Theme 2 topics eg. AD Flashcards
What is Economic Growth?
An increase in the availability of goods and services in an economy, measured by GDP, at a given time period.
What are the benefits of economics growth
- consumers have more choice
- Coorporate tax revenue increases so better for government
Define Unemployment
The number of people of working age who are willing to work, able to work, and actively seeking work, yet not employed.
How is unemployment measured
- Claimant count - Number of people claiming Job seeker allowance.
- Labour force survey.
What is the advantage of low unemployment
- Higher Incomes
- Governments would pay less welfare benefits
- More workers can lead to higher profits - Increase in output for firms
- More income tax for government
Define Inflation
Increase in the general price level in an economy at a given time period. - of goods/services
How is inflation measured
- CPI - Consumer Price Index
- RPI - Retail Price Index
What is the inflation objective of the government
A low and stable rate of 2%
What are the benefits of Low Inflation.
- people can have a better standard of living
- More sales for companies as prices are cheaper for consumers
- More foreign investments as Internationally more competitive as prices in UK cheaper.
What is Balance of Payments - BOP
An account record of transactions between one country and rest of the world, including exports and imports.
How is balance of payment measured
- Trade deficit - Imports>exports - imports more than exports
- Trade surplus - Imports<exports - more exports than imports.
What are the benefits of Positive Balance of payments
- Exports raise revenue for economy
- More exports means that demand for workers rises so unemployment decreases
3.Higher exports can encourage economic growth
What is Aggregate demand - AD
Total demand for goods and services produced within the economy over a period of time
What is the equation for AD
AD = C + I + G + ( X- M)
Name the components in the AD equation
AD = Consumption of goods and services + Investment + Government spending + ( exports - imports)
What is consumption
Spending by households on goods and services in an economy at a given time period
Define Investment in economics
Spending on capital goods, such as -
Machinery and Equipment - in an economy at a given time period
What is Government Spending
Spending by the public sector on goods and services such as education, health care and defence.
Sketch of an AD curve
Why is the AD curve downwards sloping
- At a lower price, goods and services are cheaper so firms produce more units as more sales.
- At lower price, UK will have more exports as more Internationally Competitive.
If price changes in AD, then what happens in graph
There is movement along the AD curve from point A to B
When does AD curve shift and why
When factors other than price such as components of AD change, then the AD curve can shift to the right or the left
Sketch of the AD shift
What factors affect investment
- Interest rates
- Access to funds
- Accelerator effect
- confidence
5.animal spirit
Which AD factor is most % in UK economy
Consumption at 60%
What is disposable income?
Income after taxes.