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Macro Year 1 > 11 - Economic Performance > Flashcards

11 - Economic Performance Flashcards

1
Q

What is the ONS?

A

An independent body who collate data about things which affect the UK. They report on inflation figures, and economic growth.

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2
Q

What challenges has the UK economy faced?

A

Covid-19, Global Financial crisis.

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3
Q

What are the current rates of economic growth?

A

0.1-0.3%.

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4
Q

What is Economic Growth?

A

The growth of the total value of goods and services in an economy year on year.

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5
Q

What is the primary sector?

A

Involves extraction of raw materials.

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6
Q

What % of GDP did the primary sector make up in 1952, compared to now?

A

1952 - 8.09%. 2016 - 1.30%.

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7
Q

What is the secondary sector?

A

Involved transforming raw materials into a finished product. e.g. Textiles, Manufacturing.

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8
Q

What % of GDP did it make up in 1952, compared to now?

A

1952 - 38.19%. 2016 - 15.11%.

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9
Q

What is the tertiary sector?

A

Involves service and retail, and the provision of goods. e.g. financial institutions, schools, Hotels.

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10
Q

What % of GDP did it make up in 1952, compared to now?

A

1952 - 53.72%, 2016 - 83.59%.

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11
Q

What is the quaternary sector?

A

Intellectual services, research and development. e.g. Programmers, IT services, Artists.

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12
Q

What fuels short term economic growth?

A

Changes in Aggregate Demand.

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13
Q

How can firms increase output in the short run?

A

Increasing output, by fully utilising all factors of production.

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14
Q

Which diagram shows short run economic growth?

A

PPF Diagram.

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15
Q

Which Factors affect Aggregate Demand?

A

Consumption, Investment, Government Spending, Imports, Exports.

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16
Q

What do further increases of Aggregate Demand lead to?

A

Higher Inflation.

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17
Q

Which supply side factors lead to short run economic growth?

A

A fall in money supply, A fall in taxes imposed on firms.

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18
Q

What is the trend growth rate?

A

The rate at which output can grow on a sustained basis without putting pressure on inflation.

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19
Q

What is the current trend growth rate of the UK?

A

Below 2%.

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20
Q

What has happened to the number of economically inactive people?

A

It has increase, as people have left the workforce since COVID.

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21
Q

What are the causes of Long Run Economic Growth?

A

Improvements in Technology, Investment, Increase in the size of the labour force, Improvements in productivity.

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22
Q

What do supply side reforms do to the economy?

A

Increase labour productivity.

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23
Q

How does Aggregate Demand play a role in Long Run growth?

A

Firms will only produce more goods or services if there is enough demand to absorb extra output.

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24
Q

What does the neoclassical growth theory state?

A

A sustained increase in investment increases growth rate temporarily, Ratio of capital to labour goes up, product of capital declines.

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25
Q

What is the weakness of the neoclassical theory?

A

It doesn’t explain why technological progress occurs.

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26
Q

What does the new growth theory state?

A

It says there are three main sources of technological progress, which explains long run growth.

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27
Q

What are the three factors stated in the new growth theory?

A

Profit seeking research, openness to foreign idea, accumulation of human capital.

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28
Q

What are the benefits of economic growth?

A

Increases standard of living, provides new, more environmentally friendly technologies.

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29
Q

What are the disadvantages of economic growth?

A

Uses up finite resources, pollution and environmental degradation, Destroys local culture and community, widening inequality.

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30
Q

What is the economic cycle?

A

The way an economy moves through the four stages of boom, slowdown, recession, and recovery.

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31
Q

What are the characteristics of a Boom?

A

High inflation, High consumer spending, low unemployment, low interest rates, high consumer confidence, higher taxes.

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32
Q

What are the characteristics of a recession?

A

High unemployment, high taxation, low consumer confidence, high business failure, low tax revenue, low inflation.

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33
Q

What are the characteristics of a slowdown?

A

Decreasing consumer confidence, decreasing spending, increasing business failures, falling demand.

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34
Q

What are the characteristics of a recovery?

A

Rising consumer confidence, rising consumer spending, rising business start ups, decreasing unemployment, low interest rates.

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35
Q

What are the causes of changes in the economic cycle?

A

Fluctuations in Aggregate Demand, Supply side factors, outside shocks, multiplier theory.

