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2.5 Flashcards

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1
Q

what is the economic cycle?

A

the tendency of national or global economic activity to fluctuate between boom, downturn, recession and recovery

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2
Q

what is GDP?

A

Gross Domestic Product which occurs within UK borders e.g. investment, profit, consumer confidence, employment

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3
Q

what is GNP?

A

Gross National Product which is of that nationality

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4
Q

when does a recession occur?

A

when 2 quarters of GDP growth is negative consecutively

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5
Q

what are the 6 qualities of a recession?

A

decreasing GDP growth
decreasing consumer confidence
increasing unemployment
decreasing investment
decreasing income
decreasing imports

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6
Q

what are the 9 qualities of a boom?

A

increasing GDP growth
increasing inflation in a downturn
increasing capacity
increasing imports
increasing government tax revenue
increasing consumer confidence
decreasing unemployment
increasing investment
increasing income

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7
Q

what is stagflation?

A

the unattractive combination of increasing inflation and falling GDP

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8
Q

what does cyclical unemployment do?

A

follow the economic cycle

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9
Q

what is a depression?

A

a prolonged slump where real GDP falls by more than 10% from peak to trough

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10
Q

what happened with Greece’s depression?

A

Greece’s national output fell for 6 consecutive years and GDP is more than 25% lower than at the peak of the cycle

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11
Q

what is a leading indicator?

A

early signs of the direction of economic activity e.g. business and consumer confidence levels, capital goods orders and construction firm order books

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12
Q

what is a lagging indicator?

A

it measures which are slow to reflect the current state of economic activity e.g unemployment levels

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13
Q

when is the economy in equilibrium?

A

when injections = leakages

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14
Q

what is the multiplier?

A

an economic factor that when increased or changed causes increases or changes in many other related economic variables

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15
Q

what is AD?

A

the total demand for all goods and services in an economy at any given price level over a period of time

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16
Q

what is the formula for AD?

A

C + I + G + (X-M)

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17
Q

what is consumption affected by?

A

confidence, income tax, level of employment and interest rates

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18
Q

what investment affected by?

A

interest rates, confidence, corporation tax and capacity utilisation

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19
Q

what is government spending affected by?

A

government policies and the stage in the economic policy

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20
Q

what are imports/exports affected by?

A

exchange rates, international competitiveness and the state of the global economy

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21
Q

what is AS?

A

the total value of output of the economy at a given price level and period of time

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22
Q

what is assumed in the short run?

A

all factors of production are fixed (labour can be an exception)

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23
Q

what 3 things cause a shift in SRAS?

A

input costs
tax, subsidies and imported costs
supply shocks

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24
Q

what is meant by input costs?

