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Theme 2 Flashcards

(89 cards)

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1
Q

What does the circular flow of income represent?

A

Economics growth

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2
Q

Government objectives

A

Debt, sustainability, economic growth(gdp), inequality, unemployment, balance of payments, inflation

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3
Q

Aggregate demand formula

A

Consumption +Investment +Government spending (X-M)

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4
Q

Aggregate demand definition

A

Total amount of planned spending of goods and services

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5
Q

Key factors influencing consumer spending

A

Real disposable income, level and changes In Employment and job security, availability cost of consumer credit and interest rates, costs of servicing a mortgage, wealth effect, expectations of future prices, confidence, composition of households, level of personal debt

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6
Q

Capital investment

A

Spending on capital goods such as plans and equipment and new buildings to produce more consumer goods in the future

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7
Q

Factors that influence investment

A

Rate of interest, inflation, price of what you are buying, uncertainty, economic growth, acceleration theory, retained profit that the business has, productivity of labour, government policy, risk of investment, uncertainty of confidence and business tax

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8
Q

Acceleration theory

A

Postulation whereby investment expenditure increases when either demand or income increases.

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9
Q

Gross spending

A

Total amount that the economy spends on new capital

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10
Q

Net investment formula

A

Gross investment - capital depreciation

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11
Q

Multiplier effect

A

An initial change in an injection or leakage can have a greater final impact on equilibrium national impact.

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12
Q

Examples of Net trade evaluation

A

Food and fuel
Import and exports (balance of payments)

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13
Q

Trade balance

A

The difference between the value of exports and imports

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14
Q

What are the Balance of payments accounts

A

3 accounts- currents, capital, finance

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15
Q

Positive trade surplus

A

A trade surplus adds to net exports, which in turn increases AD

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16
Q

Negative trade deficit

A

Subtracts from net exports, leading to reduction in AD.

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17
Q

Output gap

A

The difference between the actual level of GDP and its estimated potential level.

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18
Q

Potential output

A

The level of production an economy can achieve when all resources are fully employed without causing inflationary pressures

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19
Q

Why could there be a fall in AD

A

Fall in net exports
Cut in gov spending
Higher interest rates
Decline in household
Wealth and confidence

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20
Q

Why could there be an increase in AD

A

Depreciation of the exchange rate
Cuts in direct and indirect taxes
Increase in house price
Expansionary of supply of credit + lower interest rates

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21
Q

What graph is aggregate supply

A

Short run

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22
Q

Aggregate supply

A

Total output of the good and services that firms in an economy are willing and able to to supply at a given price level.

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23
Q

Long run aggregate supply

A

This represents a maximum output when all factors of production are fully and efficiently employed.

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24
Q

Shifts in the shirt run aggregate supply curve

A

Unit wage costs perhaps arising from a higher minimum wage
Labour productivity
Raw materials
Taxes
Imported materials
Supply shocks

