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economics- macro > 4.2.3 Economic performance > Flashcards

4.2.3 Economic performance Flashcards

(72 cards)

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1
Q

How can we show short-run economic growth(2 ways)

A

Increase in AD

Increase in SRAS

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2
Q

What is short run economic growth

A

Actual annual % change in RNO

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3
Q

What is Long run growth

A

Increase in productive capacity

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4
Q

How can we show an increase in Long run growth

A

Change in the quantity/quality of factors of production

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5
Q

What are the determinants of Long run economic growth

A

Investment in capital goods

Innovation-products and processes

Migration- Immigration is good and emigration is bad

Changes in birth rates

Increases in productivity

Export-led growth

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6
Q

Growth evaluation(at least 2 arguements)

A

Need a balance between short-run growth and long-run growth policies to avoid inflation

Focusing on the supply-side is limited if demand-side is supressed, there will be spare capacity.

Enhancement of the supply-side of the economy has significant time lags(e.g. training)

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7
Q

What is a positive output gap

A

Actual growth rate above long-run trend/potential growth rate

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8
Q

What is a negative output gap

A

Actual growth rate below long-run trend/potential growth rate

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9
Q

What is a boom

A

High rates of economic growth, high demand, low unemployment, high confidence

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10
Q

What is a recession

A

at least 2 consecutive quarters of negative growth

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11
Q

What is a slump

A

Sustained low or negative growth(temporary)

Low demand and inflation

High unemployment

Low confidence

High levels of business failure

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12
Q

What is a recovery

A

Economic growth starts to rise after a downturn

Demand increases

Unemployment falls

Inflation starts to rise

Confidence in the economy increases

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13
Q

Why does the economy cycle

A

Excessive Growth in credit and level of debt

Asset price bubbles

Destabilising speculation and animal spirits

Herding

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14
Q

What is excessive growth in credit and levels of debt

A

Growth financed by public debt(Gov borrowing) or excessive levels of credit(consumer borrowing) might not be sustainable

May be difficult to pay it back in the future and does not contribute to improvements in productivity

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15
Q

What are asset price bubbles

A

Occurs when the price of an asset is predicted to rise causing it to be traded more so prices rise beyond the intrinsic value

This bubble bursts when the price steeply and suddenly falls back to its ordinary level-causing panic selling

Results in loss of confidence and can lead to economic decline or a depression(wall street crash and dot com bubble)

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16
Q

What is destabilising speculation and animal spirits

A

Keynes- animal spirits- instincts and emotions of human behaviour which drive confidence in the economy

If firms expect a high rate of return they will invest more, if firms are uncertain about the future they will postpone investments

Expectations about society and politics therefore affect investment

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17
Q

What is Herding

A

Reacting to the behaviour of economic agents rather than the market e.g. If everyone else is doing it i should be too.

Causes instability in the market

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18
Q

What are exogenous shocks

A

Sudden changes to the demand or supply side of the economy e.g. Covid-19

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19
Q

What is Inventory cycle

A

How changes in inventory levels held by businesses may lead to exaggerated increases or decreases in output

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20
Q

What are the benefits of growth

A

Higher income levels- If we grow as an economy, firms may be able to pay their workers leading to higher income levels

Job creation- The potential growth will open up more jobs and reduce unemployment

Improved living standards- Average quality of life will lead to improved standards of living due to better infrastructure, healthcare and education

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21
Q

What is employment

A

Being in paid work- full time or part time

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22
Q

What is unemployment

A

People of a working age who are willing, able and available to work within the next but can’t get a job

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23
Q

What is the economically active

A

People aged 16-64 either in paid work or actively looking for a job but can’t(employed + unemployed)

