A level paper 2 Flashcards
(83 cards)
1
Q
Real GDP
A
value of GDP adjusted for inflation
2
Q
nominal GDP
A
value of GDP without being adjusted for inflation
3
Q
total GDP
A
combined monetary value of all G&S produced
4
Q
GNP
A
market value of all products produced in annum by labour & property supplied by citizens of a country
5
Q
GNI
A
sum of value added by all producers who reside in nations + overseas interest & dividends
6
Q
PPP
A
estimates how much ER needs adjusting to be equivalent, according to their PP
7
Q
limitations of gdp
A
no indication of distribution of income, large hidden economies not counted, no indication of welfare
8
Q
National happiness
A
UK national wellbeing - ONS develop more ways to measure wellbeing and wider picture of standard of living
9
Q
Trade (business cycle)
A
The business cycle refers to the stage of economic growth that the economy is in. Booms & Busts
10
Q
Boom & recession
A
Boom - fast E.G, can be unsustainable or controlled
Recession - real output in economy ↓, negative EG
11
Q
Characteristics of boom
A
high eg, near full capacity or p.o.g, near full employment, demand-pull inflation, high confidence and investment
12
Q
Characteristics of recession
A
negative e.g, spare capacity or n.o.g, demand deficient unemployment, low inflation rates
13
Q
marginal propensity to consume
A
how much consumer changes their spending following a change in income
14
Q
relationship between savings and consumption
A
MPS is proportion of each additional pound of household income that is used for saving
15
Q
Influences on consumer spending
A
Interest rates, consumer confidence, wealth effects
16
Q
gross investment
A
amount a firm invests in business assets that does not account for depreciations
17
Q
net investment
A
actual addition to capital stock of an economy, after depreciation is considered
18
Q
influences on investment
A
rate of EG, business expectations and confidence, demand for X, interest rates, access the credit, gov regulation
19
Q
circular flow of income
A
firms and households exchange resources in an economy. HH supply firms with F.O.P & receive wages in return
20
Q
distinction between income and wealth
A
income - flow of money that goes to f.o.p
wealth - stock of assets, such as savings, shares, property
21
Q
injections & withdrawals
A
injection - money which enters economy in form of Gov spending, investment and exports
withdrawal - money which leaves the economy. taxes, savings imports
22
Q
net injections and withdrawals
A
net injection - expansion of national output
net withdrawals - contraction of production
23
Q
multiplier ratio
A
rise of national income : initial rise in AD
24
Q
MPT
A
proportion of each pound taxed by government
25
MPM
imports rather than spending on domestic G&S
26
demand side policies
monetary policy - used by gov to control money flow of economy using IR & QE
Fiscal policy - uses gov spending and tax revenue from taxation to influence AD
27
monetary policy instruments
IR - bank controls base rate, which influences IR across economy. ↓ BR ↑AD.
Asset purchases to increase money supply (QE) - MP no longer effective and IR can't be any lower. bank buys assets in form of bonds and use them to buy bonds from investors
28
Fiscal policy instruments
government spending & Taxation
29
Direct & indirect taxes
direct - imposed on income, paid directly to government by taxpayer
indirect - imposed on expenditure on G&S
30
limitations of fiscal policy
gov has imperfect info, time lag, gov borrows from private sector leaving less funds - crowding out
31
limitations of monetary policy
banks may not pass BR to consumers. Ir may change but not with desired effect. banks unwilling to lend. confidence low, less spending even with low IR
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market based & interventionist policies
market based - limit intervention of gov & allow free market to eliminate imbalances using S&D
interventionist - rely on gov intervening in the market
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market based policies to:
↑incentive: ↓tax to encourage investment
↑competition: deregulating or privatising public sector increases competition in the market
Reform labour market: reduce NMW and allow free market firms to allocate wages
34
interventionist policies
↑comp: stricter competition policy to ↓monopoly of firms
reform labour market: subsidies for relocation = ↑ geographical mobility of labour
↑skills & quality: ↑spending on education
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positives of supply side policies
can deal with structural unemployment, increase productive potential of economy, reduce price level, improve balance of payments
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negatives of supply side policies
demand-side better at dealing with cyclical unemployment, significant time lags, market based leads to uneven distribution of wealth, negative impacts on gov budget
37
globalisation
ever-increasing integration of the worlds local, regional & national economies into a single international market
38
factors contributing to globalisation
trade in goods, trade in services, trade liberalisation, MNC's, International financial flow, communications & IT, Containerisation
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impacts of globalisation
individual countries: trade imbalances between countries & wealth inequalities
Governments: may lose soveiregnty
P&C: EoS benefits both, firms operate in more competitive environment
workers: job opportunities all over world, could be structural unemployment
environment: Pollution & Emissions ↑
40
absolute advantage
production of G or S in a country which produces it for fewer resources, at lower cost than another country
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comparative advantage
country can produce G or S at lower opportunity cost than another country.
