Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Economics > Theme 2 Textbook > Flashcards

Theme 2 Textbook Flashcards

1
Q

Define nominal GDP

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Define real GDP

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Define an index number

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Define economic growth

A

An expansion in the productive capacity of the economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Define GDP

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Define GNI (gross national income)

A

GDP plus net income from abroad

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Define GNI per capita

A

The average level of GNI per head of population

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Strengths of GNI per capita

A

An agreed international standard
Takes into account the population size

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Weaknesses of GNI per capita

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Define inflation

A

A sustained rise in the general price level in an economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Define CPI (consumer price index)

A

A measure of the general level of prices in the UK

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What causes inflation

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is demand pull inflation

A

Consumer demand increases, putting upward pressure on prices

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is cost push inflation

A

Costs for firms increasing, increasing the price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What caused demand pull inflation in 2022

A

The economy was emerging from the pandemic, increasing consumer demand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Define deflation

A

A fall in the average level of prices

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Define disinflation

A

A fall in the rate of inflation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What was the decrease in inflation from 2008 to 2009

A

2008 inflation = 4%
2009 inflation = -0.5%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What are the two ways of measuring unemployment

A

Claimant count of unemployment
ILO unemployment rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Define claimant count of unemployment

A

Number of people claiming the Jobseeker’s Allowance each month

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Disadvantage of ILO measurement

A

Sample extrapolated up to represent whole UK
Sample not fully representative

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Evaluate costs of unemployment on firms

A

Positive:
Lower demand for their products
So lower sales and revenues so lower profits

Negative:
Less pressure to pay higher wages

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Evaluate costs of unemployment on workers

A

Negatives:
Lower standard of living
Reliant on social security support
Cost in terms of personal worth and dignity

28
Q

Evaluate cost of unemployment on government

A

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
Q

Define balance of payments

A

Set of accounts showing transactions conducted between residents of a country and rest of the world

30
Q

Three categories of balance of payments

A

Current account
Capital account
Financial account

31
Q

Define current account

A

Transactions in goods and services between residents of a country and rest of the world

32
Q

Define capital account

A

Transactions in capital between residents of a country and rest of the world

33
Q

Define financial account

A

Transactions in financial assets between residents of a country and rest of the world

34
Q

Application example for trade of goods

A

In 2016 in the UK
Deficit on goods was 7% (£140 bn)

35
Q

Define exchange rates

A

Price of one currency in terms of another

36
Q

Targets of macroeconomic policies

A

Economic growth
Full employment (low unemployment)
Low and stable inflation
Stable balance of payments

37
Q

Define money supply

A

Quantity of money in the economy

38
Q

Define cost-push inflation

A

Inflation initiated by an increase in costs faced by firms

39
Q

Define demand pull-inflation

A

Inflation initiated by an increase in aggregate demand

40
Q

Causes of a deficit account

A

Lack of competitiveness of UK goods and services
Arising from overvalued exchange rate

41
Q

Define fiscal policy

A

Decisions made by the government on its expenditure, taxation and borrowing

42
Q

Examples of government expenditure in UK

A

NHS
Infrastructure :
Elizabeth line or HS2

43
Q

What is the effect of government expenditure

A

Is a component of AD
Thus increase in expenditure moves AD curve outwards
Facilitates economic growth

44
Q

What does the multiplier of government expenditure depend on

A

Size of withdrawals from circular flow
If consumers have a high propensity to import, it will weaken the impact of multiplier

45
Q

How can the fiscal policy of taxation increase AD

A

Increases government budget deficit
Moves AD curve outwards

46
Q

Why is the fiscal policy of direct taxes better than indirect taxes

A

Direct tax (income tax) helps redistribute income between groups in society
Indirect taxes fall heavily of lower income households

47
Q

Define monetary policy

A

Decisions made government regarding monetary variables such as money supply of interest rates

48
Q

How might a monetary policy reduce inflation

A

Increase interest rates
Cost of borrowing higher
Fall in consumption
AD falls
Relieving pressure of prices

49
Q

Define Bank of England

A

UK’s central bank

50
Q

Define Monetary Policy Committee

A

Body within Bank of England
Responsible for conduct of Monetary policy

51
Q

Define bank rate

A

Interest rate set by MPC
To influence inflation

52
Q

Evaluation of demand side policies
(Fiscal and monetary)

A

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
Q

Define supply-side policies

A

Measures intended to have direct impact on AS

54
Q

Define market-based policies

A

Policies that rely on allowing market to work freely and provide incentives for enterprise and initiative

55
Q

Define interventionist policies

A

Policies by which the government intervenes to stimulate AS

56
Q

Examples of market based policies

A

Reducing tax on production
Privatisation and deregulation
Improving incentives

57
Q

What is privatisation and how can it be used as a supply side policy

A

Enterprises have been sold back into the private sector

Improves efficiency and competitiveness

58
Q

What is deregulation and how can it be used as a supply side policy

A

Reducing how much an industry is regulated

Improves efficiency and competitiveness

59
Q

Example of deregulation in the labour market

A

Reduce maximum working weeks and minimum holiday pay

60
Q

How can improving incentives be used as a supply side policy

A

Lower level of unemployment benefit

Incentivises people to enter labour force

Reduction in unemployment increase labour supply and AS

61
Q

How can education and training be used as a supply side policy

A

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
Q

Examples of interventionist policies

A

Education and training
Plugging information gaps

63
Q

How can plugging information gaps be used as a supply side policy

A

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
Q

Evaluation of supply side policies

A

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
Q

Why does incentivising the labour market through low unemployment benefits need careful balancing

A

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
Q

Define consumption

A

Expenditure on consumer goods and services

67
Q

Components of AD

A

C + I + G + (X-M)

Economics (9 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions