Theme 2 Topic 1 Flashcards
What is macro economics?
It is the study of the economy as a whole and analyses the global economic system.
What is economic growth?
It is an increase in the production of goods and services in an economy, and it is measured by the GDP.
What is GDP (Gross domestic product) ?
The value of all finished goods and services produced in the economy of a country over a period of time. It can be measured by adding up all of an economy’s incomes or expenditures.
What is GDP per capita?
It is the total GDP divided by the number of people in the country.
What does real per capita GDP enable us to do?
It allows us to compare the standard of living of individuals within each country.
What is nominal GDP?
It is expressed in monetary terms and doesn’t take into account inflation.
What is real GDP?
It takes inflation into account. Real GDP = nominal GDP / average price level.
What is volume of output?
The quantity of goods and services produced in a country.
What is value of output?
The monetary worth of goods and services produced in a country.
What is GNI?
Gross national income is the GDP plus income paid into the country by other countries for things like interest and dividends.
What is GNP?
Gross national product is the GDP plus income paid into the country minus income claimed by non residents.
What is PPP?
Purchasing power parties are when values are expressed in accordance with the amount of goods and services that the currency will buy in the local economy.
What is GDP per capita PPP?
It is a comparison between countries, taking into account different costs of living and the exchange rate to make it more accurate.
What is inflation?
The general rise of prices over time.
Why might a government have a policy of economic growth ?
- Generate wealth (reduce poverty)
- Reduce unemployment
- Increase tax intakes
Why does real GDP allow for more accurate comparisons of GDP over time ?
Inflation is taken into account. Therefore, the change in the price of goods doesn’t affect the value of the goods. This allows for a more accurate value.
What does it mean if a country’s GDP growth % is negative ?
Recession occurs
What is short run economic growth ?
The actual annual percentage change in real national output.
What is long run economic growth ?
An increase in the potential productive capacity of the economy.
How is economic growth measured in terms of short run economic growth ?
The annual percentage change in GDP or Real National Output.
How is economic growth measured in terms of long run economic growth ?
The maximum potential output of the economy using all factor resources as shown on the PPF.
What is real GDP ?
The value of goods + services produced in the economy over a period of time, taking into account inflation.
What is total national income ?
The value of all goods + services produced in a country.
What is per capita income ?
The total income divided by the number of people in the country.
What is a limitation of GNP and GNI as a comparator ?
Many jobs in low income countries are informal, so they aren’t given a financial record.
What is PPP ?
Purchasing power parities is when values are expressed in accordance with the amount that the currency will buy in the local economy.
How is PPP calculated ?
Real GDP / number of people within the country
It then converts the income into dollars and allows a comparison between all the countries around the world. This allows us to see how much an individual from each country can buy, given the average amount of income that they have.
What is GDP per capita PPP ?
A comparison between different countries, taking different costs of living and the exchange rate into account. This makes it more accurate.
What are the 5 limitations of using GDP to compare living standards ?
- Accuracy of statistics (e.g. constantly changing populations and inaccurate population statistics)
- Shadow economy isn’t included in measurements (e.g. tax reasons, some things being paid in cash)
- Transactions without a monetary value (e.g. housework)
- Negative externalities (e.g. pollution that economic growth causes but doesn’t taken into account)
- Economic growth causes inequalities in income and wealth in a country
What is real income growth per head ?
A good guide to actual growth if the other factors (based solely off of GDP) are taken into account.
What are the main problems between developed and developing countries ?
Developing countries consume what they produce and don’t offer it on sale on the market, so there is no monetary value. They also might wish to achieve growth at the expense of health + safety.
Developed countries increase incomes at the expense of quality of life (stress, long working hours)
What is a response to limitations of using GDP ?
Measuring national happiness
What do the UN regularly publish ?
A world happiness record
What has the UN identified to be the 6 factors that impact happiness ?
- Real GDP per capita
- Healthy life expectancy
- Generosity
- Perceived freedom to make life choices
- Having someone to count on
- Freedom from corruption
What has Richard Layard discussed to be the big 7 factors affecting happiness ?
- Family relationships
- Financial situation
- Work
- Community and friends
- Health
- Personal freedom
- Personal values
What is happiness economics ?
A new branch of economics that looks at how content individuals are with their life from a theoretical and scientific point of view.
Why has happiness economics occurred ?
Because standard measures of living standards don’t take into account contentment.
What is national well-being ?
