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Chapter 1- Government Objectives Flashcards

(60 cards)

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0
Q

What are the two types of inflation and name what causes them.

A

Demand Pull: increase in AD near full output in the economy

Cost push: increase in the production costs of goods or services

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1
Q

What are the four types of unemployment?

A

Cyclical
Seasonal
Frictional
Structural

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2
Q

What is the difference between real and nominal GDP?

A

‘Nominal GDP is actual GDP without adjustments for inflation’
‘Real GDP is the physical amounts of goods and services produced in a country in a year’

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3
Q

Name three ways of measuring GDP

A

Output method: give surveys to firms about everything that they produce in a year and calculate the entire economies figure.

Income Method: use tax returns to calculate the income of everyone in an economy in a year

Expenditure method: Total the expenditure of everyone in an economy in a year.

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4
Q

Name three problems in measuring growth

A

Output: counting the same item twice (like raw materials and then in the final product)

Income: only include incomes that are earned in return for goods and services (not transfer payments)

Expenditure: include exports and exclude imports

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5
Q

Name four advantages of growth

A

Material living standards increase

Poverty levels are reduced

Can help reach full employment

Public care and health services are better quality

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6
Q

Name four disadvantages of growth

A

If it is not achieved in a sustainable manor it can have a very bad effect on the environment

People could struggle to adapt to new jobs

Increase in productivity comes at the cost of freedom and esteem

Can cause unwanted inflation

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7
Q

What four things cause growth?

A

Increase in physical capital

Increase in active labour force size

Increase in labour quality

Progress in technology

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8
Q

What are the problems in comparing growth figures?

A

Differences in population can cause differences in productive ability so GDP per capita is calculated

If income is distributed unfairly it will give an unfair average value

If there is a large informal economy then a lot of trade will be unrecorded

If cost of living is lower, they can buy more with each pound.

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9
Q

What is the definition of unemployment and unemployment rate?

A

Unemployment: the amount of the labour force out of work.

Unemployment rate: the percentage of the labour force out of work

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10
Q

What two ways are used to measure unemployment?

A

Claimant count: the amount of people who claim job seekers allowance (1.53M in U.K)

Labour Force Survey: A monthly survey is given to firms about their workforce by ILO (29.7M currently employed in U.K)

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11
Q

What could cause unemploment?

A

Rising the minimum wage

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12
Q

What consequences of unemployment effect the individual?

A

Harder to find work with no experience

Can become deskilled from certain jobs

Health figures are lower for unemployed

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13
Q

What are the consequences of unemployment to the community?

A

Higher levels of crime rate

Less money in circulation due to lack of demand

Falling house prices

More derelict land

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14
Q

What consequences of unemployment are for the government?

A

Loss in revenue as less tax and more benefit

Lowering of possible
GDP figures

Lower living standards

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15
Q

Benefits of unemploment?

A

Easier to recruit workers

Cheaper to recruit workers

Less demand pull inflation

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16
Q

What’s inflation

A

The annual percentage change in price level

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17
Q

What’s the difference between CPI and RPI

A

RPI: includes housing costs
CPI: doesn’t include mortgages, rent and council tax

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18
Q

What’s the Bank Of England’s target inflation rate

A

2%

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19
Q

What are the disadvantages of inflation ?

A

If inflation is too high it makes us less competitive than other countries
Risk of hyperinflation
Cost of changing prices due to inflation ( menu costs)
Cost in terms of extra time and effort involved in reducing money holdings (shoe leather costs )

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20
Q

What’s the definition for balance of payments

A

Record of money flows coming in and going out of the country

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21
Q

What’s the current account

A

Al exports + all imports of goods and services

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22
Q

What’s the visible balance :

