maceo theme 2 Flashcards
(68 cards)
1
Q
what is gross domestic product (GDP)
A
total value of goods produced and services provided in an economy in a year
2
Q
what is economic growth?
A
the rate of increase of real GDP
OR
an increase in the productive capacity of the economy
3
Q
what is gross national income (GNI)?
A
total amount of money earned by an economy’s people and businesses in a given period
4
Q
how is gross national income (GNI) calculated?
A
GDP + net income earned abroad (remittances + property income + dividends from businesses and investments )
5
Q
why is GDP and GNI significantly different for some countries?
A
- significant overseas investments
- income from interest on bonds and savings held overseas
- overseas aid transfers
- worker remittances
6
Q
what is a nominal value?
A
the value of a good or service which does not take into account prices changing over time
7
Q
what is purchasing power parity?
A
adjusting GDP or other variables to reflect how much the local currency buys you
8
Q
what is gross national happiness (GNH)?
A
an alterntaive to measuring GDP. reflects the quality of life, non-monetary measures of the well-being of society
9
Q
what is the claimant count?
A
the number of people claiming benefits for unemployment. for example the jobseekers allowance
10
Q
what are the disadvantages of the claimant count?
A
- people may fraudulently claim benefits
- unemployed people may not be eligible for certain benefits
- difficult to compare between countries
the LFS is more accurate
11
Q
what are the advantages of the claimant count?
A
- relatively low cost to collet this data
- can be updated regularly
- easy to understand
12
Q
what is unemployment?
A
Those of working age (16+), who are willing and able to work, actively seeking work but do not have a job
13
Q
what is the labour force survey?
A
- segments people into employed, unemployed and inactive.
- monthly survey of 40,000 households
14
Q
what are the benefts of the labour force survey?
A
- internationally accepted measure of unemployment and this makes international comparisons valid
15
Q
what are the disadvantages of the labour force survey?
A
- sample size leads to sampling errors. margin of error of the sample is + or - 3%
- expensive to conduct the survey and interpret the results
- hidden unemployed: discouraged workers are going to be left out, workers that are constantly rejected and will drop out of the labour force and won’t be counted as unemployed
- the underemployed are counted as fully employed (only need to be working an hour a week)
16
Q
what are the weaknesses of GDP per capita?
A
Doesnt take into account
- purchasing power (low GDP countries will have higher purchasing power)
- the quality of g+s may differ
- income distribution is ignored
- hidden economy may differ in size
17
Q
what is gross national product (GNP) ?
A
- value of goods and services produced domestically and internationally by residents
18
Q
what is the formula for net investment?
A
net investment = gross investment- capital depreciation OR consumption
19
Q
what is the balance of payments?
A
record of all financial transactions in and out of an economy
20
Q
what are the components of the balance of payments?
A
- current account
- capital account
- financial account
21
Q
what is the current account?
A
imports and exports, net income and payments received from/ paid to abroad and government transfers (international aid or money paid to the EU
22
Q
what is the current balance?
A
balance of trade + balance of invisibles + net income and current transfers
23
Q
what are the UK’s primary macroeconomic objectives?
A
- steady and sustainable economic growth so that citizens experience increase in living standards- should be at a sustained rate
- price stability/ low and stable inflation: target amount is 2%
- full employment: those who are able and willing to work have a job or can get one
- balanced current account
24
Q
what are the UK’s secondary objectives?
A
- environmental protection
- balanced budget
- income equality: inequality is correlated with short spells of economic expansion and less growth
- exchange rate stability in order to attract foreign capital and stabilise foreign trade
25
what is the unemployment rate?
unemployed/ economically active (employed + active) x 100
26
what is economic inactivity?
people who are of working age but are NOT currently seeking work for a variety of reasons. if you are economically active you are not part of the workforce.
27
what is structural unemployment?
unemployment caused by the changing structure of the economy for example coal miners in Britain.
28
what is inflation?
a rise in overall price level.
29
what is deflation?
a decrease in the overall price level
30
what is disinflation?
when the rate of inflation falls, prices are rising at a slower rate
31
what is the consumer price index?
a measure of the average prices in the UK, based on a representative basket of goods, calculated by the Bank of England
32
What is the household expenditure survey?
the government surveys nearly 7000 households to calculate spending habits and formulate CPI inflation
33
what is cyclical unemployment?
unemployment caused by the economic cycle. when you have a negative output gap there is spare capacity nd not enough demand to create jobs
34
what is seasonal unemployment?
unemployment at different times of the year
35
what is frictional unemployment?
unemployment is caused by people moving between jobs. could be a sign of a healthy labour market.
36
what is the financial account?
buying and selling of assets and trade of foreign exchange reserves
37
what is aggregate demand?
the total value of planned expenditure in an economy over a period of time
38
what is consumption?
total planned household expenditure on goods and services
39
what is investment?
spending by firms on capital goods to increase their future production or increase their stock of capital
40
what is government expenditure?
spending by the government on goods and services
41
what is the accelerator effect?
an increase in national incone will lead to a proportionally larger increase in investment
42
what is the inflation rate?
measures the change in average prices in an economy over a yeat
43
how is the CPI calculated?
- CPI is used to show the inflation rate and changing consumer trends
- CPI uses the family expenditure survey to calculate a hypothetical basket of goods based on changing trends
- the goods are weighted according to the spending on each product
- the basket is compared to the base year
44
what is the phillips curve?
shows that there is a trade off between unemployment snd inflation for policymakers
45
what is the easterlin paradox?
