Y1 Economic performance Flashcards
Economic growth
An increase in the productive potential of an economy. Measured as an increase in real GDP.
The business cycle
Fluctuations in economic growth over time
The multiplier effect
A change in spending brings about a more than proportional change in national income
Sustainable growth
Long-term, non-inflationary growth
Trend rate growth
The long-term expected growth of an economy
Actual growth
Demand-led growth
Factors that shift SRAS
Cost of production
Exchange rates
Taxation and subsidies
Factors that shift LRAS
New technology
FDI
Migration/population growth
Education/training
Supply-side policy
Supply-side policies
Improve the quantity and/or quality of factors of production. Or they address market failure.
Hysteresis
The productive potential of an economy is damaged in deep recession, so that the economy struggles to bounce back,
Production possibility frontier
The max production of an economy given resources & tech
Pros of economic growth
Better standards of living
Less unemployment
Better public services
Lower gov borrowing
Accelerator effect
Cons of economic growth
Inflation
Environmental damage
Scarce resources run out
Inequality of growth
Potentially worse trade balance
Boom-bust cycle
Leverage
The use of borrowed money to amplify the results of an investment
Measuring unemployment
Claimant count- People claiming benefits
International labour organisations- Surveys
Costs of unemployment
Opportunity cost
Waste of FoP
Poverty
Hysteresis
Types of unemployment
Frictional
Structural
Cyclical
Technological (avoid)
Regional
Seasonal (avoid)
Voluntary
Classical
Policies to reduce youth unemployment
Reduce min wage for youth
Vocational skills training
Apprenticeships
Reduce national insurance for employers to employ youth
Long-term unemployment
12+ months
De-skilled and de-motivated
Increasingly difficult to find work
Inflation
Sustained increase in general price level
CPIH
Consumer Price Index including Housing.
Price change of certain necessities each year.
Causes of demand-pull inflation
Availability of credit
Lower interest rates
Wealth effect
Gov spending
Booming foreign economies
Depreciation
Causes of cost-push inflation
More expensive raw materials
Rising wages
Increased tax
Monetary policy
Use of interest rates and money supply to influence AD
Fiscal policy
Use of gov spending and taxation to control the economy
A tax
A compulsory payment to the government in order to raise money
Fiscal multiplier
An initial change in spending will bring about a more than proportional change in GDP.
Public sector net borrowing
The amount the gov needs to borrow in a year
Uses of fiscal policy
Influence allocation of resources (tax/subsidy)
Address market failure (duty)
Demand management (income tax)
Supply management (tax breaks)
Automatic stabilisers
Features of the fiscal system that lessen the impact of change
Tax burden
Tax as a % of GDP
Stealth tax
When increasing earnings and inflation mean that tax revenue increases
Fiscal drag
Disincentive of highly progressive tax or high tax burden on economic growth
Roy Jenkins
1965-67 136% income tax
Pro austerity
Decrease national debt
Future gens aren’t burdened
Benefit cuts to reduce voluntary unemployment
Anti austerity
NHS waiting lists
Social care at breaking point
Less police = more crime
Less economic growth
Reasons for low investment in UK
Uncertainty of economy
Volatile interest rates
Labour relatively cheap
Lack of gov encouragement
Short-termism of shareholders and businesses
The accelerator
Increase in growth results in increases investment, which results in increased growth. So a change in GDP brings a more than proportional change in investment.
Marginal efficiency of capital MEC
Rate of return on each additional unit of capital
