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economics > Theme 2 Economics > Flashcards

Theme 2 Economics Flashcards

1
Q

Circular Flow of Income.
Withdrawals
Injections

A

Withdrawals - Savings, Imports, Taxes.

Injections - Investment, Government spending, Exports.

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2
Q

Macro Economics Objectives.

A 
Controlling Inflation
Unemployment Rate
Economic Growth 
Balance of Payments
Sustainability
Reduce Inequality
Government Debt.
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3
Q

Inflation Definition

A

General rise in prices

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4
Q

What is a negative externality

A

A negative externality is a cost that is suffered by a third party as a consequence of an economic transaction.

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5
Q

What is a positive externality

A

This occurs when the consumption or production of a good causes a benefit to a third party. For example: When you consume education you get a private benefit. But there are also benefits to the rest of society.

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6
Q

Aggregate Demand Equation.

A

AD = Consumption + Investment + Government + (Exports - Imports)

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7
Q

Factors that influence consumption

A 
Gross Income,
Disposable Income
Discressionary Income
Inflation
Interest
Rate of Unemployment
Wealth effect.
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8
Q

MPC meaning

A

Marginal Propensity to Consume - How much of an additional income you are likely to spend.

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9
Q

MPS meaning

A

Marginal Propensity to Save - How much of an additional income you are too save.

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10
Q

Level of Saving

A

The average propensity to save also known as the saving ratio. Proportion of income that is saved

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11
Q

Factors that Influence saving

A 
Income
Interest Rates
Wealth
Confidence
Inflation
Composition of households
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12
Q

Carbon Trading.

A

A system of limiting carbon emissions through granting firms permits to emit a carbon safe area.

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13
Q

Factors that effect Aggregate Demand

A 
Factors :
Inflation
Interest Rates
Income
Wealth affect
Confidence.
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14
Q

Capital Investment.

A

This is spending on capital goods such as plant and equipment and new buildings to produce more consumer goods

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15
Q

Accelerator Theory

A

The accelerator theory is an economic postulation whereby investment expenditure increases when either demand or income increases.

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16
Q

Factors that influence the production method.

A 
Nature of Products
Cost of Machinery
Workforce
Finance
Competition.
Stakeholders
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17
Q

Economic Growth.

A 
This measures the rate of GDP of a country over a year.
It can be measured in 3 ways:
- Total Output of a business
- Total income of a country
- Total Spending.
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18
Q

CPI

A

Consumer Price Index

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19
Q

Types of Inflation.

A

Demand Pull - Customers have too much money, spend too much and prices start to rise.
Cost Push - Suppliers see increase in costs and increase prices.

20
Q

Balance of Payment and the accounts

A

Balance of Payments - Measures all international economic transactions between the UK and its trading partner.
Current account - Net exports/imports, Net Income, Net Transfers
Capital Account - Purchase of fixed assets such as real estate
Financial account - Foreign direct investment, other financial items.

21
Q

Types of Unemployment.

A

Frictional - Out of work due to unemployment.
Structural - Skills are no longer needed
Cyclical - Economic Reasons
Seasonal - Parts of the year when work isn’t needed

22
Q

The Claimant Count

A 
The Claimant Count measure includes people who are eligible to claim the Job Seekers Allowance.
What's Required : 
Out of work
Available for Work
Seeking employment
aged 18-66
Less than 16,000 in savings
23
Q

ILO Survey.

A

The labour force survey is a survey of 60k people all over society.
Aged - 16-70

24
Q

Universal Credit

A

Universal Credit is a payment to help with your living costs

25
Q

Supply Side Economics.

A

Industrial Relations - Between management and workers in the industry
Collective Bargaining - Negotiation of wages and other conditions of employment
Holding a Ballot - A system of voting on particular issues

26
Q

3 Types Of Government Spending.

A

Welfare Spending –> Benefits to the public
Current Spending –> Paying wages on public sector
Financial Spending –> Building new infrastructure HS2

27
Q

What’s an Import and Export?

A

Export is a good that the country sells to other countries

Import is a good that the country buys into their country.

28
Q

Exchange Rate and Types

A
  • Value of 1 currency to the value of another
  • Floating.
  • Fixed.
  • Managed Floating.
29
Q

Multiplier Effect

A

An initial change in aggregate demand can have a much greater final impact on the level of GDP

30
Q

What is an Economic Shock

A

An unexpected event that causes change in the level of supply, demand, output and employment.

31
Q

What is a Public Good.

A

Provides an example of market failure resulting from missing markets.

32
Q

Non Excludability.

A

Non-rivalrous means that the goods do not dwindle in supply as more people consume them; non-excludability means that the good is available to all citizens. An important issue that is related to public goods is referred to as the free-rider problem.

33
Q

What’s the Output Gap.

A

The difference between the actual GDP and Potential GDP

34
Q

Short Run Aggregate Supply.

Long Run Aggregate Supply.

A

Short Run Shows total planned output. Prices can change but the prices and productivity of factor inputs.
Long Run Shows total planned output when both prices and average wage rates can change.

35
Q

Fiscal Policy

A

Demand management through Tax and Government spending.

36
Q

Types of Taxation

Progressive
Proportional
Regressive

A

Progressive - The marginal rate of tax increases as incomes rise for example income tax.
Proportional - The marginal rate of tax is constant average rate of tax
Regressive - The rate of tax falls if incomes rise, lower tax for example and tobacco and duties.

37
Q

Direct Tax

Indirect Tax.

A

Direct Tax - Is imposed upon a person or property eg income tax.

Indirect Tax - Is a tax that is added upon goods and services before they reach the customer.

38
Q

What is Tight Fiscal Policy and Lose Fiscal Policy

A

Tight Fiscal Policy - Increase Tax decrease Government spending to reduce inflation
Lose Fiscal Policy - Increase Government spending and lower Tax.

39
Q

What’s an automatic stabiliser

A

Changes in tax revenues and state spending arising automatically as the economy moves through the trade cycle.

40
Q

Discretionary Fiscal Changes

A

Deliberate changes in tax and government spending for example an increase in spending on roads.

41
Q

Fiscal Stimulus.

A

Increase in Government and Lower Tax in order to increase AD

42
Q

Fiscal Policy Evaluation.

A 
Time Lag
Imperfect Info
Time Lag
Magnitude
Confidence
43
Q

Monetary Policy

A

Trying to increase the amount of money going around the circular flow of income.
Interest Rates
And Quantitative easing

44
Q

Monetary Stimulus.

A

Changes in Monetary Policy designed to increase aggregate demand including lower policy interest rates and measures to increase the supply of credit

45
Q

Pros and Cons of QE

A

Benefits - Stimulate Demand, Increase in the wealth effect and cuts interest rates.

Drawbacks - Banks still aren’t 100% confident. Surge in house prices

46
Q

Liquidity Trap.

A

A liquidity trap is when monetary policy becomes ineffective due to very low interest rates combined with consumers who prefer to save rather than invest in higher-yielding bonds or other investments.

economics (3 decks)

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