A

wages, labour productivity, interest rates

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25
what is meant by supply shocks?
political/environmental crisis
26
why can producers increase their level of output without increasing average costs in regards to LRAS?
because of spare capacity
27
what happens to the available factors in the economy as it moves closer to potential output in regards to LRAS?
they become scarce
28
in regards to LRAS, was producers increase output what do they bid for?
scarce factors and as a result prices increase
29
in regards to LRAS, when the economy is at full capacity, what is happening to the factors and what is the result of that?
all factors are being used and so output cannot increase but prices and wages do
30
what is frictional unemployment?
with every economy needing a certain level of unemployment to create change in the economic structure; this can be done through workers moving between jobs and changes in the wage rate
31
what happens if the economy overheats?
frictional unemployment will decrease which is indicative of real economic growth
32
what 5 things cause shifts in LRAS?
labour supply stock of capital inputs efficiency of allocation state of technology quality/ productivity of factor inputs
33
what is inflation?
a sustained general rise in prices and the reduction in the value of money
34
what is deflation?
a sustained fall in the general price level (usually retail prices) and a rise in the value of money. it occurs when the inflation rate is negative, indicating demand is very low
35
what is disinflation?
a fall in the rate of inflation - a decrease in the rate at which the average price level is rising
36
what is the difference between CPI and RPI?
RPI includes housing costs and council tax
37
what are 3 limitations of CPI?
households and individuals will experience a different rate of inflation it excludes mortgage repayments and their associated interest it doesn't recognise improvements in the quality over time
38
what does real mean?
takes into account inflation
39
what does nominal mean?
it doesn't take into account inflation
40
what is the formula for real national output?
nominal national output / average price level
41
what is demand pull inflation?
too much money chasing too few goods/services
42
what is consumption and what does it cause?
it is the largest component of AD causing demand-pull inflationary pressure
43
what doesdemand-pull inflation cause?
reduces taxation lowers interest rates increases consumer confidence improves the ability of credit causes a weak exchange rate
44
what is cost push inflation?
when firms respond to rising costs by increasing prices to protect profit
45
what can the firm do in the short term in regards to cost push inflation?
absorb some of the costs, but they will then have to pass them on to consumers later
46
what does cost push inflation cause?
wage increases higher taxes higher import prices
47
what is the impact of inflation on consumers/savers?
consumers are worse off in real terms if wages don't change but price increases as their income will buy less, it erodes the value of money, this is the same for savers
48
what is the impact of inflation on borrowers?
borrowers are better off as they pay back less in real terms e.g. high inflation rates might be greater than the interest
49
what is the impact of inflation on firms?
there is an increase in demand in the short term as high inflation will make consumers buy today before it increases firms then pass on their costs to consumers which increases inflation
50
what is collective bargaining as an impact of inflation on firms?
negotiating with employers for wage increases which then will increase costs for firms and may lead to a wage-price spiral
51
what is a wage-price spiral?
a call for firms to increase wages which leads to increased costs for the firm leading to calls for higher wages, etc.
52
when does uncertainty arise as an impact of inflation?
when firms find it hard to budget as they're unsure of future costs
53
how do high inflation rates mean firms cannot invest with confidence?
there is a loss of international competitiveness as higher prices make UK products less attractive, this being true for PED products, making it easier for imports to look elsewhere for substitutes
54
what is employment measured by?
the number of people who have a job
55
what is full employment?
all factors of production, fully utilised
56
what are the 6 effects of full employment?
high confidence in the economy significant spending on capital equipment workers in high demand shortage of skills wage rate bid up inflationary pressure
57
what is unemployment?
the number of people looking for work but who cannot find a job at a point in time
58
what is the level of unemployment?
the number of people
59
what is the rate of unemployment?
unemployed / labour force x 100 (as a percentage)
60
what are the 2 ways to measure unemployment?
the claimant count the labour force survey
61
what is underemployment?
when workers cannot find a job that is suitable for their qualifications or not enough hours
62
what do the consequences of unemployment, employment and inactivity depend on?
the rate and duration
63
who will there be consequences for in regards to unemployment, employment and inactivity?
firms the economy the unemployed
64
what is structural unemployment?
long term shifts in the structure of economy (sectors) impacting the job market, this can be caused by labour immobility as a result of occupational and geographical immobility
65
what is technological unemployment?
improved capital replacing labour as it is more productive
66
what is cyclical unemployment?
relating to the economic cycle and occurs when economic growth is below the trend rate of growth indicating low demand
67
what is seasonal unemployment?
people temporarily out of work at certain times of the year
68
what is frictional unemployment?
short term unemployment that occurs when workers look for new employment or transition out of old jobs and into new ones
69
what is real wage inflexibility?
when real wage rates are above the equilibrium wage rate, which causes the supply of labour to be greater than the demand for labour
70
what happens in a free labour market in regards to real wage inflexibility ?
real wage rates would fall to return to equilibrium
71
what happens as a result of distortions to the labour market in regards to real wage inflexibility?
things such as minimum wage which maintain real wages above equilibrium
72
what are the 5 unemployment effects on consumers?
lower living standards social costs financial costs de-skilling reduce chances of finding work
73
what are the 5 unemployment effects on firms?
more waste reduced demand reduced productivity and profitability less incentive to invest reduced morale of remaining work force
74
what are the 2 unemployment effects on the government?
increased spending on employment programmes and JSA lost tax revenue, through lower income tax, VAT and corporation tax

Economics (11 decks)

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