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Economics MACRO > Economic Peformance > Flashcards

Economic Peformance Flashcards

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1
Q

What is the definition of Economic Growth?

A

An increase in the productive potential of an economy over time.

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2
Q

What is Short Run Economic Growth?

A

An increase in actual growth (excluding inflation) measured by percentage change in GDP.

Usually caused by increases in AD but can also be caused when spare capacity is used to grow real GDP

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3
Q

What can stimulate Short Run Economic Growth?

A

Lower interest rates

Lower income or corporation tax

Higher consumer or business confidence

Higher government spending

Weaker exchange rate

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4
Q

What is Long Run Economic Growth?

A

Shown by an increase in the trend rate of growth measured over a period of both booms and busts.

Caused by an increase in LRAS as productive potential increases.

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5
Q

How can Long Run Economic Growth be achieved?

A

Increase in Q2CELL

Increase in Labour productivity

Increase in workforce size

Investment

Infrastructure
improvements

Increase in competition

New research discoveries.

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6
Q

What is the Economic Cycle?

A

A representation of the several fluctuations that seen when examining economic growth

Economic cycle = Trade cycle = Business cycle

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7
Q

What are the general economic features seen in a boom?

A

Positives:

Profits (High)
Unemployment (Low)
Consumer Confidence (High)
Animal Spirits (High)

Negative:

Imports (High)
Tax revenues (High)
Inflation (High)
Government spending (Low)

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8
Q

What are some general economic features seen in a bust/recession?

A

Negative:

Profits (Low)
Unemployment (High)
Consumer Confidence (Low)

Positives:

Imports (Low)
Tax revenues (Low)
Inflation (Low)
Government spending (High)

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9
Q

What are some general economic features of a recovery?

A

Construction (High)
Government spending (High)
Tax revenues (Low)
Consumer Confidence (High)

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10
Q

What are some benefits of economic growth?

A

High demand for labour so high Y and low U
Higher wages so improved QoL
Increased profits so more I
Improved production so better BoP
Less borrowing so high fiscal dividend
Low welfare spending so more capital spending

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11
Q

What are some costs of economic growth?

A

High income inequality
Bad for environment
Higher workload
Increased negative externalities
Exhaustion of spare capacity

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12
Q

How does economic growth affect the environment (positive and negative)?

A

Positives:
Increased investment in green technologies
More efficient production through technological advancements
Environmental regulation

Negatives:
Pollution
Resource depletion due to over exploitation
climate change

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13
Q

How does economic growth affect the economy (positive and negative)?

A

Positives:
Increased GDP
Improved QoL
Lower unemployment
Increased tax revenues

Negatives:
Income inequality
Inflation

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14
Q

How does economic growth affect individuals (positive and negative)?

A

Positives:
Higher incomes and employment
Improved access to goods and services
Increased investment opportunities
Better social welfare

Negatives:
Work Life imbalances
Uneven benefits
Environmental degradation

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15
Q

What are demand-side shocks? Given examples.

A

Something that causes demand to either fall or rise either being domestic or global

Domestic:
Increase in confidence
Bigger rise in unemployment than expected
Unexpected tax increases

Global:
Trading partners go into recession leading to decrease in X
Financial crisis causing banks failing to lend.

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16
Q

What are supply-side shocks? Given examples.

A

Something that causes AS to either fall or rise either being domestic or global

Domestic:
Political turmoil
Strikes
Unexpected breakthrough in production technology

Global:
Natural disasters
Sharp rise in oil prices or other commodities

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17
Q

What are the short term effects on Business profit and investment in a recession?

A

Low D = business failure = low Profits
Low BC

Low P + Low BC = Low I and low production

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18
Q

What are the short term effects on Govt. finances in a recession?

A

Low T and high Welfare spending = budget deficit and high national debt

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19
Q

What are the short term effects on unemployment in a recession?

A

Low AD = Low demand for labour

Cyclical unemployment High

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20
Q

What are the short term effects on inflation in a recession?

A

Price down
Deflation risk High

Effect on inflation depends on time and cause

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21
Q

What are Animal Spirits?

A

Keynesian idea that humans are guided by instincts and emotions thus effecting the economic cycle.

Confidence = Boom
Uncertainty = Bust

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22
Q

What is unemployment?

A

Those of a working age who are able and willing but are unable to find work

Scarce human resources not being employed effectively.

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23
Q

What is the Labour Force Survey?

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A

Those not in employment regardless of benefits calculated through a 100k sample survey.

24
Q

What is the Claimant Count?

