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A Level Economics > Slatman Theme 2 > Flashcards

Slatman Theme 2 Flashcards

1
Q

Define economic growth

A

Economic growth measures how the rate of GDP of a country changes over a year

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2
Q

GDP Definition

A

The value of all goods and services produced within a country in a year

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3
Q

What are the three ways of measuring GDP?

A

Total output
Total of all spending
Total income is received by country home and abroad - GNI

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4
Q

What is GNP?

A

Also includes earnings overseas

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5
Q

What is real GDP?

A

GDP without inflation

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6
Q

What is trend growth

A

The estimated rate of growth of a nations, productive potential

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7
Q

Define unemployment

A

People who could be working, but aren’t working

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8
Q

What are the different types of unemployment and define them

A

Frictional - out of work due to personal short-term unemployment
Structural - your skills are no longer relevant (e.g mining in the UK)
Cyclical - economic reasons
Seasonal - parts of the year when there is no work in your job (e.g a b and b owner by the seaside)

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9
Q

What are the consequences for unemployment

A
  • Lower output for the economy so less economic growth
  • Inflation - lower supply so higher prices
  • Big impact on local businesses as they are spending less (less consumption)
  • Less tax revenue for the government, so less government investment on things like public services
  • Opportunity cost (too much spent on benefits)
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10
Q

What are the demand deficient causes of unemployment

A

High interest rates
Global recession
Negative multiplier effect
Financial crisis

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11
Q

What are the supply-side causes of unemployment?

A

Frictional
Structural
Geographical immobility
Technological change

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12
Q

What is the claimant count?

A

The measure includes people who are eligible to claim the job seekers allowance

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13
Q

What is the criteria for the claimant count?

A

Out of work
Available for work
Actively seeking employment
Aged 18 to 66
Exclude various people e.g if you have lots of savings

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14
Q

Define economically inactive

A

Of working age, but not looking for employment and not employed

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15
Q

Positives and negatives of the claimant count

A

+ very cheap to obtain
+ Easy to collect
+ An accurate measure of those claiming unemployment related benefits
- generally underestimates the amount of unemployed people

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16
Q

What is the labour force survey (LFS)

A

A survey of 80,000 people across society. It counts of those without the job in the last four weeks and can start within the next two weeks.

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17
Q

What is the criteria for the LFS?

A

Aged 16 to 70
Without a job in the last four weeks and can start within the next two weeks

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18
Q

Positives and negatives of the LFS

A

+ it is internationally comparable
+ measures a wider criteria (age and job)
+ it also measures students and retirees

  • Can be out of date
  • More expensive to create
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19
Q

Definition of inflation

A

General increases in price - this leads to a fall in the real value of money

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20
Q

Demand issues that can drive up prices

A

wage increase
Amount of advertising
Weather /time of year
Trends and popularity
Confidence

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21
Q

Supply issues that can drive up prices

A

Minimum wage rise
Factors of production costs, increasing

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22
Q

What is the consumer price index (CPI)

A

Excludes, mortgage interest payments

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23
Q

What is the retail price index?

A

Include mortgage interest payments

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24
Q

What is demand pull inflation?

A

Consumers have too much money, spend too much and prices start to rise as we outbid each other

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25
Q

What is cost push inflation?

A

Supplies see an increase in their own costs, so they push them onto the consumer

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26
Q

How do they measure UK inflation

A

A basket of approximately 650 goods is collected to reflect spending
A price survey is carried out across the UK to get an adjusted UK price for each good
Weights are attached to each good depending on importance
Multiply the weight by the price index for each good and add them all up. Then do new index minus base index to get inflation.

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27
Q

Suggest ways to reduce inflation

A

High interest rates
Freeze minimum wage
Increase tax
Freeze energy bills
Freeze pay rises

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28
Q

What is the balance of payments?

A

The balance of payments measures all international economic transactions between the UK and its trading partners

29
Q

Characteristics of the current account

A

Net exports/imports, goods and services
Net income (investment income from overseas plus employee wages)
Net transfers (sums sent voluntarily home by migrant abroad)

30
Q

What is the current account?

A

Measures all imports and exports

31
Q

What is the capital account?

A

Sale of assets

32
Q

Characteristics of the capital account

A

Capital transfers (purchase and sale of fixed assets, such as real estate)

33
Q

Characteristics of the financial account

A

Foreign direct investment (build factories)
Net portfolio investment (investments in savings and bonds)
Other financial items (hot money)

34
Q

What supply side policies stimulate production among the nations firms

A

The labour policy - reducing the costs faced by firms
Capital policy - improving the productivity of human and physical capital

35
Q

What interventionist supply-side policies are used by the government?