How happy one perceives themselves to be (the government has started researching this)
What is the Easterlin Paradox ?
Happiness rises with average incomes, but only up to a certain point. Beyond the point, the marginal gains in happiness fall because people care about relative and absolute incomes.
What is inflation ?
The rate of change in the average price level over time.
It is the sustained increase in the cost of living/fall in the purchasing power of money.
What is the UK government’s target for inflation ?
2%
How is the average price level measured ?
By checking the prices of a basket of goods/services that an average household purchases each month. The basket is turned into an index (CPI)
What are the 2 ways in which inflation can be measured by ?
- Consumer price index (CPI)
- Retail price index (RPI)
What is a difference between CPI and RPI ?
RPI takes housing costs (e.g. mortgage payments) into account
What is the inflation rate ?
The change in average price levels in a given time period.
How is the inflation rate calculated ?
Using an index with 100 as the base year.
How is CPI calculated ?
The office of national statistics (ONS) compile CPI (and RPI) based upon the basket of goods/services (700 items).
A household expenditure survey is conducted to determine what goes into the basket.
Goods/services are weighted based on the proportion of household spending.
The price x the weighting = the price index.
What is the formula for CPI calculations ?
Cost of basket in year ‘x’
/ x 100
cost of basket in base year
What does the percentage change in CPI between the two years present ?
The inflation rate for the given period.
Which 2 surveys are undertaken to calculate inflation using CPI ?
1 : collection of data about people’s purchases using the ONS Living Costs and Food survey (LCF)
2 : the price survey by civil servants who collect data once a month (120k prices gathered)
What are the limitations of CPI ? (5)
- Each household experiences a different rate of inflation
- It doesn’t include mortgage payments and their associated interest
- Doesn’t recognise improvements in the quality of goods over time
- CPI only changes once a year
- CPI is prone to errors in data collection
What is CPIH ?
The consumer price inflation including owner-occupiers’ housing costs. It is a new measure of inflation.
What is the main difference between CPI and CPIH ?
It includes changes in residential rents across the UK.
It estimates the amount it would cost all UK homeowners to rent their houses.
It includes council tax in its calculation.
How is RPI calculated ?
Certain goods/services that are excluded from CPI are included with RPI.
Due to extra inclusions, inflation measured using RPI is usually higher than CPI (due to sensitivity to interest rate changes).
Argued that RPI has a more accurate indication of a household’s inflation than CPI.
What are the uses of CPI ? (3)
- Public sector pension increases
- Bank of England inflation target
- Social security benefits increase
What are the uses of RPI ? (2)
- Pension scheme increases where rules explicitly refer to the RPI
- Regulated rail fares.
What is deflation ?
A decrease in the general price level.
When does deflation occur ?
when the % change in prices falls below zero %. this is when there are periods of very low growth.
the value of money is rising and demand is very low.
what happens when deflation occurs ? (5)
- prices fall
- consumers delay purchasing decisions (they think prices will fall more in the future)
- consumption decreases significantly
- firms loose the confidence to invest
- harms aggregate demand even further
what is disinflation ?
inflation rate is positive but falling
inflation is still increasing but at a decreasing rate
e.g. y1 = 5%, y2= 4%, y3= 3%
why is a low and stable rate of inflation important ? (2)
- enables firms to confidently plan for future investments
- offers price stability to consumers
What are the 3 primary causes of inflation ?
- Demand - pull
- Cost - push
- Growth of the money supply
Calculations (indices)
New base/base figure x 100
What is demand pull inflation ?
It is caused by excessive demand in the economy for goods/services.
There is too much money chasing too few goods/services.
If any factor which increases AD was to increase, then inflation would increase
What are the causes of demand pull inflation ? (4)
- Reduced taxes (increases disposable income)
- Lower interest rates (people spend more and save less)
- Weaker exchange rate (boosts export growth)
- Consumer confidence/certainty (increases consumer spending and investment)
What is cost push inflation ?
When firms respond to rising costs of production by increasing prices (to maintain profit margins)
Firms may be able to absorb some increases in their costs but they can’t do this fully so pass costs onto the consumer in the form of higher prices.
What are the causes of cost - push inflation ?
- Wages increase (workers demand higher wages to maintain real incomes when prices rise, so this may lead to a wage-price spiral)
- Higher raw material costs (if they are more scarce and are in greater demand, they may increase in price)
- Higher taxes on firms (corporation tax)
What is growth of money supply ?