- a countries' per capita income does not necessarily lead to increased happiness, no direct relationship between income and happiness
46
what is the Leontief paradox?
- the Us with a great deal of capital was importing capital intensive commodities and exporting labour intensive commodities
- this theory goes against the idea that firms will export what they have a comparative advantage in
- however, later it was shown that US exports were skilled labour intensive: showing that comparative advantage is important
47
what does the laffer curve show?
- there is an optimum tax rate which maximises total tax rev
- increased rates of tax avoidance, greater incentive to evade taxes, tax relief and make use of tax allowances. greater incentive to evade tax, by not declaring income or wealth . disincentives for the labour market depending on what taxes have been raised. brain drain effects - in the UK entrepreneurs may move to other countries
48
what are evaluations of the laffer curve?
- lower top rate taxes may increase income inequality
- little strong evidence that top rate income tax is a major barrier to inward migration of skilled labour
- people that are on fixed hours/zero hours contracts aren't impacted by tax
- taxes arent the only thing affecting work incentive - need to consider impact on work incentives
49
how does poverty restraint growth?
- lower income levels mean that the poor cannot save enough money for investments: harrod domar model
50
how does inequality restraint growth?
- poorer individuals will have no collateral to start their own business
- absolute poverty could remain high where there is high inequality
- low incomes have lower MPS, limits funds for investment: harrod domar model. those with higher incomes may contribute to capital flight
- inequality may mean that poor health and poor education leads to lower productivity
- inequality leads to shorter spells of economic growth
- governments will have to increase tax and spending to rectify inequality and this restraints economic growth
51
what is capital government expenditure?
spending on investment goods such as new roads, schools and hospitals which will be consumed in over a year
52
what are transfer payments?
government payments for which there is no corresponding output where money is taken from one group and given to another, such as pensions and benefits
53
how does public expenditure size vary?
- the lower the average income of the country, the lower the likely percentage of GDP spent by government.
- may be because there is lower tax revenue- this may be because of tax avoidance or evasion due to low incomes and high rates of tax
- attitudes to state spending may also inflluence this, for example USA has a conservative attitude to public spending
54
what is the formula for percentage change?
(new-org/org) x 100
55
what is the formula to calculate the multiplier?
- 1/1-mpc
56
what are automatic stabilisers?
Automatic stabilisers means government
spending/taxation vary without direct government decision-making over the course of the economic cycle built into the means-tested welfare support progressive tax bands
57
what are the influences on investment?
rate of economic growth: when growth is high, firms make more revenue because of higher C and therefore can invest their profits more
- business expectations and confidence: firms expect a high rate of return and therefore will invest more : need certainity. political decisons may have an impact or societal changes: if there is about to be a new govt or if commodity prices are due to rise businesses may postpone decisions.
- demand for the good: expect higher sales
- interest rates: investment increases as interest rates fall
- access to credit: banks and lenders are unwilling to lend firms will find it too expensive or not have the funds to invest. availability of funds depends on saving: harrod domal model
- influence of government regulations: rate of corporation tax influences amount of retained profit. subsidies or tax breaks may encourage invest. high levels of invest will discourage investment.
58
what is the big mac index?
- exchange rate of one currency for another, compares how much a typical basket of goods in the country costs compared to one in another country
- used to measure purchasing power parity
- big mac index compares the cost of a big mac around the world
- in kenya £2 of their own currency is enough to survive on, in the UK this isnt enough
59
60
What is the use of purchasing power parity?
- to improve accuracy when comparing data between countries
- PPP compares cost of living between countries, for example in Nigeria £2 of their own currency is enough to live off of for one day, in the UK it is not enough
- PPP is calculated,aged by comparing the price of a basket of comparable goods and services in different countries, such as the Big Mac index
61
What are the components of aggregate demand?
- consumption: about 65% of AD comes from consumption
- investment: about 15% of AD.
- government spending (transfer payments not included)
- exports: small % of aggregate demand and therefore will have a minor impact.
62
What factors affect investment?
- risk: economic instability/ political instability will affect invest. When trump imposed 104% tariffs on Beijing and they retaliated with 84%, the S&P 500 dropped to an all-time low
- government incentives and regulation: subsidies or reduction in tax. Relaxing or government regulations may reduce costs and increase money allocated for investment
- interest rates and access to credit: high interest rates means there is an opportunity cost of investing
- investment rises when significant technological advances are made
- business confidence: increase in confidence means higher investment
63
When does the AD curve shift?
- changes in components of AD (consumption, investment, government soending or net exports) that hasn’t been caused by a change in the price level
- e.g. reduction in income tax influences consumption
64
What does the SRAS show?
The SRAS shows that with an increase in the price level, there is an increase in the amount of output that firms are wiling to supply
65
Why is the LRAS curve vertical (classical)?
In the long run it is assumed that the economy will towards full capacity showed by the vertical line.
An increase in the price level wont cause an increase in output because the economy at full capacity so can’t create any more output
66
What factors causes the SRAS to shift?
- changes in costs of production. E.g. changes in wage rates, taxes, exchange rebates and efficiency levels
67
What causes the LRAS curve to shift?
- changes in the factors of production
- improvement of FoP causes the capacity of an economy to increase and there is economic growth
68
Why is the kenynsian curve l-shaped?
- at low levels of output aggregate supply is compeletly elastic ( where curve is horizontal) meaning there is spare capacity in the economy, meaning output can increase without a rise in the price level.
- when the curve begins to slope upwards this shows that the economy is beginning to experience problems with supply (bottlenecks) which are causing an increase in costs.
- curve becomes vertical when the economy is at full capacity
