Economics > Theme 2 > Flashcards

Theme 2 Flashcards

(91 cards)

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1
Q

Short run economic growth

A

The actual annual percentage change in real national output

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2
Q

Long run economic growth

A

Increase in potential productive capacity

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3
Q

How to measure short run growth

A

real national output or percentage change of gdp

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4
Q

Long run growth how to measure

A

Ppf shows max potential of economy

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5
Q

Recession

A

2 negative quarters in a row for gdp growth

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6
Q

Total national income

A

Value of all goods and services produced in a country

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7
Q

Per capita income

A

Total income / people in the country

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8
Q

Gross national product

A

Value of all goods+services produced by domestic buisnesses both at home and broad

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9
Q

Gross national income

A

Total level of income of a country

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10
Q

What is purchasing power parity

A

Compares relative value of currency by measuring cost of a basket of goods aiming to show how much a unit of currency can buy in each country

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11
Q

Problems with GDP

A

.accuracy of stats
.shadow economy left out
.negative externalities not measured
.inequakity not shown

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12
Q

Easterlin paradox

A

Shows relation between money and happiness. Not directly linked as it plateaus

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13
Q

Inflation

A

Sustained increase in the cost of living or fall in the purchasing power of money

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14
Q

Hw to measure inflation

A

General change in price level over time

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15
Q

Measure of inflation consumer price index

A

CPI -average market basket of goods purchased by households which measures change in price of this

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16
Q

Problems with cpi

A

.not fully representative - it’s an average basket of goods
.doesnt measure quality
.slow to react to new products -updates anually

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17
Q

Deflation

A

Decrease in general price level

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18
Q

Disinflation

A

Falling rates of inflation - price are still rising but at a slower rate

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19
Q

Causes and problems of deflation

A

.occours at times of low or stagnant growth
.as prices fall, consumers put off pending
.firms lose business confidence

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20
Q

Causes of inflation

A

Demand pull,cost push,growth of money supply

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21
Q

Demand pull

A

.cused by excessive growth in demand
.higher consumer spending
.demand outweighs supply
.firms increase cost
.AD shifts out

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22
Q

Cost push

A

.rise in cost due to increased production costs
.firms increase cost to remain profitable
.SRAS shifts inward

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23
Q

Growth of money supply

A

When increasing money supply is quicker than increased output AD shifts out -excess demand demand pull inflation
.more money for limited goods so firms increase price

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24
Q

Costs of inflation

A

If cost increase and wages don’t - consumers worse of in real terms
Inflation erodes value of Money
.borrowers benefit - value of money paying back is worth less
.cancause unemployment