Too much money in the economy.
people have more money to spend but the amount of goods and services aren’t increasing as fast, so prices rise.
idea grew out of the fisher equation
What is the fisher equation ?
MV = PT
M is money supply
V is speed of money circulating in the economy
P is price level
T is the number of transactions
An increase in money supply leads to an increase in price level, ceteris paribus
What are the 2 types of money in the growth of money supply ?
- Narrow money (notes/coins/liquid assets)
- Bond money (wider definitions of money, bank account deposits)
How can the government increase the money supply ? (4)
- Printing more notes (through BoE)
- Use quantitative easing (create money electronically)
- Reduce deposit holdings of banks, so they can lend more money (bank multiplier)
- BoE buys bonds to create liquidity (financial institution pays a fixed some annually for this)
What are bonds ?
- Fixed income financial assets that provide the holder with a stream of income annually
- they are tradeable and have a redemption date for when they mature
What is liquidity ?
How easy it is to turn financial assets into money (notes/coins)
By law, UK banks must hold a certain % of deposits to provide liquidity.
What is quantitative easing ?
2008 UK recession : BoE would have expected to cut interest rates in order to help boost economic activity
However : with interest rates at 0.5%, they had little downwards movement to manipulate the economy with
Banks worried about lending money to firms and individuals so the BoE boosted the funds available for lending to businesses
designed to encourage commercial banks to lend at cheaper interest rates i.e. to small & medium sized businesses.
How do changes in world commodity prices affect domestic inflation ?
Commodities (oil) make up a large % of UK imports
They have a huge impact on price levels
Many that are brought in the UK are price inelastic
A rise in the world price of commodities will feed through UK inflation
What is the Producer Price Index ?
PPI shows the rate of changes of prices of producers
How do changes in other economies affect UK inflation ?
New markets are creating growing demand for goods globally, causing demand - pull inflation.
These markets are increasing productive capacity, which has caused lower cost products feeding through lower prices (China)
The economic performance of the UK’s major trading patterns (EU and US) will impact on demand for UK products
How does inflation work ?
- Prices of goods and services rise
- Wages remain constant but prices rise
- Consumers have less disposable income
- Inflation destroys the value of money
What does inflation have effects on ?
- Workers
- Firms
- Consumers
- The government
Inflation effects on workers ?
They demand an increase in wages to cover higher costs of living
Collective bargaining occurs with the union negotiating with employers to improve wage rates
Deflation causes staff to lose their job as there is a lack of demand so firms see a fall in profit and have to decrease staff to cut costs
What is indexation ?
Allows groups to plan for the future if inflation is anticipated.
Wages/taxes are increased in line with inflation
Workers will negotiate with employers for wage rises in line with the predicted CPI
May lead to further inflation because wage increases will reflect past increases
Inflation effects on the government ?
The rise of inflation increases the cost of living for citizens.
The government will have to increase state pensions + welfare payments in line with inflation.
This increases the amount of government spending.
Inflation will help to reduce the national debt in real terms.
Inflation reduces the real interest rate so the cost of borrowing falls
Inflation effects on consumers ?
The real value of people’s savings will fall.
People on fixed incomes will have a lower purchasing power and their incomes fall.
Consumption decreases and the standard of living decreases.
This may increase unemployment.
Inflation effects on firms ?
Loss of international competitiveness (UK exports become more expensive and UK imports are cheaper)
The balance of trade will be affected.
Increased uncertainty for firms as rising costs will lead to firms investing less
Workers may demand higher wages as their cost of living is now higher.
What are the 2 types of deflation ?
- Demand side deflation (bad/malignant deflation)
- Supply side deflation (good/benign deflation)
What is demand side deflation ?
Demand decreases (shifts left)
Prices decrease
Economic growth decreases
Long term deflation and anticipation of a recession
Why is anticipated deflation / a deflation spiral dangerous ? (3)
- Delayed spending - prices fall, but bad for businesses now as there is lower growth and higher unemployment
- Positive interest rates - nominal inflation, incentive is to save because interest rates are still positive, so more saving occurs
- Increase real value of debt - prices decrease, profits decrease, incomes decrease
What is supply side deflation ?
Supply increases (shift to the right)
Prices increase
Economic growth increases
Short term deflation and is unanticipated
Why is short term/unanticipated deflation beneficial ?
- Falling prices for consumers - improves purchasing power
- Falling input prices for firms - reduces costs of production, so increases profits
What is the balance of payment ?
