4.2.3 economic performance

Question 1

short run growth

Answer 1

percentage increase in a country’s real gdp, messured anually, caused by increase AD

Question 2

long run growth

Answer 2

increase in the productive capacity of the economy, it is the trend growth caused by increased LRAS

Question 3

potential output

Answer 3

what an economy could produce if all resources were fully employed

Question 4

output gaps

Answer 4

difference between actual and potential output levels

Question 5

negative output gap

Answer 5

working below the potential level of output and thus there is spare capacity

Question 6

positive output gap

Answer 6

we are working above the potential output, could be due to labour being overworked

Question 7

where do we work in the long run

Answer 7

YFE

Question 8

stages in economic cycle

Answer 8

boom
recession
slump
recovery

Question 9

charactersitics of a boom (6)

Answer 9

high economic growth
positive output gaps or full capacity
near full employment
high confidence
demand pull inflation
improved budget

Question 10

characteristics of a recession (6)

Answer 10

negative growth
cyclical unemployment
worsened budget
spare capacity and negative output gaps
low inflation
low confidence

Question 11

how can we define a recession in the uk

Answer 11

negative economic growth over 2 consecutive quarters

Question 12

causes of cyclical instability (3)

Answer 12

growth financed by public debt is not sustainable as it may be difficult to repay in the future
assett price bubbles, increaeded demand due to speculation, increased price, confience spending, bubble bursts, investors loose out, fall in confidence
herding: economic agents follow each other

Question 13

economic growth impact on consumers

Answer 13

higher real incomes
more employment
confidence
wealth effect
h/e regressive impact
inflation
shoe leather costs

Question 14

economic growth impact on firms

Answer 14

higher profits
productivity due to investment
more confidence
more exports
h/e menu costs
lose sales depending on YeD
lose sales due to inflation (X)

Question 15

economic growth impact on government

Answer 15

higher income tax
less spending on welfare benefits
thus better budget
h/e more consumption on demerit goods could lead to more spending on healthcare

Question 16

economic growth impact on living standards

Answer 16

higher quality goods
environmental investment
better public services due to high tax rev
h/e more negative externalities
environemnatl degradation

Question 17

unemployment

Answer 17

share of the labour force that is willing and able to work but without a job

Question 18

measures of unemployment

Answer 18

claimant count- number of people claiming unemployment benefits such as job seekers allowance or universal credit
labour force survey- household survey sent to a sample of people who self categorise as employed, unemployed or economically inactive

Question 19

long term unemployment

Answer 19

12+ months of umeployment

Question 20

mass unemployment

Answer 20

10% or more of labour force survey is unemployed

Question 21

hidden unemployment

Answer 21

stopped looking for jobs or working less hours than they want to eg in gig economy with zero hour contracts

Question 22

seasonal unemployment

Answer 22

without job due to time of year eg tuition services or beach lifeguard

Question 23

frictional unemployment

Answer 23

between jobs or seeking a better job

Question 24

structural unemployment

Answer 24

caused by a lack of suitable skills for jobs availabe due to deindustrialisation (eg steel)

Question 25

cyclical unemployment

Answer 25

unemployment due to lack of AD

Question 26

real wage unemployment

Answer 26

firms unable to hire at the current wage level excess supply of labour

Question 27

voluntary unemployment

Answer 27

choose not to work even though their are oppurtunities available

Question 28

Unemployment trap

Answer 28

unemployed loose skills/erosion of skills lack employability

Question 29

human capital

Answer 29

intellectual and behavioural assetts that people have and enable them to contribute to economic growth - improving human capital is critical to decreasing unemployment

Question 30

5 costs of high unemployment

Answer 30

loss of output and productivity fall in consumption and thus AD fall in tax revenues, increased welfare benefits fall in social mobility increased inequality

Question 31

policies to reduce unemployment

Answer 31

expansionary monetary and fiscal policies education and training subsidise firms

Question 32

inflation

Answer 32

sustained rise in an economy's general price level and a fall in the value of money

Question 33

hyperinflation

Answer 33

phase of extremely rapid inflation nearly always a result of mass money printing

Question 34

deflation

Answer 34

sustained period where the general price level is falling- negative inflation

Question 35

disinflation

Answer 35

fall in the rate of inflation where prices are still rising just at a slower rate

