitiutions collude to fix prices or exchange information that will lead to gains for themselves, at the expense of other participants in the market