A record of a country’s trade and transactions with the rest of the world. It measures the total value of exports - imports.
What are the 3 sections of the balance of payments ?
- The current account
- The financial account
- The capital account
What is included in the current account ?
- Trade in goods
- Trade in services
- Investment income
- Transfers
What is included in the financial account ?
- Transactions in financial assets
- Investment flows
- Government transactions
What is included in the capital account ?
- Transfer of assets by individuals
What is a surplus ?
When the sum of exports of goods/services/transfers/ investment income is greater than imports
Exports > imports
What is a deficit ?
When the sum of exports of goods/services/transfers/ investment income is less than imports
Imports > exports
What are trade in goods ?
- it measures net exports (X-M) of visible goods
- the UK has traditionally run a large deficit on trade in goods
- difference between visible exports and visible imports = the balance of trade
What are the reasons for the UK’s large deficit on trade in goods ? (3)
- Increase in demand for consumer goods (many are imported)
- Lower production of primary materials (gas/oil) (reliance on imports for raw materials)
- Strong currency (imports are more affordable and exports are less attractive to foreign buyers)
What are trade in services ?
- it measures the net exports (X-M) of invisible items (banking, insurance, tourism)
- the UK has traditionally run a large surplus on trade in services
Reasons for the UK’s large surplus on trade in services ? (3)
- UK shifted away from primary + secondary sectors and more towards tertiary sector employment. they specialise in the provision of services
- UK is more competitive in the provision of these services and can offer better services at a lower cost
- London has developed as one of the world’s prime financial centres and become a major source of income in the UK
Balance of trade in goods and services equation :
Balance of trade in goods and services = balance of trade + balance of invisibles
What is investment income ?
Generated by UK owned assets
UK firms own companies abroad generate income from overseas investments
Profits + dividends received are sent back to the UK and count as a credit item of investment income on the current account
What are transfers ?
Payments made by the government to and from other countries.
Given its status in the EU and global economy, the UK runs a deficit on the transfers section of the current account.
What are the main UK transfers ? (3)
- Payments of EU fees
- Foreign aid contribution
- Economic migrants sending money back to their families in their home country.
What are primary incomes ?
Result of loans of the factors of production
E.g. interests, profits, dividends
What are secondary incomes ?
A range of government transfers to overseas organisations
E.g. the EU
Current balance equation :
Current balance = balance of trade + balance of invisibles + net income + current transfers
causes of a current account deficit - strong domestic growth
An increase in AD means domestic incomes increase.
Demand for goods increase.
However, many of the items that consumers consume are imported from abroad.
So, an increase in incomes is likely to lead to an increase in the demand for imports.
This leads to a current account deficit.
causes of a current account deficit - strong exchange rates
Makes imports cheaper and exports more expensive.
Domestic goods become less competitive abroad.
So, demand for exports decrease.
Imports becoming cheaper increases their demand.
The total amount of money spent on imports increases.
causes of a current account deficit - high production costs for domestic firms
Increase in costs (due low investment, low productivity…) leads to a rise in the cost of domestic goods.
Prices of domestic goods increase relative to other countries.
A reduction in the demand for domestic exports occurs.
So, a reduction in the total revenue gained for exports occurs.
causes of a current account deficit - high relative inflation
This increases the price of domestic goods in relation to those abroad.
This makes them less competitive
So, the demand for exports decreases
causes of a current account deficit - poor quality goods
Demand for poor quality domestic goods decreases
The goods are less desirable
Total revenue from exports decreases
What are ways to redress the balance ? (3)
- Controlling consumer spending (reduces demand for imports)
- Depreciation of exchange rate (makes exports more price competitive, however, it will increase the relative price of imports, which may be problematic if we can’t produce domestic alternatives)
- Improve macro economic conditions in the UK
( This encourages investment + domestic growth and reduces our reliance on imports,
the current account surplus increases AD, causing GDP to increase, the general price level.
If inflation is already high this could be a problem.
Surplus can push the price levels to a point past inflation.
Therefore the government needs to decide whether a current account surplus is worth it if it’s going to cause high uncontrolled inflation)
What are the 4 ways which have led to globalisation ?
- Proportion of output of an individual economy which is traded internationally is growing
- More people own assets in other countries (shares, loans)
- Increasing migration between countries
- More technology being shared at a faster rate
What does international trade mean ?
Countries have become more interdependent.
A change in the economic condition of 1 country will affect another, since the quantity they import and export changes.
