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Economics Macro > Yr1 Economic Performance > Flashcards

Yr1 Economic Performance Flashcards

1
Q

PART 1

A

ECONOMIC GROWTH AND THE ECONOMIC CYCLES

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2
Q

What are the 3 terms linked to economic growth cycle?

A
  • potential growth
  • actual growth
  • output gap
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3
Q

What are the 2 definitions for economic growth?

A
  1. An increase in the output that can economy produce over a period of time
  2. An increase in what an economy can produce if it is using all of its scarce resources > productive potential
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4
Q
  1. What is economic growth measured with?
  2. What are the problems with this measurement?
A
  1. GDP
  2. Don’t take into account social and environmental factor + unequal distributions of money
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5
Q

THE ECONOMIC CYCLE
1. What is the place where GDP and economic growth are at their peak
2. What is the difference called when actual growth is bigger than trend growth
3. What is it called when there is negative economic growth
4. How long does neg economic growth have to occur for to be called this
5. What is it called when there are the lowest levels of GDP and economic growth
6. What is the difference called when actual growth is smaller than trend growth
7. What is it called when there are incr levels of GDP and economic growth
8. What does on the x and y axis

A
  1. Boom
  2. Positive output gap
  3. Recession
  4. 2 quarters
  5. Slump
  6. Negative output gap
  7. Recovery
  8. X > time
    Y > GDP
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6
Q

What are benefits and costs of economic growth?

A

BENEFITS
- decr unemployment
- higher standards of living
- improved public figures
- incr investment through accelerator and high confidence

COSTS
- inequality
- inflation
- negative externalities
- depletion of non renewable resources

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7
Q

What are the characteristics of a recession?

A
  • people struggle to pay off debts
  • negative GDP growth for more than 2 quarters
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8
Q

What are the characteristics for a slump?

A
  • high unemployment levels
  • high levels of business failure
  • increase in redundancies, particularly in the service sector
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9
Q

What are the characteristics for a recovery?

A
  • unemployment begins to fall
  • possible GDP growth
  • house price will rise
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10
Q

What are the characteristics for a boom?

A
  • incr in tax receipts and public spending
  • low welfare and benefit claims
  • rise in consumer spending and borrowing
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11
Q

PART 2

A

EMPLOYMENT AND UNEMPLOYMENT

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12
Q

Definition of unemployment?

A

Those registered as able, available and willing to work at the going wage rate but are unable to find work

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13
Q

Equation for unemployment rate?

A

Unemployment % = number of unemployed / working population x100

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14
Q

What age range is the working population?

A

16-67

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15
Q

What are the 4 types of unemployed?

A
  1. Frictional
  2. Seasonal
  3. Cyclical
  4. Structural
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16
Q

What is the definition of frictional unemployment?

A

Workers change jobs and spend time looking for a new one
- workers don’t claim benefits
- short term

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17
Q

What is the definition of seasonal unemployment?

A
  • consumer demand for some goods and services is seasonal e.g. ski instructor
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18
Q

What is the definition of cyclical unemployment?

A

Too little demand for goods and services in the economy > downwards cycle

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19
Q

What is the definition of structural unemployment?

A

Long term changes in the structure of the economy as demand falls for the goods and services they produce
- particular sectors e.g. steel works
- parts of industry > no skills to move easily

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20
Q

Definition of full employment

A

A situation in which everyone in the labour force that is willing to work at the market rate has a job, except for those who are switching from one job to another. There is no involuntary unemployment

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21
Q

What sort of % of the UK are you
1. Voluntarily unemployed
2. In full employment

A
  1. 15-20%
  2. 70-80%
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22
Q

What are the two ways of calculating unemployment?

A
  1. Claimant account (Job Seekers Allowance)
  2. Labour Force Survey
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23
Q

Explain what the claimant account is?

A
  • count only people eligible to claim Job Seekers Allowance
  • not everyone claims benefits
  • stigma + short term unemployment
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24
Q

Explain what the labour force survey is?

A
  • covers those who have looked for work in the past month and are able to start work in the next 2 weeks
  • 1/2 mil annually > sample group represent UK economy + not up to date
25
Q

Definition of involuntary unemployment

A

Unemployment which exists when workers are unable to find jobs despite being prepared to work at the existing wage

26
Q

Definition of voluntary unemployment

A

Workers who choose not to accept employment at the existing wage rate (gap in what people want to be paid + realistic wages)

27
Q

Definition of long term unemployment

A

People who have been out of work for > 26 weeks

  • significantly damaging for individual and economy
28
Q

Definition of short term unemployment

A

Are unavoidable and cannot really be alleviated e.g. frictional and seasonal

29
Q

Definition of hysteresis

A

Unemployment that persist is into the future, even after factors that led to the unemployment have been removed. When people are unemployed for so long them give up trying
1. Lack of skills
2. Give up

30
Q

Positives and negatives of unemployment on the individual

A

Pos
- incr free time, time to pursue qualifications

Neg
- less disposable income > decr C
- decr purchasing power
- stress > health issues
- other issues
E.g. gambling
- decr standard of living
- vulnerable to terrorist groups
- WAITHOOD

31
Q

Positives and negatives of unemployment on businesses

A

Pos
- reduced cost of labour > more to invest
- costs spent on wages reduced
- more options for hiring > control of wages

Neg
- pass less wages
- reduce productivity unless replaced
- decr output due to decr workers and decr demand

32
Q

Positives and negatives of unemployment on the government

A

Neg only
- pay more benefits to unemployed people (incr G)
- incr crime rates, incr investment in public services needed
- decr tax revenue
- incr borrowing
- bankruptcy and closure
- protests + civil unrest
- dissatisfied workers

33
Q

Positives and negatives of unemployment on society

A

Pos
- more available jobs

Neg
- incr crime rates
- incr taxes
- bad deflation
- homelessness
- loss of other businesses in the area

34
Q

Positives and negatives of unemployment on the macro economy

A

Pos
- less strain on resources
- silver lining effect of decr benefits, less competition for jobs

Neg
- reduced consumption
- reduced economy growth
- incr stress levels
- deflation
- decr output

35
Q

What are the levels of young employment in the UK compared to Spain?