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25
Factors influencing long run aggregate supply
Changes in labour=increasing in supply Increase in stock of capital inputs including infrastructure Changes in natural resources Changes in the efficiency of allocation Improvements in quality of inputs/productivity State of technology Improvement in institutions
26
Fiscal policy
A governments policy regarding taxation and public spending
27
Which way does Loose fiscal policy shift the curve
To the right
28
Which way does tight fiscal policy shift the curve
Left
29
Magnitude
Size of the increase in income tax or lack of government spending
30
Eval impacts of an expansionary fiscal policy
- leads to higher market interest rates e.g bond yields rise as deficit increases - an acceleration in the rate of price inflation - marginal propensity to spend and save of households - marginal propensity to import - rise in business confidence - crowding-out.
31
Crowding out
If the government runs a big budget deficit, it will have to sell debt. This may require higher interest rates (they buy bonds). Or raising taxes to pay back the debt.
32
Interest rates defined
Reward for saving and the cost of borrowing
33
3 tools of monetary policy
1. Quantitive easing or tightening 2. Rate of interest 3. Credit availability
34
What is an injection
An investment of money into something - circular flow
35
What is red tape
This means too many regulations form filling and quality checks
36
Factors considered by the Bank of England when setting interest rates
- GDP growth and spare capacity - bank leading and consumer credit figures - equity markets and house prices - consumer confidence and business - growth of wages, average earnings and unit labour costs - unemployment - trends in global foreign exchange markets - international data
37
Tight monetary policy does what?
Raise interest rates and limit borrowing
38
What are transmission mechanisms
Several ways in which change in interest rates influences AD, output, and prices.
39
What are some effects of interest rates?
1. Change in market interest rates 2. Impact on demand 3. Effects on output, jobs & investment 4. Real GDP and price inflation
40
What happens when the interest rates increase or decrease
Interest rates increase the pound gets stronger When interest rates decrease the pound gets weaker - loose policy
41
Facts about Quantitive easing
- monetary policy tool - when the economy is lacking energy, the bank buys assets like government bonds from commercial banks and other financial institutions. The banks get cash in return for selling bonds - this will increase the amount of money in the financial system and will in theory encourage banks to lend more and consumers and businesses to spend more.
42
Loose/expansionary fiscal policy
Increase aggregate demand directly through an increase in government spending
43
Evaluative point for Quantitive easing
- time lags and impact of QE on the real economy - Bank of England now a major holder of the UK government debt - Liquidity trap - Lots was investerwd from higher income so it didn’t go round the circular flor of income.
44
Reasons why monetary policy may not work?
- the unwillingness of commercial banks to lend - low consumer confidence - huge levels of private sector debt - cost of borrowing is high
45
Liquidity trap
This is something that acts against economic situation that can occur when consumers and investors save cash rather than spend or investing it even when interest rates are low, preventing efforts by economic policymakers to stimulate economic growth
46
Phillips curve
The implication of the curve was that any attempt by governments to reduce unemployment was likely to lead to increased inflation.
47
Stagflation
Unemployment and inflation rising together
48
What will happen if in a Recession + causes
It will get worse as people hold back - Unemployment rates and lack of confidence
49
What is deflation?
Where the rate of inflation becomes negative
50
Demand side causes of deflation
- Fall in AD - recession - larger negative output gap
51
Supply side causes of deflation
- improved productivity - high technology - significant fall in wage rates - high exchange rates causes import prices to fall
52
What is Direct tax
Tax on income learnings or tax or business profits
53
What is under employment
A firm has too many workers
54
Corporation tax
Tax on a business profit Supply side
55
Reasons why deflation can be damaging
- holding back on spending - debt increase - the real cost of borrowing increases - lower profit margins - confidence and savings - income distribution - competition
56
What is Quantitive tightening
- It involves selling government bonds to banks or central banks letting bonds mature and then removing them from their balance sheet. - banks have less money to lend - interest rates increase along with bonds falling - less borrowing, less lending
57
Financial crisis 2008 The causes of recession
- US housing and mortgage bust over lending - low deals to low income earners who can’t afford it - impacting all banks around the world - borrowers couldn’t pay back - lead to loss of confidence
58
What is GDP (gross domestic product)
The value of all goods and services produced within a country over a year. Therefore the real GDP is a measure of a countries output.
59
Trend growth
The estimated rate of growth of a nation’s productive potential
60
What are the types of unemployment
Frictional Seasonal Structural Cyclical
61
Frictional unemployment
Out of work due to personal short term unemployment - made redundant
62
Structural unemployment
Your skills are no longer relevant
63
Cyclical unemployment
Economic reasons
64
Seasonal unemployment
Parts of the year when there is no work in your job
65
Demand deficient causes of unemployment
High interest rates Global recession Negative multiplier effect Financial crisis
66
What does claimant count include
People who are eligible to claim the jobs seekers allowance e.g. - out of work - available for work - actively seeking employment - aged 18-66 - excluded various people
67
Benefits of using claimant count
Up to date Cheap Easy to understand/ compose/ compare
68
Problems of using claiming count
Misses out on people Some people refuse to claim benefits Not used in Europe
69
Labour force survey
an inquiry directed to households, designed to obtain information on the labour market and related issues through a series of personal interviews.
70
What does the LFS survey involve
- 80,000 people across society - aged 17-70 - includes unemployment - used in Europe, good for comparisons
71
Benefits of LFS survey
Used in Europe Wider criteria Measures ‘students’ and ‘retirees’
72
Problems with LFS survey
Can be out of date People may lie Expensive to make
73
Current account
How much we import or export and if we’re in surplus or deficit
74
What does the Balance of payments do
Measure all international economic transactions between the UK and trading partners
75
Remittences
Someone who works here from another country and sends most of the money earnt back to their home country
76
Interventionist supply side policies
Spending on healthcare Building business parks Increased education and training Improving transport and infrastructure Invest in council housing
77
Market supply side policies
Reducing the power of trade unions Privatisation of state industry Lower tariff barriers Removing unnecessary red tape Reduce corporation tax Reducing state welfare benefits , providing better information about jobs, deregulation
78
Collective bargaining
Negotiation of wages and other conditions of employment by an organised body of employees
79
Industrial action
Action taken by employees of a company as a protest, especially striking or working to rule
80
Holding a ballot
Asking people to vote and it’s open to all members in the union
81
Deregulation
The opening up of a state monopoly. This market is now open to competition
82
Deregulation of labour markets
Where the government reduces the amount of employees rights. This makes it easier for firms to hire and fire workers, as well as flexible workforce.
83
3 ways to reduce inequality
A progressive tax system A benefits system Greater investment in education
84
Trickle down economics
Reduces tax rates for the rich Money that the rich spend on goods and services with trickle down to poor households
85
Problems of trickle down economics
Rich may save NHS gets less money Less in the circular flow Rich may buy more from luxury goods so it won’t ’trickle down’ Invest overseas
86
Human development index
A broader measure of society that looks at income, health and education
87
What are the three indicators in human development index
Health Education GDP per capita
88
Positives of using HDI
Helps form government policies Looks at wide elements in society
89
Negatives of using HDI
Does not measure inequality within the country We cannot trust the reliability of the figures

Economics (5 decks)

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