All current balances should add up to zero (what one country imports, another exports (in theory) ).
What is unemployment ?
The number of people looking for work but who can’t find it at a point in time
What is the level of unemployment ?
Number of people unemployed
What is the rate of unemployment ?
Number of people unemployed as a % of the labour force
Or
Unemployment/labour force x 100
What does the labour force include ?
All those who are economically active
What does economically inactive mean ?
Individuals of working age 16-64 who are neither employed nor seeking employment activity.
What are the 2 principle measures of unemployment ?
- Claimant count
- Labour force survey (ILO)
What is the claimant count ?
The number of people claiming Job Seekers Allowance (JSA).
A some of money given to someone unemployed while they seek work.
What are problems with measurements for the claimant count ? (5)
- Is everyone eligible to sign off
- Under 18s and over 60s don’t count
- The JSA criteria changes
- Some of those who claim JSA aren’t actively looking for work
- Self employed workers who are temporarily unemployed don’t claim
What is the labour force survey ?
Quarterly survey of around 60k households complied by the Office of national statistics (ONS), studying the employment circumstances of the UK population
What are the advantages of the LFS ? (5)
- internationally recognised
- Potential analysis of data
- Picks up trends in sectors
- Better guide to policy makers
- Generally accepted to be more accurate
What are the disadvantages of the LFS ? (2)
- Costly to compile (60k interviews every 3 months)
- Subject to sampling and extrapolation errors (bias)
Who are the hidden employed ? (3)
- Working part time but would like to work full time
- Sick / disabled
- Aren’t actively looking for work but would take a job if offered
What is under employment ?
When workers can’t find a job that is suitable for their qualifications and experience or who cannot find enough hours to work.
E.g. graduates are unable to find work that is of graduate standard and are being placed in less skilled jobs
Workers are placed on ZHC and called into work when required rather than being given a permanent contract
What is a zero hour contract ?
Only working when the firm calls you. There are no fixed working hours
What is full time work ?
Working a minimum of 30 hours a week
What is part time work ?
Working less than 30 hours a week with family benefits
Signifiant changes in rates of employment :
A record number of people are in work in the UK,
However, the employment rate is not at its peak.
Due to the population increasing (through immigration)
Signifiant changes in rates of unemployment :
The rate of unemployment has fallen in 2015 and is heading for the lows that the UK experienced in the 2000s.
Due to the increase in the number of people who are economically inactive.
Signifiant changes in rates of inactivity :
Includes potential workers who have withdrawn from the workforce in order to look after sick relatives, are on long term sick leave, or have given up on looking for work.
The extent of the consequences of unemployment depend upon 2 factors :
- Rate of unemployment, employment, and inactivity
- The duration of unemployment, employment, and inactivity
Who are the consequences of unemployment faced by ? (3)
- The economy
- Businesses
- The unemployed
What are the 4 types of unemployment ?
- Structural
- Frictional
- Seasonal
- Cyclical
What is structural unemployment ?
A long term decline in demand in an industry, leading to reduction in employment (due to international competition or technology).
many highly skilled workers are unable to find work as there is limited demand for their labour (as production and supply has been moved to other countries).
workers therefore need to retrain and gain new skills to find employment
BUT this is costly + timely
geographical immobility (workers who don’t want to move to find a job)
occupational immobility (workers who don’t have the skills required for a job)
What is frictional unemployment ?
occurs between the time workers are unemployed and when they find a job (moving between jobs) through career moves or geographical changes.
short term + occurs as workers don’t have immediate information about every job opportunity available to them.
What are the 3 types of structural unemployment ?
- Regional unemployment
- Sectoral unemployment
- Technological unemployment
What is seasonal unemployment ?
When workers are unemployed at different times of the year. (Tourism)
Happens in seasonal industries as more workers are employed over busy periods (Christmas)
This distorts unemployment and unemployment is ‘seasonally adjusted’.
Little can be done to prevent this from happening in a free market economy
What is cyclical (demand-deficient) unemployment ?
Linked to the economic cycle and occurs when there is a negative output gap. Demand is low.
When a recession occurs, unemployment rises as firms will reduce the number of staff they have to meet the change in the level of demand for their goods/services, or they stop hiring more employees. This causes output/real GDP to fall and an increase in the general price level.
As the economy recovers and moves towards a positive output gap, cyclical unemployment will reduce.
What is real wage flexibility ?
When real wage rates are above equilibrium wage rate.
Leads to excess supply of labour.
