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Theme 2 Flashcards

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1
Q

Explain the term ‘real GDP’ 2.1.1

A

Total output of an economy
Taking inflation into account

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2
Q

Explain two likely causes of inflation 2.1.2

A

Cost push inflation/decrease in SRAS e.g due to an increase in coat of raw material and energy

Demand pull inflation/increase in AD e.g due to an increase in injections/consumption/fall in interest rates/fall in unemployment

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3
Q

Name the strengths of contractionary monetary policy 2.6.2

A
  • Decreases demand pull inflation
  • Encourages saving
  • Reduces Current Account Deficit
  • More affordable housing
  • More sustainable borrowing/lending
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4
Q

Define unemployment 2.1.3

A

The number of people looking for work but who can’t find a job at a given point in time

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5
Q

Define under-employment 2.1.3

A

When individuals are employed but their job doesn’t fully utilise their skills and qualifications- can result in part time work, low wages or jobs below their skill level

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6
Q

Rate of employment formula 2.1.3

A

Unemployed / Labour force x100

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7
Q

Name of the causes of unemployment 2.1.3

A

Structural unemployment
Frictional unemployment
Seasonal unemployment
Cyclical unemployment
Real wage inflexibility

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8
Q

List the limitations of the Claimant Count 2.1.3

A
  • Unreliable indication of unemployment due to frequent policy changes as to who’s eligible to review these benefits
  • Can’t be compared to other countries they may have a different criteria to be eligible for benefits
  • May underestimate the number of unemployed people as everyone who is unemployed may claim unemployment benefits
    -People may claim benefits fraudulently or exploit the system example worker job and gets paid in cash which is accounted for
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9
Q

Calculating balance of payments 2.1.4

A

The sum VALUE of all four components of balance of payment
positive number = surplus
negative number = deficit

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10
Q

Trade deficit 2.2.1

A

When the value of imported goods and services is greater than the value of exported goods and services in an economy
(X<M)
-detracts from aggregate demand

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11
Q

Describe the limitations using GDP to compare standards 2.1.1

A

-Income distribution: GDP per capita doesn’t account for income inequality, and a higher GDP may conceal disparities in living standards
-non-market activities :GDP excluded on market activities like household labour needs to an incomplete picture of living standards
-Quality of life :GDP doesn’t measure factors such as healthcare education, environmental quality and overall well-being

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12
Q

Name the main influence on the net trade balances 2.2.5

A

Real income
exchange rates
state of the world economy degree of protectionism
non-price factors

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13
Q

Define The Term price level

A

The average of the current prices of goods and services

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14
Q

How would a decrease in price levels affect AD 2.1.2

A

Wealth effect - consumers buy more of what they need leads to an extension of demand due to demand dropping
Trade effect- trade less as good= expensive lead to demand for export increases
Interest rates reduced—>People are more likely to consume more, save less take out loans et cetera.

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15
Q

Define aggregate supply 2.3.1

A

Total supply of goods& services produced by any given price level

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16
Q

Name the causes of movements along the AS curve 2.3.1

A

Changes in the price level occurs due to changes in aggregate demand
if AD increases = expansion
if AD decreases = contraction

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17
Q

Define the term balance of payments 2.1.4

A

A record of a countries trade/transactions with the rest of the world

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18
Q

Why is investment in composite in the current account? 2.1.4.

A

Investment income is generated by UK own assets overseas e.g generating income from overseas assets —>therefore it is positive in the current account

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19
Q

Name the name the main influences on government expenditure. 2.2.4.

A

The trade cycle
fiscal policy

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20
Q

Explain one reason why purchasing power parties are used 2.1.1

A

-to improve accuracy when comparing data between countries
-PPP compares cost of living/ buying power between different countries

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21
Q

Define the term index number

A

What percentage change increase or decrease in price/quantity from the base year

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22
Q

Define interest rate

A

The cost of borrowing money

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23
Q

Define budget surplus

A

When the government receives more money than it spends

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24
Q

Why are trading goods negative ( X<M)

A

-Scarce resources for example, gas and oil
-increase in the demand for consumer goods
- decline in the UK manufacturing sector
-cost of production is cheaper abroad so we import