A

UK - 12%
Spain - 28%

36
Q

What moves when structural unemployment occurs?

A

SRAS decreased and LRAS decreases

37
Q

What happens when cyclical unemployment occurs?

A

AD decreases

38
Q

What does the impact of unemployment depend on?

A
  1. Type of unemployment
  2. How much employment had increased by
  3. How the economy is performing
  4. How important unemployment is as a macroeconomic objective
  5. Length of time
39
Q

PART 3

A

INFLATION AND DEFLATION

40
Q

INFLATION
1. What is the definition of inflation
2. What is the UK government targets

A
  1. A sustained increase in price level over a period of time
  2. 2%
41
Q

DEMAND PULL INFLATION
1. Definition
2. What are the 5 causes
3. What is the key on the diagram

A
  1. Changes in demand side factors lead to an incr in AD
    • depreciation of the exchange rate
    • a reduction in direct or indirect taxes
    • rapid growth in the money supply
    • rising consumer confidence
    • faster rates of economic growth in other countries
  3. Incr in AD curve
42
Q

COST PUSH INFLATION
1. Definition
2. What are the 3 causes
3. What is the key on the diagram

A
  1. Changed in supply lead to an increase in price > incr cost
    • external shocks
    • depreciation of exchange rates
    • acceleration of wages
  3. Decr in SRAS curves
43
Q

Positives and negatives of inflation on consumers

A

Pos
- higher pay rise over inflation rate
- value of assets incr in value

Neg
- decr disposable income
- decr value of savings
- decr essentials
- decr consumption

44
Q

Positives and negatives of inflation on businesses

A

Pos
- incr demand for products > demand pull
- assets incr in value

Neg
- incr CofP
- decr demand if products too expensive
- incr wages cost
- decr profit margins

45
Q

Positives and negatives of inflation on the economy

A

Pos
- incr growth, incr AD
- incr cash flow > demand pull
- incr employment due to demand incr

Neg
- decr consumption > cost push
- decr worth of money, economic growth, confidence
- incr unemployment

46
Q

What is the (money supply as a cause of inflation) fisher equation + what do the letters mean

A

MV = PT

V and T are constants so if M incr, P incr

M > money
V > velocity of money
P > general level of prices
T/Y > transaction/ level of output/GDP

47
Q

Disinflation definition

A

When the rate of incr or the price level is falling

48
Q

Deflation
1. Definition
2. Extra info
3. Two types and what side it causes

A
  1. A sustained fall in the general price
    • rate of inflation becomes negative (0%)
    • internal value of money rises

3.
- benign (supply side) > good
- malevolent or malign (demand side) > bad

49
Q

BENIGN DEFLATION
1. What side is it caused by
2. Good or bad
3. Definition
4. Causes
5. Key things about diagram

A
  1. Supply side
  2. Good
    • falling prices due to higher productivity, improving technology or better managerial practises > lower costs and prices

4.
- improved technology
- technological advancements
- significant fall in wage rates
- higher exchange rates causing import prices to fall

  1. Incr in SRAS
50
Q

MALEVOLENT / MALIGN DEFLATION
1. What side is it caused by
2. Good or bad
3. Definition
4. Causes
5. Key thing about diagram

A
  1. Demand side
  2. Bad
  3. Prices fall because of a lack of demand
    • large fall in AD causing a persistent recession or depression
    • a large negative output gap
  5. Decr in AD curves
51
Q

Positives and negatives of deflation on consumers

A

Pos
- lower prices
- disposable become goes further

Neg
- negative equity
- negative inflation rates
- decr salary/wages (malevolent)
- decr value of assets

52
Q

Positives and negatives of deflation on businesses

A

Pos
- cheaper shops incr in demand + profits
- reduced labour costs
- CofP decr as decr variable cost per unit

Neg
- inability to decr CofP
- decr demand
- small profit
- assets decr in value

53
Q

Positives and negatives of deflation on the economy

A

Pos
- benign > real output incr

Neg
- decr/neg economic growth (malevolent)
- incr unemployment = decr AD
- decr consumer spending (malevolent)

54
Q

What does the impact of deflation/inflation depend on?

A
  1. Type/cause of deflation
  2. How much the deflation has changed by
  3. Proportion of income spent on the product
  4. Time period
55
Q

Why is deflation damaging for an economy?

A
  • decr spending
  • incr debt
  • incr real cost of borrowing
  • decr profit margins
  • decr confidence and saving
  • income distribution
  • more competitive exports eventually
56
Q

What is shrinkflation?

A

When the quantity decreases but the price remains constant

57
Q

Why do we have a 2% target inflation rate in the UK?

A
  • make sure economic growth continues
  • controlled growth (control problems of inflation)
  • compete against other countries
  • deflation bad for economy
  • to incr consumption and spending
  • predictable + sustainable
  • uncontrolled = hyperinflation
  • controlled value of assets
  • stagflation = rising inflation, limited economic growth
  • deflation = consumers delay spending to get best possible deal
58
Q

PART 4

A

POSSIBLE CONFLICTS BETWEEN MACROECONOMIC POLICY OBJECTIVES

Economics Macro (6 decks)

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