Workers will supply more of their services at higher wage rates.
Firms will demand less workers at higher wage rates.
In a free labour market, real wage rates would fall in these circumstances and the market would return to equilibrium.
Distortions to the labour market (e.g. NMW) can maintain real wage rates above their equilibrium.
Can also be caused by unemployed workers refusing to take low paid jobs because they receive more in welfare benefits.
What is net migration ?
The difference between emigration (those leaving the UK) and immigration (those coming into the UK)
Significance of migration for unemployment and employment ?
Net migration into the UK has increased the number of workers coming into the UK.
This has increased the supply of labour to UK businesses of both skilled and unskilled workers.
Immigrant workers are arriving from both the EU and outside the EU.
Due to the circular flow of income, immigrants’ spending creates jobs and employment increases without an increase in unemployment.
However, it leads to lower wages (for low skilled jobs), as there is more competition for jobs, workers have less motivation to work.
Low skilled workers are most affected as they are competing in the job market with skilled workers who are prepared to take the same jobs as them.
Significance of skills for employment and unemployment ?
UK is facing skills shortages.
The skills gap is mostly occurring in sciences and practical trade jobs (engineering).
This leads to higher wages in these fields with wages being bid up, increasing costs for firms.
The government is looking to tackle these shortages with apprentices.
People become long term unemployed as their skills don’t fit the jobs on offer.
Migrant workers may fill these shortages if their skills fit.
Impact of unemployment on workers ?
High levels of frictional unemployment give workers time to look for jobs that are right for them.
This is likely to increase the duration that workers stay in jobs and they’re happiness working there.
However, if they’re out of a job for too long, they may lose their existing skill sets as they’re not being fully utilized.
This may result in long term unemployment in the future. It is also inefficient for the economy, moving it to a point further inside the PPF curve.
The long term unemployed find it hard to get another job as they lose skills.
Those who are in jobs will suffer from lower job security and will fear being made redundant.
They can see a fall in wages because firms can easily find someone to replace them if they complain about pay
Impact of unemployment on firms ?
There will be a decrease in demand for their goods.
Leads to less profit.
Long term unemployment leads to a loss of skills so firms have a smaller pool of skilled people to employ.
They can offer low wages as people will take the job anyway because they know there is a lack of jobs so have few options.
Impact of unemployment on consumers ?
Consumers will loose income that they endure.
Leads to a fall in living standards as well as other social issues.
For example, health issues such as depression are often higher in times of high unemployment and a reduction in people’s self-esteem due to the loss of their job status.
Impact of unemployment on the government ?
Increased government spending on JSA and employment programmes.
Reduced incomes cause a fall in tax revenues. VAT falls
This causes a budget deficit for the government.
The government will have to raise taxation or scale back plans for public spending (on education).
They may need to increase borrowing
Impact of unemployment on society as a whole ?
often an increase in crime and general unhappiness. This is likely to take a big toll on society as the number of negative externalities (vandalism) increase.
An unhappy population can lack motivation which increases the amount of people that become economically inactive.
There is also a loss of potential output as there is wastage of economic resources and the economy produces within the PPF.
What is an index number ?
Shows % change in the price/quantity from the base year
What is a recession ?
Negative economic growth for 2 consecutive quarters.
What is a stigma ?
Stigma is the negative perceptions faced when out of work. Process of signing to receive benefits (JSA) can make someone feel stressed, breakdowns, big toll on mental health.
What happens if a government fails to change personal income tax allowance ?
If this isn’t changed in line with inflation, consumer taxable income will increase so the government can take more money from them, and the consumer ends up with less disposable income.
What happens if a government fails to change excise taxes ?
If taxes aren’t adjusted in line with inflation, the % tax on an item will not change, and lead to a fall in government revenue.
What is the HDI used for ?
to analyze and compare the economic development of different countries
State 2 factors which can cause a current account surplus
Low economic growth
Weak exchange rate
State 2 factors which can cause a current account deficit
A strong exchange rate
High economic growth
What are the 3 effects of an reduction in the current account deficit? [3]
Increased economic growth [1]
Increased employment [1]
Demand-Pull inflation [1]
Define the term “credit crunch” 1
When there is a sudden reduction in the availability of credit. [1]
On the contrary of investment income, what are debit items ?
As foreign investments are made, debit items will also occur.
This means when foreign investors earn profits/dividends from their investments in the UK, those payments are sent to the foreign country.
Accounted as money flowing out of the UK.