A

Spending on health care
Building business parks
Increased education and training
Improving transport and infrastructure
Investing in social (council) housing

36
Q

What market supply-side policies are used by the government?

A

Reducing corporation tax
privatisation of state industry
Reducing state welfare benefits
Deregulation
Reducing the power of trade Unions
Cutting the red tape

37
Q

What are the negatives of business parks?

A

Takes years to build
Causes congestion (negative externality)
Opportunity cost

38
Q

What is a trade union?

A

And organised Association of workers in a profession. It seeks to protect workers, paying workers rights.

39
Q

What can the government do to reduce the power of trade Unions?

A

Introducing minimum service level so the impact of strikes is less
This would increase the aggregate supply

40
Q

How much does the UK spend on state benefits per year?

A

£231bn

41
Q

What is deregulation?

A

The opening up of a state monopoly. This market has now opened to competition. For example, the Royal mail used to be the only Postal Service but now there are lots of options

42
Q

Advantages of deregulation

A

Increased competition so there is a strive for better quality
More efficiency
Greater consumer choices

43
Q

Disadvantages of deregulation

A

Creates a private monopoly
Duplication of services (buses)
Private firms cut costs

44
Q

What are interventionist supply side policies

A

Involves government intervention to boost the economy e.g investment

45
Q

What are market based supply side policies

A

Policies that encourage competition, market reform, and create incentives so that the market works more efficiently e.g. privatisation

46
Q

What is the deregulation of labour markets

A

This is where the government reduce the amount of employee rights. This makes it easier for firms to hire and fire workers.

47
Q

What is a zero hour contract

A

They are on call to work whenever you need them. You don’t have to give them work

48
Q

Benefits of zero hour contracts

A

Flexible
Costs low

49
Q

Issues with zero hour contracts

A

Takes people away from full time hours

50
Q

What does removing the red tape mean

A

Removing some regulations there are too many

51
Q

Benefits of removing the red tape

A

Trade is more efficient and quicker as less hold ups so less time and money wasted

52
Q

Benefits of inequality

A

Creates incentives to get better paid
Encourages investment - incentive to reach greater profits so they invest

53
Q

Issues with inequality

A
  • Underconsumption of merit goods, overconsumption of demerit goods ( because they are cheaper)
  • decreased quality of life
  • increased crime
54
Q

Ways of reducing inequality

A

Progressive tax system
Paying benefits
Greater investment in areas such as education and healthcare

55
Q

Benefits of a progressive tax system

A

Means lower income can contribute more to the economy
Reduces inequality

56
Q

Negatives of progressive tax system

A
  • Less disposable income for higher income people so reduces incentive to be successful
  • discourages risk taking to earn more
57
Q

What is trickle down economics

A

Reduce the tax rates for the richest
Money that the rich spend on goods and services will trickle down to poorer households

58
Q

Why does trickle down economics work

A

Rich will reinvest into their businesses which creates more jobs for poorer households. Money goes into the circular flow of income

59
Q

Problems with trickle down economics

A

May save instead of spend
Spend on other rich people so doesn’t make it to the poor

60
Q

Advantages of minimum wage

A

Increased consumption for economy
Decreased inequality
More money in the circular flow

61
Q

Disadvantages of the minimum wage increase

A

Some businesses can’t afford it so they get dissolved
Inflation ( passed into consumer)
Redcues company profits so less investment

62
Q

What is the happiness indicator

A

The economics of happiness relates economic decisions to a wider measure of welfare. It looks beyond income and wealth

63
Q

Components of the happiness indicator

A

Personal safety
Leisure

64
Q

What is the human development index

A

A broader measure of society that looks at income, health and education

65
Q

Advantages of using HDI

A

Helps the government form policies
Looks at wider elements of society

66
Q

Disdvantages of using HDI

A

Not necessarily reliable
Does not measure inequality

67
Q

What are some other possible indicators of the quality of life in a country

A

Access to mobile phones
Access to clean running water

68
Q

What is purchasing power parity

A

Purchasing power parity (PPP) is an economic theory of exchange rate determination.
Purchasing power parity is a measure of the price of specific goods in different countries and is used to compare the absolute purchasing power of the countries’ currencies

A Level Economics (4 decks)

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