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assumptions and limitations of comparative advantage
assumes perfectly competitive market, full benefit of specialisation not happening as could lead to structural unemployment. does not consider exchange rate and is simple model
43
advantages of comparative advantage
greater world output = ↑ economic welfare, higher quality of production of goods, lower AC, greater choice
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disadvantages of comparative advantage
LEDC's use up non-renewable resources quicker and run out, overdependence on PPD, structural unemployment
45
Reasons for restrictions on free trade
protectionism - guarding industries from foreign competition, used to correct market failure
46
types of restrictions on trade
tariffs - taxes on M, ↑ QD of domestic
Quotas - limits quantity of foreign produced good sold on market
Subsidies - domestic good prices ↓ Production ↑
Non-Tariff Barriers - voluntary export restraints, embargoes, excessive administrative burdens
47
impact of protectionist policies
could distort market, lose allocative efficiency. extra cost on exporters. regressive taxes impact those on low incomes. risk of retaliation. government failure
48
exchange rates
floating - value determined by S&D
fixed - value determined by gov compared to other countries
managed - combined characteristics of fixed & floating. fluctuates but doesn't float on fully free market
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Revaluation, Appreciation, Devaluation, Depreciation
Revaluation - currency value adjusted relative to a baseline
Appreciation - Value of currency ↑
Devaluation - value officially lowered in fixed exchange rate system
Depreciation - Value falls relative to another currency in floating exchange rate system
50
factors influencing floating exchange rates
inflation, speculation, other currencies, government finance, balance of payments, international competitiveness
51
gov intervention in currency markets
Interest Rates - ↑IR, more attractive to invest funds
QE - inflationary effects as money supply ↑
Foreign currency transactions - buying&selling FC to manipulate domestic currency
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competitive devaluation + & -
+: X cheaper M dearer = ↑economic growth, current account improvement
-: inflation & demand pull from ↑AD, BoP does not adjust to economic shocks, inelastic PED will not increase X significantly
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Impact of changes in exchange rates on Current Account of balance of payments
ER determine value of X&M which can improve or worsen CA deficit. Marshall Lerner condition & J curve
54
marshall-lerner condition
states devaluation in currency only improves balance of trade if absolute LR X&M demand elasticities is greater than or equal to 1
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J curve
currency devalued. at first total value of M↑ which worsens deficit, eventually M↓ reducing trade deficit
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Impact of changes in exchange rates affect
CA of balance of payments, Economic growth&Unemployment, rate of inflation, FDI flows
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difference between wealth and income
wealth - stock of assets e.g. house, shares, cars & savings
| Income - money received on regular basis e.g. job
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measurements of income inequality
Lorenz curve measures distribution of wealth & income in a country, shows distribution of income when richest x% of population hold x% of cumulative income
Gini coefficient is numerical value for inequality derived from lorenz curve. 0 perfect equality → 1 perfect inequality
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causes of income & wealth inequality within and between countries
Inequality in wages, welfare payments & taxes, unemployment, changes to UK tax system. Between countries: exclusion, unemployment, droughts, opportunity inequality, colonisation
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kuznets and piketty on development and inequality change as result of Economic change
Kuznets - as society moves from agriculture to industry, inequality wothin society increases but is then redistributed through gov transfers and education
Piketty - discredited this in 2014 arguing that capitalist free market system inevitably lead to continued inequality and rich get richer due to ↑ return on capital
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significance of capitalism for inequality
entrepreneurs take risks with reward being profit, which wouldn't be rewarding in equal society. However, leads to monopoly power
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impact of economic factors in different countries
PPD, savings gap, foreign currency gap, capital flight, demographic factors, debtm access to credit & banking, education/skills, absence of property rights, corruption
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harrod-domar model
without significant savings, inadequate capital accumulation. states that I, Saving & tach change are required in economy for economic growth
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foreign currency gap
currency not attracting sufficient capital flows to make up for deficit in capital account of BoP
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strategies influencing growth & development
market-orientated strategies - measures which make economy more free, with minimum government intervention
interventionist strategies - government intervenes in market to influence growth & development
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market orientated strategies
trade liberalisation, promotion of FDI, Removal of gov subsidies, floating exchange rates, microfinance schemes, privatisation
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microfinance schemes
small amounts of money from lenders to finance enterprises. helps set up businesses and reduce issues of savings gap
68
interventionist strategies
Development of human capital, protectionism, managed exchange rates, infrastructure development, promoting joint ventures with global economies, buffer stock schemes
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joint ventures with global economies
a partnership between two firms based in multiple countries. opens up markets for small firms, saves time & funds
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buffer stock schemes
reduce price volatility through buying and selling
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other strategies influencing growth and development
industrialisation, development of tourism, development of primary industries, fairtrade schemes, Aid, Debt Relief
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role of international institutions
World Bank - loan funds to member countries, aim to promote economic & social progress by ↑ productivity and ↓ poverty
IMF - Promote monetary competition between nations, help free trade globally & allow members to borrow
NGO's - funded by gov, firms or private individuals. Voluntary groups aim to raise voices of ordinary citizens, lobby for gov to make changes
73
Automatic stabilisers & discretionary fiscal policy
Automatic stabilisers - policies which affect fluctuations in the economy, triggered without gov intervention e.g. taxes
DFP - policy implemented through one off policy changes, deliberate changes in G&T with intention of influencing AD
74
fiscal (budget) deficit and national debt
Fiscal deficit - expenditure > tax receipts in financial year
National Debt - amount of money gov has borrowed at time through issuing securities by the treasury. Accumulated fiscal deficit
75
cyclical deficit and structural deficit
cyclical - temporary deficit, related to business cycle. may occur during recessions
structural - deficit due to imbalances in revenue & expenditure of gov, exists at every point of business cycle
76
factors influencing size of fiscal deficit
business cycle, interest payments, privatisation
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factors influencing size of national debt
size of deficit, annual balance
78
significance of fiscal deficits and national debts
cost of borrowing, confidence in gov repaying, tax rate, could be inflationary, crowding out
79
Role of financial markets
facilitate saving, lend to businesses and individuals, facilitate the exchange of g&s, provide forward markets in currencies and commodities, provide a market for equities
80
Market failure in financial sector
asymmetric information, speculation of market bubbles and moral hazard
81
measures to reduce fiscal deficits and national debt
↓G↑T to reduce budget deficit, promotion of eg, issue bonds to raise finance, default on debt
82
measure to control companies transnational operations
regulation of transfer pricing
83
problems facing policy makers when applying policies
inaccurate info, risks and uncertainties, inability to control external shocks
