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National 5: Economics > Unit 2 - UK Economic Activity > Flashcards

Unit 2 - UK Economic Activity Flashcards

1
Q

National Income

A

The value of goods and services produced by an economy in a given year - usually measure through GDP

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2
Q

Measuring National Income - Output Method

A

Final value of all goods and services produced in an economy in a year

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3
Q

Measuring National Income - Income Method

A

Total Incomes earned by households (from the factors of production) in a year

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4
Q

Measuring National Income - Expenditure method

A

Total money spent by households on the output of goods and services in a year.
Calculated using consumption + investment + government spending + (exports - imports)

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5
Q

Uses of GDP statistics

A

To check if policies have worked in improving the economy
To measure living standards
To compare with other countries
Used by international organisations (such as the EU) to decide how much each country should contribute
To decide how much aid the government should give to a country

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6
Q

Measures of National Income - GDP

A

Gross Domestic Product - Value of goods and services produced in the UK in a given year

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7
Q

Measures of National Income - GNP

A

Gross National Product - Value of goods and services produced by UK firms in a year

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8
Q

Measures of National Income - NNP

A

Net National Product - Value of goods and services produced by UK firms in a year, taking into account depreciation

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9
Q

Economic Growth

A

Increase in the productive capacity of the economy over a period of time i.e. A year

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10
Q

Recession

A

Two consecutive quarters of negative economic growth

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11
Q

Real GDP

A

Measure of the value of economic output that is adjusted for price changes (i.e. inflation/deflation)

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12
Q

Nominal GDP

A

Measure of the value of economic output without taking into account price changes (i.e. inflation/deflation)

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13
Q

Government Economic Aims - Growth

A

Stable economic growth - steady and controlled = 2%

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14
Q

Government Economic Aims - Unemployment

A

Low unemployment : around 3% - reduce structural and frictional unemployment

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15
Q

Government Economic Aims - Balance of Payments

A

Balance of payments balance - increase value of exports and reduce value of imports

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16
Q

Government Economic Aims - Inflation

A

Low inflation - Bank of England manage interest rates and money supply to achieve the targeted 2%

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17
Q

Government Economic Aims - Inequality

A

Low inequality - Reducing the gap between the rich and the poor

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18
Q

Inflation

A

A general rise in the level of prices of goods and services in a year

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19
Q

Measuring Inflation - CPI

A

Consumer Price Index - does not include housing costs and mortgages

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20
Q

Measuring Inflation - RPI

A

Same as Consumer Price Index but it includes housing costs and mortgages

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21
Q

Measuring CPI

A

Complete the Living Costs and Food Survey to find out what the average family buys
Create a basket of goods and give a weight to each item based on importance
Gather prices from retailers around the country
After a period of time, check prices from the last time and calculate a percentage change (per item)
Add up all the % changes and calculate the average change - this gives us the annual inflation figure

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22
Q

Causes of Inflation - Demand Pull

A

This is when demand in the economy increases and firms reach maximum capacity - so prices are bid up

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23
Q

Causes of Inflation - Cost Push

A

This is when the price of inputs increases (e.g. better wages demanded) so firms will increase prices to maintain their profit margin

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24
Q

Causes of Inflation - Monetary

A

This is when the money supply in the economy grows and consumers spend more money. This will drive up demand and hence prices.

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25
Q

Deflation

A

A general fall in the level of prices of goods and services in a year

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26
Q

Disinflation

A

A fall in the rise of the level of prices of goods and services in a year

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27
Q

Effects of Inflation - Individuals

A

Fall in purchasing power if incomes do not change with inflation - based on real income/wage
Savings value falls - based on real interest rate
Borrowers pay back less (in real terms)
Fiscal drag - can be dragged into a higher tax band

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28
Q

Effects of Inflation - Firms

A

Costs of Production could rise - e.g. wages; price spiral
Menu costs
Decrease in demand

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29
Q

Effects of Inflation - Government

A 
Less Tax Revenue
Greater unemployment
Exports become less competitive
Imports increase
Reduces real economic growth
Greater inequality
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30
Q

Unemployment

A

Being willing, able and available to work but cannot find a job

31
Q

Rate of Unemployment

A

Percentage of workforce (16-65 yrs) that are unemployed

32
Q

Level of Unemployment

A

Number of people unemployed

33
Q

Measuring Unemployment - Claimant Count

A

Based on the administrative records of people claiming unemployment benefits - i.e. Job Seekers Allowance (JSA)
Those claiming must declare that they are out of work, capable for work, available for work and actively seeking work during the week in which their claim was made

34
Q

Claimant Count - Issues

A

Not all people claim benefits
The government can change the eligibility criteria
Some choose not to claim benefits

35
Q

Measuring Unemployment - Labour Force Survey

A

International measure involving a sample survey of people living in private households, students’ halls of residence and NHS accommodation
Around 150,000 people surveyed every quarter, asking respondents about their personal circumstances and activity in the labour market

36
Q

Unemployment - Seasonal Adjustment

A

Removes seasonal trends such as Christmas

37
Q

Frictional/Transitional Unemployment

A

Caused by movement between jobs - contracts ending and relocation for new contracts beginning

38
Q

Structural Unemployment

A

This is when an industry disappears
May be because foreign countries outcompete or new technology makes it redundant.
Can also be regional unemployment

