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A Level Economics Year 1 > 4.2.3 Economic Performance > Flashcards

4.2.3 Economic Performance Flashcards

(68 cards)

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1
Q

How does short-run growth come about?

A

Using existing resources more efficiently

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2
Q

What is short-run growth driven by?

A

Changes in AD ( Demand - side growth ) or changes in factors influencing AS ( Supply-side growth )

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3
Q

How does long-run growth come about?

A

Sustained improvements in the quantity or quality of the factors of production, leading to an increase in the production of goods and services over a period of time

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4
Q

How is long-run growth driven?

A

Technological advancements
Human capital development
Increasing population
R and D

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5
Q

Show short-run demand side growth on a PPF?

A
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6
Q

Show short-run demand side growth using AS / AD

A
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7
Q

Show short - run supply growth using AS/AD

A
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8
Q

Show long-run economic growth using AS/AD

A
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9
Q

Demonstrate long -run economic growth on a PPF?

A
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10
Q

Benefits of economic growth on incomes

A

Increasing productivity and employment contributes to rise in wage levels

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11
Q

Benefits of economic growth on living standards

A

A higher GDP can lead to improved standards of living for the population with better access to healthcare and education + better infrastructure

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12
Q

Benefits of economic growth on market place

A

Economic growth fosters a more competitive marketplace, leading to increased competition and innovation

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13
Q

Give 3 drawbacks of economic growth on economy

A

Negative externalities
Depletion of natural resources
Not well distributed amongst regions

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14
Q

What does the economic cycle refer to?

A

Changes in real GDP that occur in an economy over time

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15
Q

Under the economic cycle , what does the real GDP fluctuate between?

A

Long-term trend rate of growth

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16
Q

What does the long-term trend rate of growth represent?

A

Underlying, sustainable rate of growth that an economy can achieve over the long run, after accounting for fluctuations caused by the economic cycle

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17
Q

Economic cycle diagram

A
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18
Q

What is a positive output gap on economic cycle diagram?

A

Growth of GDP above trend

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19
Q

What is a negative output gap on economic cycle diagram?

A

Growth of GDP below trend

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20
Q

What can signal a positive output gap forming?

A

Rapidly rising prices

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21
Q

What can signal a negative output gap forming?

A

Rising unemployment and slowing economic growth

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22
Q

Negative output gap AS/AD

A
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23
Q

Positive output gap AS/AD

A
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24
Q

Factors causing change in economic cycle

A

Excessive growth in credit and levels of debt
Animal spirits
Economic shocks

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25
How is someone counted as unemployed?
Not working but actively seeking work
26
Who are economically inactive people?
People who are between 16-65 and not working or not seeking work
27
What are the 2 ways unemployment is measured in the UK
The International Labour Organisation (ILO) Survey The Claimant Count
28
How does the claimant count work?
Counts the number of people claiming job seekers allowance (JSA) in the UK
29
How does ILO work?
An extensive survey is sent to approximately 60,000 UK households every quarter who self-determine their employment status
30
What is seasonal unemployment?
Seasonal unemployment occurs as certain seasons come to an end and labour is not required until the next season
31
What is structural unemployment?
Structural unemployment occurs when there is a mismatch between jobs and skills in the economy
32
What is cyclical unemployment?
Cyclical or demand deficient unemployment is caused by a fall in AD in an economy
33
What is frictional unemployment?
Frictional unemployment occurs when workers are between jobs
34
How can we combat structural unemployment?
Retrain workers with supply side policy like training and education
35
How can we reduce cyclical unemployment?
Increase AD with monetary policy and fiscal policy
36
What is real wage unemployment?
Real wage unemployment occurs when wages are inflexible at a point higher than the free-market equilibrium wage
37
Real wage unemployment diagram
38
Explain how real wage unemployment works
if wages inflexible over equilibrium more workers supply labour > employers unwilling to pay higher prices and Qd falls to Qd > Quantity supplied of labour less than quantity demands > Real wage unemployment caused by excess supply
39
What is natural rate of unemployment
Minimum unemployment rate resulting from real or voluntary economic forces
40
What is inflation?
Sustained increase in the average price level of goods/services in an economy over time
41
What is deflation?
When there is a fall in the general price level within the economy however the percentage change in prices falls below 0%
42
What is disinflation?
When the average price level increases but at a decreasing rate
43
What 2 things can an increase in the price level in the economy be caused by?
Demand-pull and cost-push inflation
44
What is demand-pull inflation caused by?
Excess demand in the economy
45
Diagram for demand pull inflation
46
What is cost-push inflation caused by?
Increases in the costs of production in an economy
47
Diagram for cost push inflation
48
What are adaptive expectations?
Adaptive expectations assume that individuals base their expectations on past observations and experiences
49
What are rational expectations?
Rational expectations assume that individuals form expectations based on all available information, including current and past data, and that these expectations are unbiased
50
How can high inflation affect firms?
Rapid price changes create uncertainty and delay investment
51
How can high inflation affect consumers?
Decrease in purchasing power + real value of savings
52
How can high inflation impact government?
Economic growth may slow due to a fall in exports and a possible fall in consumption
53
How can high inflation impact workers?
Demand wages to rise with. inflation and if not productivity falls
54
What is demand-side inflation?
Demand-side deflation is caused by a fall in total (aggregate) demand in the economy
55
Demand side deflation diagram
56
What challenges is the government faced with due to demand - side deflation?
With a decrease in output, fewer workers are required and so unemployment increases
57
What challenges do consumers face with demand-side deflation?
With falling output and rising unemployment, households lose confidence choosing to save instead of spend
58
What challenges do debtors face with demand-side deflation?
Debt feels more burdensome as the value of any debt is worth more
59
What challenges do firms face with demand-side deflation?
Falling output and falling prices cause firms to lose confidence and so they delay investment, further reducing rGDP
60
How can demand-side deflation help the export market?
Persistently falling prices can prove attractive to foreigners and the level of exports may increase (this helps offset some of the reduction in rGDP)
61
What is supply side deflation caused by?
Increases in the productive capacity of the economy
62
Supply side deflation diagram
63
What effects can supply side deflation have on unemployment?
With a decrease in costs, the output of firms increases. More workers are required and so unemployment falls
64
What effects can supply side deflation have on consumers
With rising output and falling price levels, households become more confident and the consumption increasing - increasing rGDP even more
65
What challenges can supply side deflation have on debt?
Debt still feels more burdensome, as the value of any debt is worth more
66
What effect can supply side deflation have on firms?
Rising output and falling costs of production cause firms to gain confidence and increase investment, thereby increasing rGDP
67
What effects can supply side deflation have on exports?
Persistently falling prices boost international competitiveness and exports increase
68
Give possible macroeconomic trade offs
High economic growth and inflation High economic growth and environmental sustainability Low unemployment and low inflation

A Level Economics Year 1 (4 decks)

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