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GCSE Economics > Unit 2 > Flashcards

Unit 2 Flashcards

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1
Q

Macro-economics

A

The study of the whole economy

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2
Q

The four main macro-economic objectives of the government

A

Full employment
Economic growth
Achieving price stability
Balancing exports and imports

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3
Q

Full employment

A

Everyone who is able and willing to work has a job. The workforce includes only those who are working plus the unemployed who are looking for a job

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4
Q

Economic growth

A

Growth in output of the economy over time - a growth of real GDP over time

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5
Q

Price stability

A

Keeping inflation low

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6
Q

Balancing exports and imports

A

A balance between exports and imports over time

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7
Q

Aggregate demand

A

The total demand

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8
Q

Interest rate policy

A

Using interest rates to change the level of AD in the economy

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9
Q

Gross Domestic Product

A

The total value of goods and services produced in the country in a year

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10
Q

Economic Growth rate =

A

(change in GDP / original GDP) x 100

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11
Q

What are the causes of economic growth?

A

Investment
Changes in technology
A larger workforce
Education and training
Natural resources
Government policies

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12
Q

How does investment cause economic growth?

A

More investment (spending on capital goods) means the economy has the capacity to produce more goods and services in the future

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13
Q

How does a large workforce cause economic growth?

A

The economy can produce more if it has more workers

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14
Q

How do changes in technology cause economic growth?

A

Technical progress means the quality of capital goods improves, and a given quantity of capital can now produce more output than before

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15
Q

How does education and training cause economic growth?

A

The more educated, trained and skilled the workers, the higher the output of the country is likely to be

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16
Q

How do natural resources cause economic growth?

A

The discovery or development of natural resources can be a stimulus to economic growth

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17
Q

How do government policies cause economic growth?

A

The government takes responsibility for the macro-economic management of the economy

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18
Q

Benefits of economic growth

A

A rise in material living standards
A rise in the welfare of the population
A rise in employment and a fall in unemployment
A reduction in poverty

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19
Q

Costs of economic growth

A

Enviromental costs
Congestion
Loss of non-renewable resources
Lower quality of life
Inequalities of income and wealth
Inflation

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20
Q

How does economic growth cause a rise in material living standards?

A

If the GDP rises at a faster rate than the population, the GDP per capita rises. This means everyone has more output available to consume on average

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21
Q

How does economic growth cause a rise in the welfare of the population?

A

The government is able to devote more resources to services such as health and education

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22
Q

How does economic growth cause a rise in employment and a fall in unemployment?

A

As output rises, more workers will be required to produce it, and the unemployment rate will fall

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23
Q

How does economic growth cause a reduction in poverty?

A

As output and incomes rise, the government can raise living standards of those with lower incomes by providing benefits from progressive taxes

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24
Q

How does economic growth cause environmental costs?

A

Greater output and consumption can lead to more pollution and global warming

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25
Q

How does economic growth cause congestion?

A

Economic growth is often concentrated in certain urban areas, which can become overcrowded and congested

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26
Q

How does economic growth cause a loss of non-renewable resources?

A

Economic growth uses resources that can’t be replaced, including oil, natural gas, natural environments (rainforests), metals and other minerals

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27
Q

How does economic growth cause inequalities of income and wealth?

A

The benefits of growth are unevenly spread. Some people become better off, while others are ‘left behind’

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28
Q

How does economic growth cause inflation?

A

Sometimes the rate of economic growth is too fast for the economy to respond without a rise in the general price level

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29
Q

Unemployment

A

When workers who are able and willing to work are unable to find employment

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30
Q

How can unemployment be measured?

A

Claimant Count
Labour Force Survey

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31
Q

Claimant Count

A

Counts the number of people claiming unemployment related benefits (such as JSA)

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32
Q

Labour Force Survey

A

A survey of a sample of households, counting people as unemployed if they are actively seeking work but do not have a job (in the week of the survey)

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33
Q

What are the six types of unemployment?

A

Voluntary
Seasonal
Frictional
Structural
Technological
Cyclical

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34
Q

Voluntary unemployment

A

This is caused by people choosing not to work

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35
Q

Seasonal unemployment

A

This is caused by seasonal workers not being employed at other times of year, for example in the tourist industry

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36
Q

Frictional unemployment

A

This is caused by workers moving between jobs

37
Q

Structural unemployment

A

This is caused by long-term changes in the structure of industry when some industries decline

38
Q

Technological unemployment

A

This is caused by capital taking the place of labour

39
Q

Cyclical unemployment

A

This is caused by a fall in aggregate demand in the economy. If the demand for goods and services falls, then fewer workers are needed to produce the output, and some will be laid off

40
Q

Consequences of unemployment

A

Labour resources are wasted
Lower living standards
Excluded workers
Costs to taxpayers
A budget deficit
Regional problems

41
Q

How does unemployment cause labour resources to be wasted?

A

The economy is not using all of its resources to full capacity. This means that the economy could produce more output than it is currently producing

42
Q

How does unemployment cause lower living standards?

