Theme 2 Topic 1 Flashcards

Question

What is a limitation of GNP and GNI as a comparator ?

Answer 1

Many jobs in low income countries are informal, so they aren’t given a financial record.

Answer 2

Real GDP / number of people within the country It then converts the income into dollars and allows a comparison between all the countries around the world. This allows us to see how much an individual from each country can buy, given the average amount of income that they have.

Answer 3

A comparison between different countries, taking different costs of living and the exchange rate into account. This makes it more accurate.

Answer 4

1. Accuracy of statistics (e.g. constantly changing populations and inaccurate population statistics) 2. Shadow economy isn’t included in measurements (e.g. tax reasons, some things being paid in cash) 3. Transactions without a monetary value (e.g. housework) 4. Negative externalities (e.g. pollution that economic growth causes but doesn’t taken into account) 5. Economic growth causes inequalities in income and wealth in a country

Answer 5

A good guide to actual growth if the other factors (based solely off of GDP) are taken into account.

Answer 6

Developing countries consume what they produce and don’t offer it on sale on the market, so there is no monetary value. They also might wish to achieve growth at the expense of health + safety. Developed countries increase incomes at the expense of quality of life (stress, long working hours)

Answer 7

Measuring national happiness

Answer 8

A world happiness record

Answer 9

1. Real GDP per capita 2. Healthy life expectancy 3. Generosity 4. Perceived freedom to make life choices 5. Having someone to count on 6. Freedom from corruption

Answer 10

1. Family relationships 2. Financial situation 3. Work 4. Community and friends 5. Health 6. Personal freedom 7. Personal values

Answer 11

A new branch of economics that looks at how content individuals are with their life from a theoretical and scientific point of view.

Answer 12

Because standard measures of living standards don’t take into account contentment.

Answer 13

How happy one perceives themselves to be (the government has started researching this)

Answer 14

Happiness rises with average incomes, but only up to a certain point. Beyond the point, the marginal gains in happiness fall because people care about relative and absolute incomes.

Answer 15

The rate of change in the average price level over time. It is the sustained increase in the cost of living/fall in the purchasing power of money.

Answer 16

By checking the prices of a basket of goods/services that an average household purchases each month. The basket is turned into an index (CPI)

Answer 17

1. Consumer price index (CPI) 2. Retail price index (RPI)

Answer 18

RPI takes housing costs (e.g. mortgage payments) into account

Answer 19

The change in average price levels in a given time period.

Answer 20

Using an index with 100 as the base year.

Answer 21

The office of national statistics (ONS) compile CPI (and RPI) based upon the basket of goods/services (700 items). A household expenditure survey is conducted to determine what goes into the basket. Goods/services are weighted based on the proportion of household spending. The price x the weighting = the price index.

Answer 22

Cost of basket in year ‘x’ / x 100 cost of basket in base year

Answer 23

The inflation rate for the given period.

Answer 24

1 : collection of data about people’s purchases using the ONS Living Costs and Food survey (LCF) 2 : the price survey by civil servants who collect data once a month (120k prices gathered)

Answer 25

1. Each household experiences a different rate of inflation 2. It doesn’t include mortgage payments and their associated interest 3. Doesn’t recognise improvements in the quality of goods over time 4. CPI only changes once a year 5. CPI is prone to errors in data collection

Answer 26

The consumer price inflation including owner-occupiers’ housing costs. It is a new measure of inflation.

Answer 27

It includes changes in residential rents across the UK. It estimates the amount it would cost all UK homeowners to rent their houses. It includes council tax in its calculation.

Answer 28

Certain goods/services that are excluded from CPI are included with RPI. Due to extra inclusions, inflation measured using RPI is usually higher than CPI (due to sensitivity to interest rate changes). Argued that RPI has a more accurate indication of a household’s inflation than CPI.

Answer 29

1. Public sector pension increases 2. Bank of England inflation target 3. Social security benefits increase

Answer 30

1. Pension scheme increases where rules explicitly refer to the RPI 2. Regulated rail fares.

Answer 31

A decrease in the general price level.

Answer 32

when the % change in prices falls below zero %. this is when there are periods of very low growth. the value of money is rising and demand is very low.