39
Q

Cylical/General Unemployment

A

Relates to the business cycle (demand) - should self right once the economy improves. Recession = high unemployment

40
Q

Seasonal Unemployment

A

Changes in unemployment due to seasonal jobs such as berry picking

41
Q

Real-wage Unemployment

A

Caused by wages being above equilibrium

42
Q

Impact of Unemployment - Individual

A

Lower income as they are on benefits
Lose skills is unemployed for a long time - makes it harder to find work
May be socially excluded - cannot afford to go out
Mental & Physical Problems - increased stress and social isolation cause health issues

43
Q

Impact of Unemployment - Firms

A

Less demand for goods and services - meaning lower profits

They offer lower wages since many people are available to work

44
Q

Impact of Unemployment - Government

A

Need to spend money on benefits
Less tax revenue since less people pay income tax
Fewer purchases - so less VAT revenue
Associated rise in crime - money must be spent to deal with this
NHS might require greater funding to deal with an increase in poor health
Lower demand - results in a fall in national income

45
Q

Living Standards

A

Includes measures of health, wealth and income

46
Q

Direct Taxation

A

Taxes which are taken from individuals and firms and paid straight to the government. These are usually taken from income or wealth

47
Q

Direct Taxes - Examples

A 
Income Tax
Corporation Tax
National Insurance
Council Tax
Inheritance Tax
Stamp Duty
48
Q

Indirect Taxation

A

Taxation paid through an intermediary to the tax authorities. These are generally taken from expenditure

49
Q

Indirect Taxes - Examples

A

Value Added Tax (VAT)
Fuel Duty
Customs
Excise Duties

50
Q

Types of Taxation - Progressive

A

Higher income earners pay more as a proportion of their income than lower income earners.

51
Q

Progressive Taxation - Example

A

UK income tax - don’t pay any tax on first £11,500, then you pay greater percentages thereafter

52
Q

Types of Taxation - Regressive

A

Higher income earners pay less as a proportion of their income than lower income earners

53
Q

Regressive Taxation - Example

A

Value Added Tax - 20% for all

54
Q

Indirect Tax - Reasons for Imposing

A

To decrease/discourage consumption
To raise tax revenue
To copy other countries who have successfully introduces similar taxes - e.g. tax on fizzy drinks
To reduce pressure on healthcare if a good is a demerit good

55
Q

Impacts of Indirect Taxation - Individuals

A

Means less tax taken from incomes
Can have a regressive effect
Can choose whether to pay tax
Increased prices

56
Q

Impacts of Indirect Taxation - Firms

A

Have to pay tax to government so may increase prices

This can reduce demand for goods and services - which will reduce profit

57
Q

Impacts of Indirect Taxation - Government

A

Can reduce demand for goods and services
Can increase inflation
Can increase inequality

58
Q

Expenditure - Why Spend?

A

To provide merit goods (that if left to the free market some would go without) - healthcare, education etc.
To provide public goods (that if left to the free market, it wouldn’t be provided due to the “free-rider” problem) - e.g. street lighting and defence
To reduce inequality and improve living standards

59
Q

Types of Expenditure - Capital

A

Long term spending on fixed assets e.g. spending on new hospitals/schools/highways

60
Q

Types of Expenditure - Current

A

Regular day to day spending e.g. salaries of teachers and healthcare workers and drugs used in NHS

61
Q

Types of Expenditure - Transfer Payments

A

Welfare payments made available through the social security system e.g. state pensions, child benefit and JSA

62
Q

The Budget

A

The balance between government expenditure and taxation

63
Q

Types of Budget - Deficit

A

When Spending exceeds taxation revenue

64
Q

Deficit Budget - Impacts

A

Rise in national income - creates economic growth
Increases inflation
Increases imports
Decreases unemployment

65
Q

Types of Budget - Balanced

A

When taxation and spending are equal - no impacts on national income and economic growth

66
Q

Types of Budget - Surplus

A

When taxation revenue exceeds government spending

67
Q

Surplus Budget - Impacts

A

Fall in national income - reduces economic growth
Increases unemployment
Decreases inflation
Decreases imports

68
Q

Scottish Industry - Examples

A

Food and Drink -Whisky
Financial Services - Banking and Insurance
Energy - including oil, gas and renewables

69
Q

Scottish Entrepreneur - Example

A

Sir Brian Souter - Founder of Stagecoach

70
Q

Scottish Entrepreneurism - Impact

A

Stagecoach - 36,000 jobs, produce output (bus services), pay taxes to government , increase national income and boost economic growth

71
Q

Consumer Demand Increases - Economic Impact

A

Firms will demand more factors of production from the households. This means that incomes (received from the factors of production) will rise. This may also lead to an increase in employment - if Labour is demanded by firms. Overall, since there is more money in the circular flow, national income will rise - boosting economic growth

72
Q

Consumer Demand Falls - Economic Impact

A

Firms will demand fewer factors of production from households. This leads to a fall in incomes (received from the factors of production). This may also cause a rise in unemployment - if less labour is demanded by firms. Overall, since their is less money in the circular flow, national income will fall - reducing economic growth

73
Q

Measuring National Income - Problems

A

Cash-in-hand jobs may go undocumented
Double counting : input AND output both counted
Voluntary work : produce output for no income

National 5: Economics (3 decks)

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