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36
Q

What do output gaps measure?

A

Real output, compared to the trend output level.

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37
Q

What is the output gap?

A

A gap between the change in demand and output levels.

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38
Q

What can a positive output gap lead to?

A

Cost - push, or demand - pull inflation.

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39
Q

What can a negative output gap lead to?

A

A lower price level, a rise in unemployment.

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40
Q

What happened to the UK’s output gap between 2000-2008?

A

The UK had a positive output gap, which accompanied a booming economy.

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41
Q

What happened to the output gap in 2008?

A

It was negative, after the global financial crisis.

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42
Q

What has happened to real incomes since 2008?

A

They have fallen, due to consecutive pay freezes.

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43
Q

What are the examples of demand side shocks?

A

Economic Downturn in a country’s major trading partner, tax increases, cuts in state benefits, Financial crises, rise in unemployment.

44
Q

What are the examples of supply side shocks?

A

Steep rise in oil and gas prices, natural disasters, conflict, production technology, lockdown of citizens.

45
Q

What is a shock?

A

An unexpected event that affects the economy, or economic growth.

46
Q

What is an endogenous shock?

A

An unexpected event, which is internal.

47
Q

What are exogenous shocks?

A

An unexpected event happening outside of the economy.

48
Q

What are the examples of endogenous events?

A

Changes in income of a country, economic growth, availability of credit, conflict, extreme weather.

49
Q

What are the examples of exogenous events?

A

Fall/rise in global oil prices, migration levels rise/fall. Health crises, war, global recession.

50
Q

What is the criteria of being officially unemployed?

A

Of Working age, willing and able to work, actively seeking work.

51
Q

How is unemployment measured?

A

The Labour Force survey, which asks households to self identify as employed, unemployed, or economically inactive.

52
Q

What are periods of high unemployment linked to?

A

Contraction of economic growth.

53
Q

What has unemployment stayed above in the last 50 years?

A

3.5%.

54
Q

What can the national unemployment rate hide?

A

Regional and local variations, variations in gender, age, ethnicity, doesn’t say duration of joblessness.

55
Q

What has the unemployment rate been compared to other G7 nations?

A

The UK has never had the highest unemployment rate in the G7, and has a similar rate to Canada, and the USA.

56
Q

What is the difference between long term unemployment and mass unemployment?

A

Long term unemployment is people who have been unemployed for 12 months or more. Mass unemployment is where 1 in 10 people at least are out of the Labour Force.

57
Q

What is Hidden Unemployment?

A

People who don’t have jobs, and aren’t actively looking for work, but are willing and able, so are not counted in the official rate.

58
Q

What are the examples of hidden unemployment?

A

Students, Stay at home parents, people unable to work due to disability.

59
Q

What does Structural unemployment result from?

A

The structural decline of industries unable to adapt, when there is changing demand.

60
Q

What does technological unemployment result from?

A

Successful growth of new industry, using labour saving technology.

61
Q

What is an example of structural unempoyment?

A

Changes in technology leading to changes in the pattern of demand.

62
Q

What does growth of solar panels lead to?

A

Job losses when coal power stations shut down.

63
Q

Why can structural unemployment be hard to separate from other causes of unemployment?

A

Changes in Aggregate demand can be hard to measure.

64
Q

What happened to manufacturing between 1993-2008?

A

Manufacturing output grew, manufacturing employment fell.

65
Q

What does cyclical unemployment believe?

A

A lack of aggregate demand for goods and services is a cause of persistent unemployment.

66
Q

What does cyclical unemployment lead to?

A

A downturn in the economic cycle, and says that the economy could settle at an under-unemployment equilibrium.

67
Q

Is cyclical unemployment voluntary or involuntary?

A

Involuntary, as it’s not caused by workers, and people shouldn’t be blamed.

68
Q

What are the causes of cyclical unemployment?

A

The economic cycle, aggregate demand decreases, so workers have to be laid off.

69
Q

What does deficient aggregate demand lead to?

A

The economy producing inside the PPF.

70
Q

What are the causes of hidden unemployment?

A

Many long term unemployment give up actively searching for work. A large cohort of people are sidelined onto benefits. A growing number of people are unemployed, as they care for elderly relatives.