Answer 33

1. prices fall 2. consumers delay purchasing decisions (they think prices will fall more in the future) 3. consumption decreases significantly 4. firms loose the confidence to invest 5. harms aggregate demand even further

Answer 34

inflation rate is positive but falling inflation is still increasing but at a decreasing rate e.g. y1 = 5%, y2= 4%, y3= 3%

Answer 35

1. enables firms to confidently plan for future investments 2. offers price stability to consumers

Answer 36

1. Demand - pull 2. Cost - push 3. Growth of the money supply

Answer 37

New base/base figure x 100

Answer 38

It is caused by excessive demand in the economy for goods/services. There is too much money chasing too few goods/services. If any factor which increases AD was to increase, then inflation would increase

Answer 39

1. Reduced taxes (increases disposable income) 2. Lower interest rates (people spend more and save less) 3. Weaker exchange rate (boosts export growth) 4. Consumer confidence/certainty (increases consumer spending and investment)

Answer 40

When firms respond to rising costs of production by increasing prices (to maintain profit margins) Firms may be able to absorb some increases in their costs but they can’t do this fully so pass costs onto the consumer in the form of higher prices.

Answer 41

1. Wages increase (workers demand higher wages to maintain real incomes when prices rise, so this may lead to a wage-price spiral) 2. Higher raw material costs (if they are more scarce and are in greater demand, they may increase in price) 3. Higher taxes on firms (corporation tax)

Answer 42

Too much money in the economy. people have more money to spend but the amount of goods and services aren’t increasing as fast, so prices rise. idea grew out of the fisher equation

Answer 43

MV = PT M is money supply V is speed of money circulating in the economy P is price level T is the number of transactions An increase in money supply leads to an increase in price level, ceteris paribus

Answer 44

1. Narrow money (notes/coins/liquid assets) 2. Bond money (wider definitions of money, bank account deposits)

Answer 45

1. Printing more notes (through BoE) 2. Use quantitative easing (create money electronically) 3. Reduce deposit holdings of banks, so they can lend more money (bank multiplier) 5. BoE buys bonds to create liquidity (financial institution pays a fixed some annually for this)

Answer 46

- Fixed income financial assets that provide the holder with a stream of income annually - they are tradeable and have a redemption date for when they mature

Answer 47

How easy it is to turn financial assets into money (notes/coins) By law, UK banks must hold a certain % of deposits to provide liquidity.

Answer 48

2008 UK recession : BoE would have expected to cut interest rates in order to help boost economic activity However : with interest rates at 0.5%, they had little downwards movement to manipulate the economy with Banks worried about lending money to firms and individuals so the BoE boosted the funds available for lending to businesses designed to encourage commercial banks to lend at cheaper interest rates i.e. to small & medium sized businesses.

Answer 49

Commodities (oil) make up a large % of UK imports They have a huge impact on price levels Many that are brought in the UK are price inelastic A rise in the world price of commodities will feed through UK inflation

Answer 50

PPI shows the rate of changes of prices of producers

Answer 51

New markets are creating growing demand for goods globally, causing demand - pull inflation. These markets are increasing productive capacity, which has caused lower cost products feeding through lower prices (China) The economic performance of the UK’s major trading patterns (EU and US) will impact on demand for UK products

Answer 52

1. Prices of goods and services rise 2. Wages remain constant but prices rise 3. Consumers have less disposable income 4. Inflation destroys the value of money

Answer 53

1. Workers 2. Firms 3. Consumers 4. The government

Answer 54

They demand an increase in wages to cover higher costs of living Collective bargaining occurs with the union negotiating with employers to improve wage rates Deflation causes staff to lose their job as there is a lack of demand so firms see a fall in profit and have to decrease staff to cut costs

Answer 55

Allows groups to plan for the future if inflation is anticipated. Wages/taxes are increased in line with inflation Workers will negotiate with employers for wage rises in line with the predicted CPI May lead to further inflation because wage increases will reflect past increases

Answer 56

The rise of inflation increases the cost of living for citizens. The government will have to increase state pensions + welfare payments in line with inflation. This increases the amount of government spending. Inflation will help to reduce the national debt in real terms. Inflation reduces the real interest rate so the cost of borrowing falls

Answer 57

The real value of people’s savings will fall. People on fixed incomes will have a lower purchasing power and their incomes fall. Consumption decreases and the standard of living decreases. This may increase unemployment.

