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Economics > Theme 2 Textbook > Flashcards

Theme 2 Textbook Flashcards

(67 cards)

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1
Q

Define nominal GDP

A

Value of GDP based on current prices, taking no account of changing prices through time

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2
Q

Define real GDP

A

An estimate of the volume of GDP taking account of changing prices through time

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3
Q

Define an index number

A

Device used for comparing the value of a variable in one period with a base observation

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4
Q

Define economic growth

A

An expansion in the productive capacity of the economy

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5
Q

Define GDP

A

A measure of the economic activity carried out in the domestic economy over a period

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6
Q

Define GNI (gross national income)

A

GDP plus net income from abroad

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7
Q

Define GNI per capita

A

The average level of GNI per head of population

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8
Q

Strengths of GNI per capita

A

An agreed international standard
Takes into account the population size

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9
Q

Weaknesses of GNI per capita

A

Does not consider quality of life
The quality of data collection may vary across countries

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10
Q

Define inflation

A

A sustained rise in the general price level in an economy

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11
Q

Define CPI (consumer price index)

A

A measure of the general level of prices in the UK

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12
Q

What are compiled in the CPI and how are they useful

A

Weights for each item
Allows index to be updated each year and remain representative

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13
Q

What causes inflation

A

Prices rising due to demand increasing
Prices rising due to increasing costs for firms

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14
Q

What is demand pull inflation

A

Consumer demand increases, putting upward pressure on prices

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15
Q

What is cost push inflation

A

Costs for firms increasing, increasing the price

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16
Q

What caused demand pull inflation in 2022

A

The economy was emerging from the pandemic, increasing consumer demand

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17
Q

What caused cost push inflation in 2022

A

Supply chains were interrupted during the pandemic
Conflict in Ukraine added more supply side pressure, especially oil and gas supplies

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18
Q

Define deflation

A

A fall in the average level of prices

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19
Q

Define disinflation

A

A fall in the rate of inflation

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20
Q

What was the decrease in inflation from 2008 to 2009

A

2008 inflation = 4%
2009 inflation = -0.5%

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21
Q

Why can deflation be perceived as bad

A

People expect prices to continue to fall
They may postpone purchases in the expectation of being able to buy at a lower price in the future
Resulting in lower demand, perpetuating the recession

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22
Q

What are the two ways of measuring unemployment

A

Claimant count of unemployment
ILO unemployment rate

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23
Q

Define claimant count of unemployment

A

Number of people claiming the Jobseeker’s Allowance each month

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24
Q

Define ILO unemployment rate

A

A measure of the percentage of the workforce who are without jobs, but are willing and able to work

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25
Disadvantage of ILO measurement
Sample extrapolated up to represent whole UK Sample not fully representative
26
Evaluate costs of unemployment on firms
**Positive:** Lower demand for their products So lower sales and revenues so lower profits **Negative:** Less pressure to pay higher wages
27
Evaluate costs of unemployment on workers
**Negatives:** Lower standard of living Reliant on social security support Cost in terms of personal worth and dignity
28
Evaluate cost of unemployment on government
**Negatives:** * Earnings lower So income tax revenue falls * Less spent on goods and services So indirect tax revenue falls * Increase in people claiming social security benefits So government spending rises
29
Define balance of payments
Set of accounts showing transactions conducted between residents of a country and rest of the world
30
Three categories of balance of payments
Current account Capital account Financial account
31
Define current account
Transactions in goods and services between residents of a country and rest of the world
32
Define capital account
Transactions in capital between residents of a country and rest of the world
33
Define financial account
Transactions in financial assets between residents of a country and rest of the world
34
Application example for trade of goods
In 2016 in the UK Deficit on goods was 7% (£140 bn)
35
Define exchange rates
Price of one currency in terms of another
36
Targets of macroeconomic policies
Economic growth Full employment (low unemployment) Low and stable inflation Stable balance of payments
37
Define money supply
Quantity of money in the economy
38
Define cost-push inflation
Inflation initiated by an increase in costs faced by firms
39
Define demand pull-inflation
Inflation initiated by an increase in aggregate demand
40
Causes of a deficit account
Lack of competitiveness of UK goods and services Arising from overvalued exchange rate
41
Define fiscal policy
Decisions made by the government on its expenditure, taxation and borrowing
42
Examples of government expenditure in UK
NHS Infrastructure : Elizabeth line or HS2
43
What is the effect of government expenditure
Is a component of AD Thus increase in expenditure moves AD curve outwards Facilitates economic growth
44
What does the multiplier of government expenditure depend on
Size of withdrawals from circular flow If consumers have a high propensity to import, it will weaken the impact of multiplier
45
How can the fiscal policy of taxation increase AD
Increases government budget deficit Moves AD curve outwards
46
Why is the fiscal policy of direct taxes better than indirect taxes
Direct tax (income tax) helps redistribute income between groups in society Indirect taxes fall heavily of lower income households
47
Define monetary policy
Decisions made government regarding monetary variables such as money supply of interest rates
48
How might a monetary policy reduce inflation
Increase interest rates Cost of borrowing higher Fall in consumption AD falls Relieving pressure of prices
49
Define Bank of England
UK’s central bank
50
Define Monetary Policy Committee
Body within Bank of England Responsible for conduct of Monetary policy
51
Define bank rate
Interest rate set by MPC To influence inflation
52
Evaluation of demand side policies (Fiscal and monetary)
**Fiscal:** + Stimulates AD - Government expenditure adds to budget deficit **Monetary:** + Stimulates AD - Bailing out failing banks adds to budget deficit **Overall:** Not a long-run solution (inflation + budget deficit)
53
Define supply-side policies
Measures intended to have direct impact on AS
54
Define market-based policies
Policies that rely on allowing market to work freely and provide incentives for enterprise and initiative
55
Define interventionist policies
Policies by which the government intervenes to stimulate AS
56
Examples of market based policies
Reducing tax on production Privatisation and deregulation Improving incentives
57
What is privatisation and how can it be used as a supply side policy
Enterprises have been sold back into the private sector Improves efficiency and competitiveness
58
What is deregulation and how can it be used as a supply side policy
Reducing how much an industry is regulated Improves efficiency and competitiveness
59
Example of deregulation in the labour market
Reduce maximum working weeks and minimum holiday pay
60
How can improving incentives be used as a supply side policy
Lower level of unemployment benefit Incentivises people to enter labour force Reduction in unemployment increase labour supply and AS
61
How can education and training be used as a supply side policy
Education in schools: Tailored to labour skills or analytical skills Training of workers: Retraining available for movement of workers after structural unemployment **Improves human capital and thus productivity**
62
Examples of interventionist policies
Education and training Plugging information gaps
63
How can plugging information gaps be used as a supply side policy
Information gaps are a form of market failure Workers may not have adequate information about job opportunities Providing information about vacancies encourages mobility of labour Improves way in which labour market operates
64
Evaluation of supply side policies
**Strengths:** Target specific problems that limit productive capacity of an economy Effective in long run **Weaknesses:** Not always fast acting ( education and training takes time) Needs careful balancing of effects of some policies (unemployment benefits)
65
Why does incentivising the labour market through low unemployment benefits need careful balancing
**Too high:** Inhibit labour force participation Workers have incentive to live on unemployment benefits instead of low paid employment **Too low:** Protection not provided for those who are unable to find employment Workers unwilling to leave their job to search for better ones (inflexible labour market)
66
Define consumption
Expenditure on consumer goods and services
67
Components of AD
C + I + G + (X-M)

Economics (9 decks)

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