71
Q

Why may unemployment figures not be accurate?

A

LFS can’t always be representative of the whole UK, there is always scope for error. Measured unemployment excludes economically inactive people. Unemployment isn’t the same as under employment.

72
Q

What are the examples of seasonal unemployment?

A

Farming, Tourism, Retail, Hospitality, Construction, Tuition.

73
Q

What are the causes of structural unemployment?

A

New jobs require new skills, unaffordable housing, employer discrimination, erosion of skills, welfare system.

74
Q

How can frictional unemployment be reduced?

A

By making information on jobs more available, making job search more affordable.

75
Q

What are the causes of frictional unemployment?

A

School and college leavers entering labour market, people searching for work following a career change, early retired people returning to the labour market, mothers returning.

76
Q

What type of unemployment is workers being made redundant from a steel plant during a downturn in construction?

A

Cyclical.

77
Q

What type of unemployment is a graduate who spends six months searching for work after leaving university?

A

Frictional.

78
Q

What type of unemployment is a mother actively searching for work, unable to accept a job offer due to childcare?

A

Structural.

79
Q

What type of unemployment is an unemployed farmer finding it hard to find new work?

A

Structural.

80
Q

What type of unemployment is people working in aircraft freight businesses losing their jobs due to a contraction in trade?

A

Cyclical.

81
Q

What is real wage unemployment?

A

Unemployment caused by wages being too high relative to the productivity of workers.

82
Q

Why may firms be unwilling to hire workers at current wage rates?

A

They believe workers aren’t worth that much.

83
Q

What do classical economists believe?

A

That unemployment would disappear if wages were adjusted downward, as workers would be willing to work for less.

84
Q

What do Keynesians believe is true, in terms of wages?

A

Wages are ‘sticky’ because of long term labour contracts, and trade unions.

85
Q

What are the reasons for voluntary unemployment?

A

Pursuing education, leisure, taking time off for personal interests.

86
Q

What are the reasons for involuntary unemployment?

A

Recession, Job market conditions, lack of jobs in a specific industry.

87
Q

What is the Natural rate of Unemployment?

A

The level of unemployment that exists in an economy when operating at full potential.

88
Q

What are the components of NRU?

A

Structural unemployment, Frictional unemployment.

89
Q

What are the consequences of unemployment?

A

Reduces international competitiveness, higher business taxes, shrinks the size of the PPF curve, Mental Health.

90
Q

How does unemployment reduce international competitiveness?

A

It reduces incentives for firms to invest in state of the art technology, which leads to increased export competitiveness.

91
Q

How does unemployment lead to higher business taxes?

A

Businesses will have to fund increased welfare payments, which leads to lower investment.

92
Q

How does unemployment shrink the size of the PPF?

A

The economy starts adjusting to a new amount of employees, so inactive workers are seen as unemployable.

93
Q

How does unemployment lead to lower mental health?

A

Lower living standards can lead to unemployed people feeling marginalised, and self esteem is reduced. Reduction in quality of diet.

94
Q

What are the government policies to reduce unemployment?

A

Improving geographical immobility of labour, Improving occupational mobility of labour, reducing employment search periods, supply side policy.

95
Q

How does improving geographical immobility reduce unemployment?

A

Makes it easier for families to move from one region to another.

96
Q

How does improving occupational immobility reduce unemployment?

A

Improving OM by providing retraining schemes, improving information about jobs, so people can find jobs outside their skill set.

97
Q

How does reducing search periods reduce unemployment?

A

JSA attempted to reduce search periods between jobs, and creates an incentive for unemployed to accept lower wages.

98
Q

How does supply side policy reduce unemployment?

A

De-industrialisation created conditions for service industries to grow, to replace manufacturing.

99
Q

What was inflation in February 2024?

A

3.4%

100
Q

Why did inflation in the UK fall in 2024?

A

A slowdown in food price rises.

101
Q

What has food inflation been in the UK in the last 2 years?

A

25%.

102
Q

What is inflation?

A

A sustained rise in an economy’s general price level.

103
Q

What is deflation?

A

A sustained period when the general price level for goods and services falls.

104
Q

What is disinflation?

A

Consumer prices still rising at a slower rate, because of a drop in the rate of inflation.

105
Q
A

Macro Year 1 (15 decks)

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