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25
List the limitations of the labour force survey 2.1.3
-Expensive and time-consuming to monitor -the sample size of the survey unrepresentative of the entire population -monthly estimates may not be accurate/representative of the actual figure. - Additional administrative resources are required
26
Explain the likely impact on aggregate demand of a fallen average house prices 2.2.
AD will fall reduction Reduction in consumer confidence and consumption.
27
Name the factors influence in shot run AS (Causes of shifts)
Changes to the cost of production wages raw materials/commodity prices oil prices business tax (VAT) import prices (SPICED/WIDEC)
28
Describe Quantitive easing 2.6.2
A method used by central banks to help stimulate the economy when standard monetary policy is ineffective
29
Describe the difference between GDP and GNI
GNI gross national income the value of all income earned by residence in a country over set time period In comparison GNI takes the value of goods and services produced by a country over a set period (like GDP) PLUS any overseas income such as interest and dividends So it’s includes the same the sum of overseas investments minus what foreigners earn and send back to the native country from the GDP
30
Define savings 2.2.2
The portion of income that is not spent on consumption
31
Explain what is meant by spare capacity in an economy 2.3.3
There’s a negative output gap in the economy Under-utilisation of the factors of production/ the resources not being used to their full potential
32
Describe the Circular Flow of Income 2.4.1
A model of the economy which shows the flow of goods and services, the factors of production and money around the economy
33
Name the factors influencing long run AS 2.3.3
- technological advances - changes in relative productivity - changes in education and skills - changes in government regulations - change in the quantity of out FoP - changes in quality of our FoP - changes in the productive efficiency of the economy
34
Define deflation 2.1.2
A sustained decrease in the general price level - it increases the purchasing power of £ but can discouraged spending and investment - indicates a slowdown in the rate of growth of output in the economy
35
Explain the reason for the shale of the classical long run AS Curve 2.3.2
Economy operates at full capacity/no spare capacity so there are no unused factors of production
36
Name the comment est that make up Consumption in AD 2.2.2
Disposable income Interest rates Consumer confidence Wealth effects
37
Define Disposable Income 2.2.2
The income left over for an individual household after taxes have been paid
38
What causes movement along the AD curve 2.2.1
Changes in price level while other factors affecting AD remain constant
39
Define the circular flow of income 2.4.1
-Money flows around the economy between consumers/households and firms - injections also inclu gov spending & exports OR withdrawals are taxation, spending and imports
40
What makes up injections and withdrawals 2.4.2
Injections : Gov spending, Investment & Exports Withdrawals : Savings, Imports and Taxes
41
Define the term ‘national income’ 2.4.1
Total spending on goods and services
42
Define the term ‘output gap’ 2.5.2
Difference between the actual and potential output
43
Describe the term ‘animal spirits’ 2.2.3
Keynes came up with it to describe emotional factors influencing investment decisions : confidence, optimism , entrepreneurial spirit
44
Name the possible macroeconomic objectives 2.6.1
Economic growth Low unemployment Low and stable rate of inflation Balance of payment equilibrium on current account Balanced government budget Protection of the environment Greater income equality
45
Describe the impact on the multiplier when the AS curve has different elasticities 2.4.4
If the AS is perfectly inelastic-> ONLY impact on the multiplier= to increase price (won't affect output in the long run. only short run) The more elastic the curve, the smaller the effect on price but the bigger effect on output
46
Calculating the multiplier - example 2.4.4
If consumers spend 0.6 of every £1 they earn, they save 0.4 . Therefore the multiplier will be 1/(1-0.6)= 2.5 This means that for every £1 of income generated, £2.50 of new income
47
Give the distinction between Gross and Net Investment 2.2.3
Gross: the total value of new physical capital (machinery, equipment etc) that's produced/purchased within an economy over a specific time period (DOES NOT ACCOUNT DEPRECIATION) Net: the actual addition to the capital stock of an economy after depreciation has been considered Net investment = gross investment - depreciation
48
Name the factors that influence investment 2.2.3
Rate of economic growth Business expectations & confidence Keynes' animal spirits Demand for Exports Interest Rates Access to credit The influence of gov and regulations
49
Give the distinction between actual growth rates and long term trends in growth rates 2.5.2
The long run trend rate of growth is the average sustainable rate of economic growth over time. Actual growth is the actual change over time and its changes are what make up the business cycle. The difference between the two = OUTPUT GAP
50
Positive Output Gap 2.5.2
Actual GDP> Potential GDP - this puts upward pressure on inflation - resources being used beyond the normal capacity, such as if labour works overtime - if productivity is growing, the OG becomes POSITIVE
51
Negative Output Gap 2.5.2
Actual output< Potential - this puts downward pressure on inflation - there's unemployment of resources in an economy -> labour and capital aren't used to their full productive potential - there's SPARE capacity in the economy