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25
Hyperinflation
Period of rapid or extreme increase in PL
26
Unemployment
Those who are able to and willing to work but can’t find a job despite looking
27
Economically inactive
Those not searching for work
28
How to measure unemployment
.those claiming benefits .labour force survey
29
Underemployment
When workers can’t find a job suitable for their qualification of enough hours to work
30
Hidden unemployment
.people who searched for work who have now given up so now considered economically inactive
31
Views on unemployment (classical vs keynsian)
Classical - the only unemployed are those not able to or unwilling to work at going rate. Unemployment will balance over time. Keynsian - unemployment due to insufficient Demand - gov intervention is required. If GDP is negative firms do not require as many workers
32
Types of unemployment
Structural,fictional,sectoral,regional
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Structural unemployment
Workers who lose jobs due to declining industries - do not have the skills to rejoin another industry
34
Regional unemployment
Poor mobility of factors of production causes high unemployment in some areas
35
Sectoral unemployment
A particular sector is effected and skills are not transferable
36
Frictional unemployment
Unemployment s transitional a people move between jobs - this takes time
37
Labour market flexibility
Speed at which labour markets can adjust to change
38
Immigrants on unemployment
If come with job lines up - unemployment decreases If come looking for work - unemployment stays the same or increase
39
What is balance of payments
Records all financial transactions made between consumers buisnesses and government in one country with the nations
40
Imports
Money goes out Goods come in
41
Exports
Goods go out Money comes in
42
Current account deficit
Exports are less than import
43
Current account surplus
Exports are higher than imports
44
Income and current transfers : investment income,
Investment income : generated from loans of factors of production overseas like internet payments,profits or reparations
45
Financial account
Records money flow for investment
46
Capital account
Changes is net assets in different economies
47
Current account balance
Balance of trade + balance of services +income + current transfers
48
Aggregated
Sum of goods and services within a market
49
Aggregate demand
Total demand for all goods and services within an economy at any given time
50
What is AD mae up of
Consumption +Gov spending + investment + (net exports- imports)
51
Consumption
Spending on consumer goods over a period of time
52
When do people Saving
Occours when people postpone spending for a later time
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What is saving
Household disposable income that isn’t spent
54
Factors effecting spending
Real disposable income Employment and job security Household wealth Interest rates
55
Marginal propensity to consume
Change in consumer spending following change in income. Change in consumpertion/change in income
56
MPC numbers
Likle to be between 0-1 Spending above 1 is financed by loans
57
Marginal propensity to save
Change in saving s / change in income. Measures how much an additional dollar is saved rather than spent
58
Investment
Addition to capital stock of an economy
59
Capital stock
Used to produce other good and services
60
Gross investment
Total investment on new patio inputs
61
Depreciation
Loss of value of capital stock
62
Net investment
Gross investment- depreciation
63
Physical capital
Factories,machines
64
Human capital
Training or education
65
Why do people invest
.preferable interest rates .return on investment
66
Classical view on LRAS
Do not increase AD as this will cause inflation at no extra output. Increase LRAS for economic growth
67
Keynsian view onLRAS
If economy is fully utilised aim to increase LRAS if not focus on shifting AD
68
Sustainable growth rate
The highest rate of economic growth that is attainable without harming future growth.
69
Output gap
Difference between actual output of an economy and its potential output
70
Positive output gap
When real GDP is greater than potential GDP. Economy is operating beyond its full capacity .may Lead to inflationary pressures
71
Negative output gap
RealGDP is less than potential GDP shows there’s spare capacity in the economy .may lead to unemployment
72
What is hysteresis
Refers to an output gap so large that it alters the entire trend of GDP
73
Benefits of growth
Increased: life expectancy,living standards,innovation and supply
74
Oppertunity cost of Econ growth
Potential growth requires investment
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76
Environmental effects of growth/inflation
.More pollution+waste .risk of over usage of finite resources
77
What do possible macroeconomics objectives require
Policy-intervention-trade offs
78
Examples of policy intervention and trade offs in unemployment
Policy target - decrease unemployment Intervention - increase training and education Trade off - increased employment may lead to lower wages for some workers due to more supply of labour is thus worth it ?
79
Demand side policies
Monatery Fiscal
80
What is a monetary policy
Manipulation by governments of monetary variables : interest rates,exchange rates and money supply to achieve its objective
81
What is fiscal policy
The use of taxes, gov spending or gov borrowing to achieve its objective
82
What is Quantitive easing definition
Central bank creates electronic money to buy government bonds which creates demand and increases asset price to stimulate economy
83
Aim of QE
Encourages banks to lend at lower interest rates as they’ll buy out the debt .lower rates = more spending .more spending = increased AD
84
National debt
The total amount of money the government owes to its creditors
85
Supply side policies
Designed to remove barriers to efficient working for supply Designed to correct market failure
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What is interest
Interest is the cost of borrowing money or the reward for lending money.
88
What is the multiplier effect
Occours when the initial injection into the economy or circular flow of income causes a larger financial increase into the level of real national income or output
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How is the multiplier effect calculated
Final £ in aggregate effect / initial injection
91
What are the main macroeconomic objectives
Economic growth, low unemployment,price stability and balance of payments

Economics (4 decks)

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