A

Visible exports - visible imports

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23
Q

What are invisible credits

A

Sell service abroad

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24
What are invisible debts
Buy services for abroad
25
What's the invisible balance
Invisible credits - invisible debts
26
What causes a deficit
British goods become more uncompetitive. Due to the being more expensive because of inflation, high exchange rate and low productivity
27
What's a disadvantage of a deficit
£falls and imports are more expensive, so inflation occurs. Rise in unemployment Lowers growth Borrow money from IMF which impose conditions
28
What's the disadvantage of a large surplus
Trading partners have a large deficit and put tariffs and quotas on your goods Exchange rate increases. Harder for firms to trade in future
29
What are the consequences of unemployment to the individual?
Harder to find work as they have little experience Long term unemployment can cause workers to become deskilled Health figures are worse for unemployed
30
Consequences of unemployment to the government?
Loss in revenue as more is spent on benefits and health care Lowering the possible higher GDP figure Reduction in living standards
31
What are the two causes of inflation?
Demand pull: where an increase in aggregate demand occurs when the economy is operating near full output. Cost push: Is caused by an increase in the cost of production for goods and services. - labour cost - weaker pound - oil price rise
32
Explanation of CPI
- Family expenditure aurvey carried out on over 6000 families. - A normal shopping basket is then calculated of 650 items. - weights of how much income each item takes up are calculated. - price quotations are taken 120,000 - weights are multiplied by price index to work out price level change (Actual figure x100)/ base year figure
33
How does RPI differ from CPI?
Measured in the same way. But it has: - housing costs - mortgage interest payments - council tax It doesn't have: - uni accommodation - Foreign student tuition fees - stockbrokers charges
34
What is RPIX and RPIY
RPIX= RPI-mortgage interest RPIY=RPI+mortgage interest+indirect taxes
35
Name three consequences of high inflation
- domestic firms are uncompetitive against foreign firms - can result in hyperinflation (over 50%) - causes economic uncertainty for saving and investment
36
What are the difficulties in inflation measuring?
* improvemtns in technology means you're not technically still buying the same good * people stop buying expensive items so inflation overstates living cost * changes in weights can occur due to fashion or taste changes * CPI uses an average household, but not household is the same
37
What is the current U.K inflation
2.7%
38
Who wins in inflation?
Debtors, because their wages go up but debt stays the same, meaning they have less to pay off
39
Who loses in inflation?
Savers, because inflation is higher than the saving interest so the money is worth less when you withdraw it.
40
Define Balance of Payments
Balance of payments is the total amount of money in and out of a country in a year
41
What is the current account?
The current account is an account of all the imported and exported goods and services in a year
42
What is the current account made up of?
Visible account: An account of all imported and exported goods Invisible account: An account of all imported and exported services
43
How do you calculate the visible and invisible balances?
Visible = visible exports - invisible exports Invisible= invisible credits - invisible debits
44
How to calculate the current account balance?
Current Balance= visible account + invisible account
45
What are surpluses and deficits | of the balance of payments?
Surplus: more money in than out Deficit: more money out than in
46
What are the causes of a deficit?
Low exchange rate means cheaper exports Higher quality goods and services If goods are produced at low cost
47
How should economies combat recession
Compete in foreign markets
48
What are the causes of a deficit?
Higher inflation than trading partners makes exports more expensive Lack of competitiveness between firms High exchange rate makes exports more expensive Poor quality goods and services
49
Current UK bop trends
Has a visible defecit Since 1966 it has invisible surplus
50
Consequences of a surplus
Currency gains in value so exports are more expensive Causes inflation due to lots of money but not many goods Cause another country to have a deficit meaning the may place legislation against trading with you (retaliation)
51
Consequences of a deficit
A country could go bankrupt as IMF only lends under strict guidelines Currency will lower so imports are more expensive Lots of unemployment in exports
52
Define exchange rate
It is the value of one currency in terms of another
53
How is it calculated (floating system)
It is determined by supply and demand Increase= more demand less supply decrease=less supply more demand Pounds are demanded when the are exchanged for other currencies Pounds are supplied when they are converted from other currencies
54
What is appreciation and depreciation of the £
Appreciation exchange rate goes up: - cheaper imports so lower inflation - makes exports more expensive Depreciation exchange rate goes down: -exports are cheaper abroad
55
What is economic stability?
Is an economy that displays only minor fluctuations in growth, output and has constantly low inflation
56
What is income redistribution?
Is transferring income to different parties if the economy Achieved through policies
57
Progressive and regressive taxes?
Progressive: hit the rich harder Regressive: hit the poor harder Proportional: hit both parties the same
58
Why do the government redistribute income?
To stabilise the economy
59
What is fiscal drag?
If tax brackets are not adjusted with inflation, peoples income can be pushed into higher tax bands

Economics (5 decks)

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