Question 36

stagflation

Answer 36

combination of stagnant growth and high inflation

Question 37

cost push inflation

Answer 37

businesses respond to rising unit costs by increasing prices to protect their profit margins shown by a fall in SRAS

Question 38

causes of cost push inflation (4)

Answer 38

higher minimum wage leading to higher labour costs high global commodity or energy prices fall in exchange rate making imports expensive increased VAT or carbon tax

Question 39

why is cost push inflation harder to control

Answer 39

the central bank have little control over the factors that influence it

Question 40

demand pull inflation

Answer 40

phase of accelerating inflation which arises from rapid aggregate demand growth, businesses can take advantage of high demand by increasing prices to increase profit margins increase in aggregate demand

Question 41

causes of demand pull inflation (4)

Answer 41

economic growth lower interest rates increase in money supply fiscal stimulus

Question 42

what does freidman/monetarists say about inflation

Answer 42

if central bank increase money supply too fast it leads to inflation because there is too much money chasing too few goods

Question 43

peak inflation 22-23

Answer 43

11.1%

Question 44

causes of 22-23 inflation

Answer 44

- as economy recovered from pandemic there was high demand but supply couldn't keep up - ukraine confliact, as russia is a major exporter of natural gas it caused a spike energy prices, increasing CoP - lack of workers in healthcare and logistics pushed up wages which increased cost of production

Question 45

inflation expectations

Answer 45

what consumers and firms expect to happen to prices in future eg if people expect high inflation they'll demand higher wages leading to cost push if people expect high inflation they may bulk buy now leading to demand pull inflation

Question 46

greedflation

Answer 46

price gouging where increased aggregate demand leads to excessive increase in prices

Question 47

shrinkflation

Answer 47

where companies keep prices same but decrease size of good/service

Question 48

negatives of high inflation (9)

Answer 48

cannot buy as much, fall in standard of living capital flight high bond yields worsens government debt regressive impact as poor people hold wealth in cash lower real incomes less competiive less exports retired people on fixed income have less pressure for gov to increase welfare benefits wage price spiral

Question 48

capital flight as a consequence of inflation

Answer 48

investors worry about stablility of economy they worry inflation will lead to depreciation of currency want to protect assets so move money out country sell assets eg stocks or real estate move proceeds to country with stable currency

Question 48

bond yields as a consequence of inflation

Answer 48

if inflation is high gov have to increase bond yields to entice investors- investors want to be compensated for the risk of inflation eroding the investment value the increased yield rates mean gov have to pay back more adding to national debt

Question 49

wage price spiral

Answer 49

inflation fall in real incomes workers bid for higher wages higher labour costs higher prices inflation

Question 50

benefits of high inflation (4)

Answer 50

workers who belong to trade unions and have strong wage bargaining power can offset the impact of inflation on their wages debtors see a fall in real value of debt if prices are rising faster than costs businesses gain more profit higher nominal wages, higher tax revenues, better budget

Question 51

policies to control inflation

Answer 51

contractionary fiscal contractionary monetary supply side policies labour market reforms to increase supply of labour

Question 52

reasons inflation is hard to control

Answer 52

gloabl factors such as exchange rate and trade imapcting import prices supply side shocks such as global conflicts

Question 53

malign deflation

Answer 53

fall in AD eg recession or large negative output gap

Question 54

benign deflation

Answer 54

rise in SRAS eg technological advancements

Question 55

consequences of deflation (6)

Answer 55

due to fall in P, businesses need to reduce costs so will cut wages or redundancies higher real value of debt deflationary spiral asset price deflation (bonds/ equities/ houses) cyclical unemployment negative wealth effect

Question 56

benefits of deflation (3)

Answer 56

falling prices may increase real incomes for poorer families businesses must offer value for money, allocative efficiency fall in asset prices makes it easier for first time buyers

Question 57

policies to avoid deflation

Answer 57

lower interest rates or QE expansionary fical devalue exchange rate

Question 58

How changes in other economies can affect inflation in the UK

Answer 58

geopolitical tensions or natural disasters can drive up oil prices globalisation inflation in key trading partners

Question 59

what does the phillips curve show

Answer 59

in the short run you cannot achieve both low unemployment and low inflation