A

Workers and their families suffer a lower standard of living as unemployment causes their incomes to fall

43
Q

How does unemployment cause excluded workers?

A

Some people are unemployed for so long that they become excluded from the workforce

44
Q

How does unemployment cause costs to taxpayers?

A

The unemployed are entitled to JSA and other benefits. The more unemployed people there are, the greater the costs to taxpayers

45
Q

How does unemployment cause a budget deficit?

A

The government loses tax revenue from workers when they become unemployed. Spending in the economy falls, and the government receives even less tax revenue

46
Q

How does unemployment cause regional prblems?

A

Unemployment is unlikely to be spread out evenly in the economy. Some locations tend to suffer much more than others, and may become ‘depressed areas’

47
Q

Depressed areas

A

Unemployment in these regions is well above the national average, and the lack of demand in the area leads to even more unemployment

48
Q

Inflation

A

A sustained rise in the general price level over time

49
Q

Consumer Price Index (CPI)

A

This is the official measure of the rate of inflation for both the UK government and governments of other European Union countries

50
Q

What types of inflation are there?

A

Monetary
Demand-pull
Cost-push

51
Q

Monetary inflation

A

Inflation caused by growth in the economy’s money supply

52
Q

Demand-pull inflation

A

Inflation caused by excess demand in the economy

53
Q

Cost-push inflation

A

Inflation caused by a rise in costs in the economy

54
Q

Shoe leather costs

A

If prices are not stable, consumers and firms spend more time shopping around to find a reasonable price. This extra time and effort is known as “shoe leather costs”

55
Q

Menu costs

A

Firms have to adjust their price lists more often when there is inflation, for example restaurants increasing the prices on their menus

56
Q

Hyperinflation

A

A rate of inflation so high that the value of money becomes close to worthless

57
Q

Tax

A

A compulsory payment to the government

58
Q

Direct tax

A

A tax on income or wealth

59
Q

Indirect tax

A

A tax on spending, often defined as a tax on goods and services

60
Q

Income tax

A

A tax paid on wages and salaries

61
Q

Corporation tax

A

A tax on the profits of companies

62
Q

Inheritance tax

A

A tax on the transfer of wealth at the time of death

63
Q

Value added tax

A

A tax on a wide range of goods and services

64
Q

Excise duties

A

Taxes on a specific range of goods

65
Q

External cost

A

The negative impact of an economic transaction on a party who is not directly involved in the transaction

66
Q

Demerit good

A

A good or service whose consumption is considered unhealthy or undesirable due to its bad effects on the consumers

67
Q

Distribution of income

A

How incomes are shared out among the people of the country

68
Q

Redistribution of income

A

A policy to reduce the inequalities of income so that incomes are distributed more evenly

69
Q

Inequalities of income

A

Incomes are distributed unevenly so some people have a much higher income than others

70
Q

Transfer payments

A

Benefits to citizens which are paid out of tax revenue

71
Q

Regressive tax

A

Takes a greater proportion of income from lower incomes, or takes a smaller percentage of a higher income

72
Q

Proportional tax

A

Takes the same proportion of income from all income levels

73
Q

Progressive tax

A

Takes a greater proportion of income from higher incomes, or takes a smaller percentage of a lower income

74
Q

Market failure

A

When the market fails to allocate resources in the best interests of society as a whole

75
Q

Externalities

A

The effects on people in society who are not part of the production process

76
Q

Fiscal policy

A

A policy that uses taxation and government spending to try to achieve the objectives of the government

77
Q

Multiplier effect

A

A process by which an original change in incomes in the economy leads to a total change in incomes which is a multiple of the original change

78
Q

How does the government use fiscal policy to inflate the economy?

A

It deliberately aims for a budget deficit, which leads to a positive multiplier effect, and therefore increases employment and economic growth

79
Q

How does the government use fiscal policy to deflate the economy?

A

It deliberately aims for a budget surplus, which leads to a negative multiplier effect, and therefore decreases inflation and the balance of payments deficit

80
Q

Interest rate

A

The reward for saving and the cost for borrowing

81
Q

Bank rate

A

The interest rate set by the Bank of England, which affects all interest rates in the economy (also called the base rate)

82
Q

Why are there different interest rates?

A

Competition between banks and building societies
Other factors affecting savings rates
Factors affecting rates on loans

83
Q

Supply-side policies

A

Policies that increase the ability of the economy to supply more goods and services

84
Q

Monetary policy

A

A policy aimed at affecting the total supply of money in the economy

85
Q

Why does competition between banks and building societies affect interest rates?

A

These institutions are competing for customers, so some of them may try to attract customers by having higher saving rates

86
Q

What are the other factors that affect savings rates?

A

The minimum deposit for the account
The time that the money is tied up
When the saver is committed to a regular saving plan

87
Q

What are the factors that affect rates on loans?

A

The greater the risk, the higher the rate of interest
The greater the security offered by the borrower

88
Q

The types of supply-side policies

A

Education and training
Reducing direct taxes
Reducing benefits
Encouraging enterprise
Encouraging new technology and innovation
Reducing monopoly power

GCSE Economics (3 decks)

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