Answer 58

Loss of international competitiveness (UK exports become more expensive and UK imports are cheaper) The balance of trade will be affected. Increased uncertainty for firms as rising costs will lead to firms investing less Workers may demand higher wages as their cost of living is now higher.

Answer 59

1. Demand side deflation (bad/malignant deflation) 2. Supply side deflation (good/benign deflation)

Answer 60

Demand decreases (shifts left) Prices decrease Economic growth decreases Long term deflation and anticipation of a recession

Answer 61

1. Delayed spending - prices fall, but bad for businesses now as there is lower growth and higher unemployment 2. Positive interest rates - nominal inflation, incentive is to save because interest rates are still positive, so more saving occurs 3. Increase real value of debt - prices decrease, profits decrease, incomes decrease

Answer 62

Supply increases (shift to the right) Prices increase Economic growth increases Short term deflation and is unanticipated

Answer 63

1. Falling prices for consumers - improves purchasing power 2. Falling input prices for firms - reduces costs of production, so increases profits

Answer 64

A record of a country’s trade and transactions with the rest of the world. It measures the total value of exports - imports.

Answer 65

1. The current account 2. The financial account 3. The capital account

Answer 66

1. Trade in goods 2. Trade in services 3. Investment income 4. Transfers

Answer 67

1. Transactions in financial assets 2. Investment flows 3. Government transactions

Answer 68

1. Transfer of assets by individuals

Answer 69

When the sum of exports of goods/services/transfers/ investment income is greater than imports Exports > imports

Answer 70

When the sum of exports of goods/services/transfers/ investment income is less than imports Imports > exports

Answer 71

- it measures net exports (X-M) of visible goods - the UK has traditionally run a large deficit on trade in goods - difference between visible exports and visible imports = the balance of trade

Answer 72

1. Increase in demand for consumer goods (many are imported) 2. Lower production of primary materials (gas/oil) (reliance on imports for raw materials) 3. Strong currency (imports are more affordable and exports are less attractive to foreign buyers)

Answer 73

- it measures the net exports (X-M) of invisible items (banking, insurance, tourism) - the UK has traditionally run a large surplus on trade in services

Answer 74

1. UK shifted away from primary + secondary sectors and more towards tertiary sector employment. they specialise in the provision of services 2. UK is more competitive in the provision of these services and can offer better services at a lower cost 3. London has developed as one of the world’s prime financial centres and become a major source of income in the UK

Answer 75

Balance of trade in goods and services = balance of trade + balance of invisibles

Answer 76

Generated by UK owned assets UK firms own companies abroad generate income from overseas investments Profits + dividends received are sent back to the UK and count as a credit item of investment income on the current account

Answer 77

Payments made by the government to and from other countries. Given its status in the EU and global economy, the UK runs a deficit on the transfers section of the current account.

Answer 78

1. Payments of EU fees 2. Foreign aid contribution 3. Economic migrants sending money back to their families in their home country.

Answer 79

Result of loans of the factors of production E.g. interests, profits, dividends

Answer 80

A range of government transfers to overseas organisations E.g. the EU

Answer 81

Current balance = balance of trade + balance of invisibles + net income + current transfers

Answer 82

An increase in AD means domestic incomes increase. Demand for goods increase. However, many of the items that consumers consume are imported from abroad. So, an increase in incomes is likely to lead to an increase in the demand for imports. This leads to a current account deficit.

Answer 83

Makes imports cheaper and exports more expensive. Domestic goods become less competitive abroad. So, demand for exports decrease. Imports becoming cheaper increases their demand. The total amount of money spent on imports increases.

Answer 84

Increase in costs (due low investment, low productivity…) leads to a rise in the cost of domestic goods. Prices of domestic goods increase relative to other countries. A reduction in the demand for domestic exports occurs. So, a reduction in the total revenue gained for exports occurs.

