Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Economics > Unit 2 - 4 > Flashcards

Unit 2 - 4 Flashcards

1
Q

What are the benefits of unemployment for business and firms?

A
  1. Decreased pressure on wages
  2. And increase in the pool of labour
  3. Decreased risk of industrial action
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are the costs of unemployment for the government?

A
  1. They may be unpopular and therefore voted out
  2. They will have to increase benefits which may result in opportunity costs
  3. Decreased tax revenue as people not paying income tax
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are the costs of unemployment for the national economy?

A
  1. Decreased national income as there is decreased expenditure, decreased incomes and therefore decreased output
  2. Scarce resources may be used up by training unskilled workers
  3. The country may be working within the PPC
  4. Increased tax burden on the employed
  5. No growth
  6. Negative multiplier effect
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Why is there falling UK unemployment?

A
  1. Positive and stable economic growth
  2. Firms expect demand to increase in the future, even if there is decreased demand now they may hold on to labour as more expensive to hire workers and then rehire them
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Why is there rising unemployment?

A
  1. Recession
  2. Demand - low consumer confidence
    - low business confidence
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the definition of inflation?

A
  1. A fall in the purchasing power of money
  2. A rise in the general level of prices
  3. Does not mean that all prices are rising - some may stay the same, some may rise and some may fall
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the current target for the rate of inflation?

A

2%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is the definition of deflation?

A
  1. A general fall in the level of prices

2. Just because inflation is bad, deflation is not good

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are the negative effects of deflation?

A
  1. Increasing unemployment - prices normally fall when there is decreased demand, making it harder for firms to make profits and they therefore have to lay off workers
  2. Negative wealth effect - falling prices of people’s houses and shares then decreased consumer confidence and therefore decreases spending
  3. Decrease in investment - people switch from holding shares to holding cash and bank deposits which will be rising in real value - banks find it hard to raise finance by selling shares
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is stagflation?

A

High inflation and high unemployment at the same time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is hyperinflation?

A

Extremely high rates of inflation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the consumer price index?

A
  1. Calculated monthly
  2. Looks at a sample of over 650 goods and services the a typical household purchases and price changes are recorded.
  3. Each item in the basket is “weighted” according to the proportion of income that is spend by the average household so that one small item doesn’t distort the whole calculation
  4. DOES NOT INCLUDE HOUSING COSTS
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is the retail price index?

A
  1. Calculated the same way as the CPI but includes housing costs
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is meant by a fall in inflation?

A

Prices are still rising but at a slower rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What are the problems with measuring inflation?

A
  1. Higher prices may not mean that inflation is occurring it may just mean that products are changing (a mobile phone is more expensive than 5 years ago because the features are changing)
  2. The CPI may overestimate inflation as they don’t consider special offers or the prices of second hand items at car boot sales
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are the effects of inflation in an individual?

A
  1. Real incomes decrease for those on fixed incomes or those who cannot negotiate their wages in line with inflation
  2. Purchasing power is reduced meaning that Standards of Living will decrease
  3. Unless the interest rate is above the rate of inflation, savings will fall
  4. People on low incomes, their disposable incomes may fall as their increase in income may make them liable to income tax and they may lose social benefits
  5. Unemployment occurs as wages will increase meaning that firms may have to reduce the workforce in order to make the same profits and cover costs
17
Q

What are the effects of inflation on firms?

A
  1. Decrease in investment as they are not willing to invest due to uncertainty about the future
  2. Decrease in real profits as firms may not be able to increase their prices due to cheaper foreign competition
  3. UK firms are less competitive as inflation is high in the UK than the rest of Europe - there export prices are increased
18
Q

What are the effects of inflation on the economy?

A
  1. Economic Growth will decrease as firms won’t invest
  2. Increased unemployment
  3. BoP affected as imports will be cheaper and exports will be dearer
  4. Income tax will rise but expenditure tax will decrease
19
Q

What are the positives of inflation?

A

When business find that they can increase prices they may -

  1. Hire new workers
  2. Advertise more
  3. Produce new products
  4. New businesses may open
  5. Invest in new technology
20
Q

What are the causes of inflation?

A
  1. Demand-Pull - when demand increases, supply increases and therefore prices increase
  2. Cost-Push - costs of production increase faster than productivity meaning an increase in firms unit costs and if firms wish to keep their profit margins they will have to increase prices
  3. Excess in the money supply - consumers have more money, increased demand, increased prices
21
Q

What are the cures for inflation?

A
  1. Reducing demand

2. Increasing supply

22
Q

Why control inflation?

A
  1. There are negative effects on individuals, firms and the economy
  2. To keep the competitiveness of UK goods
23
Q

What is capital expenditure?

A
  1. Government investment in fixed assets

2. Helps to create productive capacity

24
Q

What is current expenditure?

A
  1. Recurring spending on items that are consumed and last a limited time
  2. Eg. Wages, heating, exercise books
25
Q

What are transfer payments?

A
  1. Payment to a firm of individual for which there is no economic benefit given in return
  2. JSA, Pensions, benefits
26
Q

What are the costs of unemployment to business and firms?

A
  1. Lower profits as there is less consumer spending

2. Negative multiplier effect

Economics (20 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions