Unit 2 Flashcards
What is economic growth?
Economic growth is an increase in the capacity of an economic to produce good & services, compared from 1 period of time to another
The difference between “GDP” & “real GDP”
The difference between “GDP” & “real GDP” is that real GDP is adjusted for inflation while GDP is not
Limitations of using GDP as a measurement.
- GDP does not measure all the productions occur in the country
- GDP does not consider how output contribute to the quality of people’s lives
- GDP does not measure the quality of the environment.
Different functions of aggregate demand/supply
-Aggregate demand (AD) represents the sum of spending on goods & services produced by a nation over a year. AD = C + I + G + (X-M) C- Private consumption I- Private investment G- Government spending X- Export M- Import -Aggregate supply (AS) represents the sum of goods & services that the nation's producers are prepared to make available over a year.
Factors that contribute to increase/decrease in AD
- Increase
- > Foreign Income : When foreign income rises, a country’s export increase accordingly
- > Expectation : Different expectations can have the capacity to increase or decrease
- Decrease
- > Exchange notes increase : net exports will decrease
- > Monetary policies : a contractionary monetary policy causes AD to decrease.
Factors that contribute to increase/decrease in AS
- Increase
- > Lower input prices
- > Less regulations
- > New raw materials
- Decrease
- > Higher input prices
- > More trade barriers
- > Decrease in education
Government AS policies
- Labour market deregulation : reducing the level of government regulation/control of wages & conditions & allowing for greater flexibility in employment arrangements
- Promoting stronger competition : it increases AS & grow capacity through improved business efficiency & cost cutting among rival firms.
- Lower tax rates : lower the tax burden on individuals & firms.
- Trade liberalisation : less trade barriers.
- Government infrastructure project : enable other businesses to produce goods & services & expand their operation
The effect of policy response to address environmental effects of economic growth
- Emission Trading Scheme (ETS) : reducing emission by putting price on the release of carbon dioxide (CO2)
- Carbon Tax
- Carbon reduction fund
What are the benefits of economic income distribution?
- Incentive effect : if someone works harder, they’re deserved to be paid higher
- Fairness : the amount of income matches one’s skill level
Economic & Social benefits. Economic costs of income distribution
-> measurements of poverty
-Gini coefficient is a measure of income inequality that condenses the entire income distribution for a country into a single no. b/w 1 & 0
G.C = Area A
Area A + Area B
->measurements of poverty
- Distribution of wealth is a comparison of the wealth of various members/groups in a society
- Factors that contribute to Gino Coefficient
- > Median Age : the older, the less unequal & vice versa
- > Economic growth & the share of its workers in different industry
Different types of income
-Earned income : by supplying labour to a business/organisation
-Unearned income : from rents & interest
Transfer income : is derived from government welfare payments
Different types of policy
- Progressive tax system : a tax in which the tax rate increases as the taxable amount increases
- Reduction of unemployment benefits :
- > Improve skills to make people more flexible in the workplace
- > Provide strong incentives to look for & accept work
- > Maintain a sufficiently high level of demand to create enough new jobs.