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24
Q

What is the economically inactive

A

People aged 16-64(of a working age) who are not seeking a job

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25
What is full employment
Everyone who is economically active and willing and able to get a job are employed
26
What is involuntary unemployment
Workers are willing to work at current market wage rates but there are no jobs available
27
What is voluntary unemployment
Workers choose to remain unemployed and refuse job offers at current market wage rates
28
What is the level of unemployment
The number of people who are unemployed
29
What is the rate of unemployment
The number of people unemployed as a % of the labour force unemployed/Labour force x 100
30
What are the 2 measures of unemployment
Claimant Count and Labour force survey
31
What is the Claimant Count
The number of people claiming JSA and Universal Credit
32
What is the Labour Force Survey
Quarterly survey of approx. 25,000 households complied by the ONS
33
What are the problems with Claimant Count
Not everyone who is eligible signs on Temporarily unemployed tend not to claim Under 18s and over 60s dot count Some people who claim JSA are not seeking work People still wrongfully claim benefits ACC has become discredited by the ONS
34
What are the positives of Labour Force Survey
Internationally recognised Potential for analysis across countries Picks up trends in sectors Better guide for policy makers Generally accepted to be more accurate
35
What are the issues with the Labour Force Survey
Costly to complete Subject to sampling and extrapolation errors Has recently seen a collapse in response rates
36
What is underemployment
People who can't find a job suitable for qualifications and experience or cannot find enough hours to work
37
What is hidden unemployment
Workers lose their jobs and don't actively seek a new job as the costs of seeking are not worth it OR when people choose to stay in education rather than seek employment
38
What is the impact of unemployment
Reduced demand for goods and services Lower living standards Social costs- health and crime De-skilling of human capital Reduced tax revenue
39
what are the Benefits of unemployment
Lower inflation Pool of Labour available for growing businesses Rise in self employment
40
What are the types of unemployment
Structural, cyclical, frictional, seasonal, real wage
41
What is structural unemployment
Long term economic shifts lead to long term unemployment(occupational and geographical immobility)
42
What is frictional unemployment
Workers moving in-between jobs so are temporarily unemployed and do not have perfect information on every job opportunity for them
43
What is cyclical unemployment
Drops in AD lead to increased unemployment Occurs when there is a negative output gap
44
What is seasonal unemployment
People who are unemployed at different times of the year for example people who work in summer on a beach
45
What is real wage unemployment
Real wages are above equilibrium price This causes an excess supply of labour
46
What types of unemployment are measured in the natural rate of unemployment
Supply-side so frictional and structural
47
What is the natural rate of unemployment on a Labour force graph
The gap between the labour supply and labour force
48
Should we focus on reducing the natural rate of unemployment in the UK
No because it is low already(around 4%) and there are more important macroeconomic objectives to complete
49
What is inflation
A continuous increase in the general price level over a period of time
50
What is deflation
A continuous fall in the general price level over time
51
What is disinflation
When the rate of inflation is falling, but still positive. Prices are rising more slowly then previously
52
What is demand pull inflation
A situation where AD exceeds AS leading to an increase in the general price level
53
What is cost push inflation
A situation where increased costs of production leads to firms increasing their final prices, leading to a rise in the general price level
54
What is retail price index
A measure of inflation including interest payments on mortgage and council tax
55
What is consumer price index
A measure of inflation used by the Bank of England to set inflation targets, and measure inflation across the EU
56
What is creeping inflation
Slow rises in prices over a number of years
57
What is hyper-inflation
Large increase in the general price level, when the store of value function of money fails to hold(Germany 1920's)
58
What does CPI measure
Family expenditure survey carried out to judge average spending habits Attaches weights to items based on importance in people's spending
59
What are the limitations of CPI
Households experience different rates of inflation- 14% of households don't own a car, spending patterns are different depending on number in the family- inflation hits lower income households a lot more Doesn't recognise improvements in quality of goods and services Slow to respond to new products
60
What is CPIH
CPI+ OOH so basically inflation that also takes into account housing costs
61
What does RPI measure
Mortgage interest repayments and Council Tax
62
What has the ONS done to RPI and why
They have discredited it because mortgage repayments skew the figure and replaced it with CPIH but some firms still use it
63
What causes demand-pull inflation
Reduced taxation Lower interest rates Confidence Income increases Availability of credit Fast growth in other countries
64
What causes cost-push inflation
Wage increases Higher raw materials costs Higher taxes Higher import prices External shocks
65
How do you increase the money supply
Printing more notes through the Bank of England Reduce deposit holdings allowing them to lend more money(by law UK banks must hold a certain percentage of deposits to provide liquidity) Use quantitative easing(buying back bonds from the market)
66
What is quantitative easing
Involves introducing new money into the national supply by a central bank Money is used to buy assets(mainly bonds) from financial institutions such as insurance companies, pension funds and commercial banks
67
What is the fisher equation
MV=PQ
68
What are the costs of inflation
Reduced confidence and therefore investment Real value of savings decreases Income redistributed from savers to borrowers- real value of savings falls and so does the real value of debt Consumers and businesses on fixed incomes lose out Harms trade Wage-price spiral
69
What are the benefits of inflation
Sustainable rate of inflation suggests growth Reduced risk of deflation Erodes the real value of debts
70
What are the consequences of deflation
Holding back on spending- expecting prices to fall further Real cost of borrowing increases, therefore debts increase Lower profit margins Wealth decreases and hits confidence- business investment can decrease
71
What is malign deflation
Persistent fall in prices due to decrease in AD
72

economics- macro (6 decks)

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