Economic performance

Question 1

Economic growth

Answer 1

• Econ growth = ↑GDP
• Demand side = ↑AD
• Supply side = ↑prod cap
• Pros = R&D, econ dev, choice, Y, emp, profit, fiscal rev, living standards
• Cons = inflation, inequality, env, CA deficit, resource depletion

Question 2

Economic cycle

Answer 2

• Boom = high growth, low unemp, high I
• Recession = slower growth, less output, falling emp, less I, falling AD
• Slump = low output, mass unemp., deflation
• Recovery = rising growth, more I, inflationary pressure

Question 3

LR economic growth

Answer 3

• ↑output via ↑prod cap, caused by ↑LRAS
• Causes = ↑labour prod, ↑workforce size, ↑I, infrastructure dev, ↑comp, new resources

Question 4

Output gaps

Answer 4

• Difference between actual and potential output
  –> +ve = growth>trend (inflationary)
  –> -ve = trend>growth (deflationary)

Question 5

Economic shocks

Answer 5

• Moves away from LRAS
• D side = tax, less welfare, fiscal crisis, unemp, high interest rates
• S side = rising commodity prices, lockdown, natural disasters, tech breakthroughs

Question 6

Unemployment

Answer 6

• Terms
  –> Unemployed = age, willing, able, seeking
  –> Unemp rate = %
  –> Unemp level = num
  –> Econ inactive = not want to work
  –> Vol = lack incentive
  –> Invol = incentice, can’t find work
• Measures
  –> Labour force survey
  –> Claimant count
  –> Problems = econ inactive, not all claim, costly, time consuming, underemp, hidden emp
• NRU (fric, struc)
  –> Job info, availability, incentive, factor mobility, flexibility, hysterisis
• Types
  –> Frictional
  –> Structural
  –> Seasonal
  –> Cyclical
• Policies to reduce
  –> S side = education, subs, dereg, reduce NMW/TU power
  –> D side = mon/fiscal policy, exchange rate, comp policy
• Disequilibrium unemp
  –> Excess labour
  –> Cyclical (↑AD)
  –> Real wage (↑wage)
• Evaluation of unemp
  –> Pros = low inflation, prod, firm choice
  –> Cons = personal/govt cost, personal, I
• Barriers to full emp
  –> NRU, econ cycle, geo disparities, automation, underemp

Question 7

Inflation

Answer 7

• Terms
  –> Inflation = ↑GPL
  –> Hyper = rapid inflation
  –> Deflation = ↓GPL
  –> Disinf = slow inflation
  –> Stagflation = ↓growth
  –> Inf expec = W£ spiral
• Consequences
  –> Inflation = uncertainty, instability, ↓comp, depreciation, menu/shoe leather costs, govt policy cost, output disruptions, ↑interest, ↓PPP
  –> Deflation = signal recession, ↓C (delayed purchases), unemp, ↑MPS, cost of borrowing (already ↑interest rate)
• Causes
  –> Demand pull = ↓interest rates, ↑£S, ↓direct tax, ↑G, weak currency, consumer conf, rapid growth, ↑wages
  –> Cost push = ↑wages, weak currency (dear M), ↑tax, inflation expec (demand wages), SS shocks, ↑commodity price
• Policies
  –> Increase = ↓interest rates, QE, fiscal stimulus (↑G,↓T), stimulate AD (Tsavings, ↓currency)
  –> Decrease = DS (QT, ↑interest rates, ↓G, ↑T, buffer stock), SS (hold public wages, ↑work visas, human cap I, infrastruct I)
• Quantity theory of money
  –> Fisher equ = (MC = PQ)
  –> £S, velo, G/S £, G/S qty
  –> M/P control inflation
• Challenges of controlling
  –> Global economy, SS shocks, built in inflation, mon policy
• Price index limitations
  –> Not rep, sub bias, sub qlty, variation, hard to measure, time lags