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A

The total number of people claiming unemployment benefits (Job Seekers Allowance)

25
What are the problems with the LFS?
-Small sample Costs Hidden unemployment from discouraged workers Inactive groups Underemployed Disparity
26
What are some problems with CC?
Difficult to compare Not everyone can claim Fraud
27
What is cyclical unemployment (Demand-deficient unemployment)?
Unemployment that is due to generally high lack of AD usually during a recession. Labour is a derived demand and businesses have to manage costs in order to maintain profit margins.
28
What is Real Wage unemployment (Classical unemployment)?
When wages are forced above equilibrium causing an excess supply of labour. Can occur due to minimum wage hikes or trade union pressure.
29
What is structural unemployment?
Immobility of labour due to long term change in the structure of an industry. Could be divided into geographical immobility (workers not able to move) or occupational immobility (skills mismatch).
30
What is frictional unemployment?
The transition between leaving a current job and finding and joining a new one. (Not serious)
31
What is seasonal unemployment?
Jobs that only arise depending on the season.
32
What type of graph can be used to demonstrate the effect for each of these types of unemployment?
Keynesian AD/AS curve.
33
What is the natural rate of unemployment?
Unemployment when the labour market is in equilibrium consisting of structural, frictional and seasonal.
34
What do Pro-Free market economists argue reason for NRU is?
Generous benefits No incentive for people to find work Excessive regulation for hiring for businesses
35
What do Pro-intervention economists argue the reason for NRU is?
Market Failures Lack of transport and housing Lack of training opportunities
36
What are some costs of unemployment?
Lost output working inside the PPF Social cost (homelessness) Lost income Low QoL Apathy to finding jobs Lost skills if long term
37
What are some benefits of unemployment?
Greater pool of workers for firms Low inflation Improves current accounts position (X-M) with less imports
38
What are some effects of unemployment on businesses?
Low D = Low profits Smaller pool of skilled workers due to long term U Lower wages Higher sale of inferior goods
39
What are some effects of unemployment on consumers?
Lower quality of products Lower consumption so lose out Lower prices as firms try to increase D
40
What are some effects of unemployment on governments?
Lower tax revenues Higher transfer payments Budget deficit High borrowing High interest rates Increased national debt
41
What are some effects of unemployment on society?
Social deprivation Reverse urbanisation Mental health issues Increased crime
42
What is inflation?
The persistent increase of prices in an economy in a year.
43
How does the consumer price index work?
1. ONS issues a expenditure survey to households 2. An average 'consumer basket' is created 3. Prices are weighted based on percentage of income 4. Using index numbers percentage changes in the basket are calculated and updated yearly
44
What are some challenges of using CPI?
Personal inflation rates differ (average family is hard to calculate) Food and energy prices are highly volatile Housing costs are not accounted for Basket updates are too slow
45
What is the Retail index price?
CPI + mortgage prices and rents
46
What is demand-pull inflation?
Caused due to an excessive growth of AD compared to AS allowing firms to raise prices. AD rise places increased pressure on already scarce factors of production forcing firms to raise prices.
47
What is Cost-push inflation?
Increase in costs of production for majority of firms in an economy causing firms to push this onto consumers in order to maintain profit margins. Economies of scale reduce Lower profits risk firms being out competed in the market.
48
What are some of the costs of inflation?
Lower purchasing power Erosion of savings Lower export competitiveness Higher demand for wages causing consumer price spirals resulting in hyperinflation Fiscal drag as workers have to pay more taxes with higher wages Inflationary noise (unpredictable)
49
What are some of the benefits of inflation?
Workers can bargain for higher wages increasing morale Controlled inflation = natural consumption Firm can increase output at low inflation Firms keep employees in a recession to avoid hiring and firing costs Reduces the value of real debt Fiscal windfall (improvement of govt. finances)
50
What are the two types of deflation?
Demand side deflation (Malignant) Supply-side deflation (Benign)
51
Why is Demand side deflation dangerous?
ANTICIPATED Falling prices deters consumption in the expectation that prices will fall even more next month causing demand to fall. This results in more debt and falling profits.
52
Why is Supply side deflation less dangerous?
Creates increased productivity and cheaper inputs. This leads to increases in consumption due to reduced costs.
53
Why is short term deflation beneficial?
Falling input prices for firms Falling prices for consumers
54
Why is long term deflation deadly?
As stocks increase firms reduce prices to sell off stocks but consumers expect further price cuts. As no one is spending... Firms cut production Real wages fall Consumption falls AD falls Output falls Animal spirits collapse Firms stop investing GREAT DEPRESSION 1930s
55
What is fishers equation of exchange?
A theory that is useful in explaining high levels of inflation. Money supply x velocity of money = price level x aggregate transactions
56
What does the Philips curve show?
Conflict between macroeconomic objectives such as inflation and unemployment.

Economics MACRO (4 decks)

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