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AS Econ Macro > Economic Activity > Flashcards

Economic Activity Flashcards

1
Q

What is the economic problem?

A

People have unlimited wants but there aren’t enough resources available to supply all of the wants.

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2
Q

What is scarcity?

A

Finite resources available to supply infinite wants and so choices must be made about how to use these scarce resources.

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3
Q

What are the 4 factors of production?

A

C - capital
E - Enterprise
L - Labour
L - Land

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4
Q

7 Macroeconomic objectives?

A 
Economic growth, 
Stable rate of inflation, 
Low unemployment, 
Income equality, Environmental sustainability, Balanced government budget,
Current account balance
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5
Q

Definition of Circular Flow of Income:

A

An economic model showing the flow of goods and services, the factors of production and their payments between households and firms within an economy.

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6
Q

Rewards of the factors of production

A

Capital - Intrest
Entrepreneurship - Profit
Labour - Wages
Land - Rent

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7
Q

3 injections into the circular flow

A

Gov. expenditure
Investment
Exports

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8
Q

3 withdrawals into the circular flow

A

Savings
Taxes
Imports

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9
Q

Define GDP

A

Gross Domestic Product

The total value of the output of goods and services over a year period

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10
Q

What is C, G, I and X-M

A 
C = Consumer spending
G = Gov. spending
I = Investment
X-M = current account (Exports - Imports)
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11
Q

GNI (gross national income) VS GNP (gross national product)

A 
GNI = GDP plus wages, salaries, and property income of the country's residents earned abroad.
GNP = reports how much is earned by the country's citizens and businesses, no matter where it is spent in the world
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12
Q

What is GNI + how to get it

A

GDP + income from citizens abroad - income by foreigners living in the country

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13
Q

What is the difference between Real and Nominal figures

A 
Nominal= face value figures
Real = adjusted for inflation
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14
Q

Whats is the difference between a fall in growth rate and a fall in GDP

A

Fall in growth rate = still increasing GDP just at a slower rate
Fall in GDP = GDP getting lower

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15
Q

Total v. Per capita

A

Total = all of it

Per capita = per person

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16
Q

What is meant by a simple closed model (circular flow diagram)

A
  • no foreign trade + no government influence

- only 2 groups: households and firms

17
Q

What assumptions are made for a simple circular flow model? (4)

A
  • Households spend all their money on goods and services
  • Firms spend all their income on factors of production
  • There is no government
  • There is no foreign trade
18
Q

Problems of comparing GDP between developed and developing countries?
(4)

A
  • Accuracy of statistics can vary
  • often developing countries consume what they produce
  • developed countries often increase incomes at expense of quality of life
  • developing countries might wish to achieve growth at the expense of health and safety
19
Q

Limitations of GDP as a measure of living standards

A

GDP per capita = total GDP/population

Only one measure of living standards

20
Q

How does the UK measure happiness

A

The office for national statistics (ONS) uses national welbeing

21
Q

Relationship between real-incomes and subjective happiness

A

Easterlin Paradox: as people become richer their reported levels of happiness do not show any signs of increasing

22
Q

What are the 4 cycles of the business cycle

A

Boom, recession, slump, recovery

23
Q

Characteristics of a Slump (5)

A
  • High unemployment
  • Lots of firms going out of business
  • low demand and inflation
  • low/negative economic growth
  • low confidence in economy
24
Q

Characteristics of a Boom (7)

A
  • more economic growth
  • more demand
  • less unemployment
  • inflationary pressure (more inflation)
  • Labour skills shortages
  • more confidence in the economy
  • more capital goods investment
25
Q

Characteristics of a Recovery (5)

A
  • Lower unemployment
  • More capital investment
  • higher demand and inflation
  • increased economic growth
  • high confidence in economy
26
Q

Characteristics of a Recession (7)

A
  • less economic growth
  • less demand
  • more unemployment
  • no inflationary pressure (more inflation)
  • Labour skills excess
  • less confidence in the economy
  • less capital goods investment
27
Q

Definition on Output gap

A

The difference between actual GDP and trend/potential GDP

28
Q

What is a negative output gap

A

When the actual GDP is less than trend/potential GDP (deflation gap)

29
Q

What is a positive output gap

A

When the actual GDP is more than trend/potential GDP (inflationary gap)

30
Q

Why do we study the business cycle?

A

Make the cycle less severe

Increase the trend rate of growth.

AS Econ Macro (14 decks)

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