Answer 85

This increases the price of domestic goods in relation to those abroad. This makes them less competitive So, the demand for exports decreases

Answer 86

Demand for poor quality domestic goods decreases The goods are less desirable Total revenue from exports decreases

Answer 87

1. Controlling consumer spending (reduces demand for imports) 2. Depreciation of exchange rate (makes exports more price competitive, however, it will increase the relative price of imports, which may be problematic if we can’t produce domestic alternatives) 3. Improve macro economic conditions in the UK ( This encourages investment + domestic growth and reduces our reliance on imports, the current account surplus increases AD, causing GDP to increase, the general price level. If inflation is already high this could be a problem. Surplus can push the price levels to a point past inflation. Therefore the government needs to decide whether a current account surplus is worth it if it’s going to cause high uncontrolled inflation)

Answer 88

1. Proportion of output of an individual economy which is traded internationally is growing 2. More people own assets in other countries (shares, loans) 3. Increasing migration between countries 4. More technology being shared at a faster rate

Answer 89

Countries have become more interdependent. A change in the economic condition of 1 country will affect another, since the quantity they import and export changes. All current balances should add up to zero (what one country imports, another exports (in theory) ).

Answer 90

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

Answer 91

Number of people unemployed

Answer 92

Number of people unemployed as a % of the labour force Or Unemployment/labour force x 100

Answer 93

All those who are economically active

Answer 94

Individuals of working age 16-64 who are neither employed nor seeking employment activity.

Answer 95

1. Claimant count 2. Labour force survey (ILO)

Answer 96

The number of people claiming Job Seekers Allowance (JSA). A some of money given to someone unemployed while they seek work.

Answer 97

1. Is everyone eligible to sign off 2. Under 18s and over 60s don’t count 3. The JSA criteria changes 4. Some of those who claim JSA aren’t actively looking for work 5. Self employed workers who are temporarily unemployed don’t claim

Answer 98

Quarterly survey of around 60k households complied by the Office of national statistics (ONS), studying the employment circumstances of the UK population

Answer 99

1. internationally recognised 2. Potential analysis of data 3. Picks up trends in sectors 4. Better guide to policy makers 5. Generally accepted to be more accurate

Answer 100

1. Costly to compile (60k interviews every 3 months) 2. Subject to sampling and extrapolation errors (bias)

Answer 101

1. Working part time but would like to work full time 2. Sick / disabled 3. Aren’t actively looking for work but would take a job if offered

Answer 102

When workers can’t find a job that is suitable for their qualifications and experience or who cannot find enough hours to work. E.g. graduates are unable to find work that is of graduate standard and are being placed in less skilled jobs Workers are placed on ZHC and called into work when required rather than being given a permanent contract

Answer 103

Only working when the firm calls you. There are no fixed working hours

Answer 104

Working a minimum of 30 hours a week

Answer 105

Working less than 30 hours a week with family benefits

Answer 106

A record number of people are in work in the UK, However, the employment rate is not at its peak. Due to the population increasing (through immigration)

Answer 107

The rate of unemployment has fallen in 2015 and is heading for the lows that the UK experienced in the 2000s. Due to the increase in the number of people who are economically inactive.

Answer 108

Includes potential workers who have withdrawn from the workforce in order to look after sick relatives, are on long term sick leave, or have given up on looking for work.

Answer 109

1. Rate of unemployment, employment, and inactivity 2. The duration of unemployment, employment, and inactivity

Answer 110

1. The economy 2. Businesses 3. The unemployed

Answer 111

1. Structural 2. Frictional 3. Seasonal 4. Cyclical

Answer 112

A long term decline in demand in an industry, leading to reduction in employment (due to international competition or technology). many highly skilled workers are unable to find work as there is limited demand for their labour (as production and supply has been moved to other countries). workers therefore need to retrain and gain new skills to find employment BUT this is costly + timely geographical immobility (workers who don’t want to move to find a job) occupational immobility (workers who don’t have the skills required for a job)

Answer 113

occurs between the time workers are unemployed and when they find a job (moving between jobs) through career moves or geographical changes. short term + occurs as workers don’t have immediate information about every job opportunity available to them.

Answer 114

1. Regional unemployment 2. Sectoral unemployment 3. Technological unemployment

Answer 115

When workers are unemployed at different times of the year. (Tourism) Happens in seasonal industries as more workers are employed over busy periods (Christmas) This distorts unemployment and unemployment is ‘seasonally adjusted’. Little can be done to prevent this from happening in a free market economy

Answer 116

Linked to the economic cycle and occurs when there is a negative output gap. Demand is low. When a recession occurs, unemployment rises as firms will reduce the number of staff they have to meet the change in the level of demand for their goods/services, or they stop hiring more employees. This causes output/real GDP to fall and an increase in the general price level. As the economy recovers and moves towards a positive output gap, cyclical unemployment will reduce.