52
Describe the 3 ways which measure GDP 2.6.1
Income - e.g household wages, business profits and gov tax take Output - e.g the g&s produced within an economy Expenditure - e.g money invested by businesses and spending by households and gov
53
State the formula for the multiplier 2.4.4
K= 1/ MPW (MPS+MPT=MPM) OR K= 1/ (1-(MPC)
54
What causes a shift of the AD curve 2.2.1
When factors OTHER than the price level change: Consumption Investment Gov Spending Net Exports
55
Give the components of AD 2.2.1
AD= C+I+G+(X-M)
56
Define Aggregate Demand 2.2.1
Total quantity of goods and services in an economy at a given overall price level at a given period of time
57
Explain the term 'current account of the balance of payments'
the total value of imported goods and services and exported goods and services within an economy
58
List the weaknesses of Contractionary Monetary Policy 2.6.2
Lower growth - SHOCK High Unemployment - SHOCK Worsening CA deficit via exchange rate strengthening Reduces Investment
59
Define Economic Growth 2.5.1
The expansion of the productive potential of the economy
60
List the goals of contractionary monetary policy 2.6.2
Reduce inflation Prevent Asset/ Credit Bubbles Reduce CA deficit (X
61
Limitations of Monetary Policy 2.6.2
-banks may not pass the base rate onto consumers which means that even if the central bank changes the I.R-> may not have the intended effect -even if borrowing cost=low, consumers may be unable to borrow because banks are unwilling to lend-> banks became more risk averse after 2008 financial crisis -If consumers think the economy is too risky even if the I.R are low, try may not wish to spend
62
Which demand side policy best explains a rise in the base interest rate 2.6.2
Contractionary Monetary Policy
63
State the imitations of Fiscal Policy 2.6.3
- Gov may have imperfect info about the economy-> leads to inefficient spending. there's a significant time lag involved w/ employing F.P - If the gov borrows from the private sector-> fewer funds available for the private sector-> CROWDING OUT -if I.R= high, F.P= ineffective for increasing demand. If gov spends too much there could be difficulties paying back their debt, which could make it difficult to borrow in the future
64
Describe when Quantitive Easing 2.6.2
when there's: low availability of credit low consumer/business confidence low willingness of banks to lend low inflation
65
List the weaknesses of supply side policies 2.6.2
Opportunity Cost Cost Time Lags No guarantee of success Output Gaps
66
List the weaknesses of expansionary monetary policy 2.6.2
Demand Pull Inflation CA Deficit (X
67
List the weaknesses of expansionary fiscal policy 2.6.2
Higher Demand Pull Inflation CA Deficit (X
68
If a government takes decisions to target a budget surplus, this is an example of... 2.6.2
Discretionary Fiscal Policy
69
Define the term fiscal policy 2.6.2
The manipulation of gov spending , taxation and government borrowing to influence the level of economic activity within an economy (AD)
70
Give the distinction between monetary and fiscal policy 2.6.2
Monetary Policy involves changes to I.R, the money supply and the exchange rate to influence AD whereas F.P involves using taxation and gov spending to affect AD. Monetary policies will be enacted by a country's central bank, independent to the government
71
Define the term Hot Money 2.6.2
money (or financial capital) that flows freely and quickly around the world looking to earn the best return
72
Define the term 'monetary policy' 2.6.2
the manipulation of interest rates, the money supply and exchange rates, by the central bank. to influence the level of economic activity within an economy (AD)
73
List the 3 goals of expansionary monetary policy 2.6.2
Increase inflation Increase economic growth Increase employment
74
Describe the Bank of England's role in monetary policy 2.6.2
MP is controlled by the Bank of E rather than the gov The Monetary Policy Committee makes the important decisions including the BOE base rate & actions over Q.E Main aim: keep inflation at 2% (they use CPI to see whether targets have been met) made up of 9 people
75
Describe the distinction between market based and interventionist methods 2.6.3
Interventionist method involve gov intervention to tackle market failure . Market based supply side policies allow the free market to operate w/ the gov reducing its role in the market.
76
Define the term 'supply side policies' 2.6.3
policies that aim to improve the long run productive potential of the economy
77
Define the term 'budget deficit'
when government spending exceeds tax revenue G> Tax Revenue
78
Describe the difference between value and volume 2.1.1
Volume = the quantity of goods and services produced in a country Value+ the monetary worth of goods and services produced
79
Describe the difference between total GDP and GDP per capita 2.1.1
Total GDP represents the overall GDP for the country whilst GDP per capita is the total GDP DIVIDED by the number of people ion a country
80
Distinction between income & wealth 2.4.1
Income -> a FLOW of money that goes to the factors of P e.g. wages, welfare payments, profits, dividends etc
81
Define Inflation 2.1.2
the sustained increase in the general price level of goods and services in an economy over time It leads to a decrease in the purchasing power of money
82
Describe the difference between real and nominal GDP 2.1.1
Real GDP strips out the effects of inflation whilst nominal GDP doesn't
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Economics (37 decks)

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