Answer 117

When real wage rates are above equilibrium wage rate. Leads to excess supply of labour. Workers will supply more of their services at higher wage rates. Firms will demand less workers at higher wage rates. In a free labour market, real wage rates would fall in these circumstances and the market would return to equilibrium. Distortions to the labour market (e.g. NMW) can maintain real wage rates above their equilibrium. Can also be caused by unemployed workers refusing to take low paid jobs because they receive more in welfare benefits.

Answer 118

The difference between emigration (those leaving the UK) and immigration (those coming into the UK)

Answer 119

Net migration into the UK has increased the number of workers coming into the UK. This has increased the supply of labour to UK businesses of both skilled and unskilled workers. Immigrant workers are arriving from both the EU and outside the EU. Due to the circular flow of income, immigrants’ spending creates jobs and employment increases without an increase in unemployment. However, it leads to lower wages (for low skilled jobs), as there is more competition for jobs, workers have less motivation to work. Low skilled workers are most affected as they are competing in the job market with skilled workers who are prepared to take the same jobs as them.

Answer 120

UK is facing skills shortages. The skills gap is mostly occurring in sciences and practical trade jobs (engineering). This leads to higher wages in these fields with wages being bid up, increasing costs for firms. The government is looking to tackle these shortages with apprentices. People become long term unemployed as their skills don’t fit the jobs on offer. Migrant workers may fill these shortages if their skills fit.

Answer 121

High levels of frictional unemployment give workers time to look for jobs that are right for them. This is likely to increase the duration that workers stay in jobs and they’re happiness working there. However, if they’re out of a job for too long, they may lose their existing skill sets as they’re not being fully utilized. This may result in long term unemployment in the future. It is also inefficient for the economy, moving it to a point further inside the PPF curve. The long term unemployed find it hard to get another job as they lose skills. Those who are in jobs will suffer from lower job security and will fear being made redundant. They can see a fall in wages because firms can easily find someone to replace them if they complain about pay

Answer 122

There will be a decrease in demand for their goods. Leads to less profit. Long term unemployment leads to a loss of skills so firms have a smaller pool of skilled people to employ. They can offer low wages as people will take the job anyway because they know there is a lack of jobs so have few options.

Answer 123

Consumers will loose income that they endure. Leads to a fall in living standards as well as other social issues. For example, health issues such as depression are often higher in times of high unemployment and a reduction in people’s self-esteem due to the loss of their job status.

Answer 124

Increased government spending on JSA and employment programmes. Reduced incomes cause a fall in tax revenues. VAT falls This causes a budget deficit for the government. The government will have to raise taxation or scale back plans for public spending (on education). They may need to increase borrowing

Answer 125

often an increase in crime and general unhappiness. This is likely to take a big toll on society as the number of negative externalities (vandalism) increase. An unhappy population can lack motivation which increases the amount of people that become economically inactive. There is also a loss of potential output as there is wastage of economic resources and the economy produces within the PPF.

Answer 126

Shows % change in the price/quantity from the base year

Answer 127

Negative economic growth for 2 consecutive quarters.

Answer 128

Stigma is the negative perceptions faced when out of work. Process of signing to receive benefits (JSA) can make someone feel stressed, breakdowns, big toll on mental health.

Answer 129

If this isn’t changed in line with inflation, consumer taxable income will increase so the government can take more money from them, and the consumer ends up with less disposable income.

Answer 130

If taxes aren’t adjusted in line with inflation, the % tax on an item will not change, and lead to a fall in government revenue.

Answer 131

to analyze and compare the economic development of different countries

Answer 132

Low economic growth Weak exchange rate

Answer 133

A strong exchange rate High economic growth

Answer 134

Increased economic growth [1] Increased employment [1] Demand-Pull inflation [1]

Answer 135

When there is a sudden reduction in the availability of credit. [1]

Answer 136

As foreign investments are made, debit items will also occur. This means when foreign investors earn profits/dividends from their investments in the UK, those payments are sent to the foreign country. Accounted as money flowing out of the UK.

Theme 2 Topic 1 Flashcards

(161 cards)