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A level economics > Theme 2 (unfinished) > Flashcards

Theme 2 (unfinished) Flashcards

(85 cards)

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1
Q
A
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2
Q

financial markets Def and functions

A

-def: where buyers and sellers of financial services meet
needs:
-facillitate saving
-lend to businesses and households
-facillitate the exchange of products
-provide forward markets for currencies and commodities
-provide a market of equities

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3
Q

injections and withdrawals from circular flow of income

A

withdrawals: imports, tax, savings
injections: gov spending, borrowing, exports

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4
Q

MPC equation

A

change in consumption/ change in income

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5
Q

multiplier fomula

A

1/MPW

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6
Q

MPW fomula

A

MPS + MPT + MPM

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7
Q

evaluation p.t. for wealth effect

A

-depends on the liquidity of the asset (how easy it is to turn asset into cash)
-wealthy people have less tendency to purchase as they don’t have pressing needs

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8
Q

economic objectives

A

-steady and sustainable growth -reduce inequality
-low but not 0 inflation -protecting environment
-high levels of employment -fiscal balance
-a balanced current account

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9
Q

factors that effect consumption

A

-wealth effect
-interest rates
-level of savings
-level of disposable income
-availability of credit
-consumer confidence

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10
Q

factors that effect investment

A

-confidence
-interest rates
-retained profit
-costs
-access to credit
-growth
-gov policy

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11
Q

bottlenecks def and example

A

def: limited supply of any factor of production
e.g. lack of raw materials

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12
Q

factors that changes public expenditure

A

-GDP
-size and age of pop^n
-economic cycle
-fiscal debt

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13
Q

marginal rate of taxation def

A

tax rate an individual would pay on one additional pound of income

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14
Q

def of expansionary and deflationary policy

A

expansionary def: aim to increase growth by increasing AD
deflationary def: aim to reduce inflation by reducing AD

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15
Q

expansionary fiscal policy pros

A

-crowding in
-multiplier effect
-accelerator effect

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16
Q

expansionary fiscal policy cons

A

-Ricardian Equivalence
-more debt
-opportunity cost
-reduce current account

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17
Q

why do fiscal debts matter?

A

-inter-generational opportunity costs
-crowding out
-inflation
-future borrowing (credit)
-FDI

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18
Q

Why do fiscal debts don’t matter?

A

-self defeating austerity
-capital expenditure (generates more growth in LR if money use for investing capital)
-cyclical deficits
-size of debt compare to GDP
_high economic growth

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19
Q

ways to reduce debts

A

-less gov spending
-more tax
-privatisation
-reduce real value of debt
-default
-boost economic growth

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20
Q

evaluation for ways to reduce debt

A

less gov spending:
-money needed for supply side policy for LR growth
-more inequality
more tax:
-Laffer curve
-encourages black market
privatisation:
-need negotiation
-one off policy
reduce real value of debt:
-sacrifice standard of living
default:
-loses credit
boost economic growth:
-gains more debt as growth increases

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21
Q

def of supply side policies the differences of the 2 types of supply side policies

A

def: gov policies use for boosting LRAS (or PPF)
-market base: allowing markets to work more freely
-interventionist: gov intervenes to boost LRAS

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22
Q

types of market based supply side policies

A

-reducing tax burden
-competition policies
-privatisation
-deregulation

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23
Q

types of interventionist supply side policies

A

-competition policies
-edu and training
-encouraging new research and development
-investment in infrastructure
-regional policy
-immigration

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24
Q

reducing tax burden pros and cons

A

-incentives people to seek employment
-but results in more fiscal deficit

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25
labour market reforms pros and cons
-less unemployment (easier for people to be employed) -more exploitation (less protection on workers rights)
26
competition policies pros and cons
-more choice and lower price -weaker economies of scale
27
privatization pros and cons
-make profit more effectively, so ensures company survives -but prices goes up. so more inequality
28
deregulation pros and cons
-more freedom to innovate -less health and safety regulations need to be followed when designing products
29
edu and training pros and cons
-more skilled workers, higher quality workers -lag time
30
encouraging R&D pros and cons
-better capital -less animal spirits is required
31
investment in infrastructure pros and cons
-lower costs to business -bottlenecks
32
regional policy pros and cons
-crowding in -crowding out
33
immigration pros
Pros: -can fill up areas with skills shortages -helps mitiigate aging population problem -less cost for firms = less inflation -fill up undesrired jobs
34
immigration cons
-more benefits needed = more gov spending -more competition=lower wages -underempolyment
35
pros of supply side policies
pros (effects of LRAS shifting out) -more E/G = less unempolyment -more productivity -less inflation -crowding in -better balence of payments
36
cons of supply side policies
-time lag -opportunity cost ( e.g. investing in infastructure) -bottlenecks ( means limits in factors of production) -crowding out -budget defecit
37
cemtral bank def
an institutuion which is in charge of controlling money supply by issuing currency
38
roles of central bank
-implenmentation of monetary policy ( keep CPI at 2%) -banker to the government (provide banking services for gov) -banker to retail banks ( provide banking services for retail banks) -lender of last resort (provide emergency loans when retail banks are at the edge of bankruptcy) -regulation of bank industry (maintaing financial stability by carrying out stress tests and changing minimum leverage ratio)
39
def of stress test and minimum leverage ratio
-minimum leverage ratio: ratio of the money amount between that stays in bank and is avalible for lending -stress test: computer simulation to see if the minimum leverage ratio works under a finacial crisis
40
how do base rates affect inflation through market rates
-high base rate -so retail banks need to have more money to borrow -so retail banks increase their intrest rates to incentivise saving and discourage borrowing -so less consumption and investment -so AD shifts inwards -so less inflation
41
how do base rates affect inflation through asset prices
-high base rate -so retail banks need to have more money to borrow -so retail banks increase their intrest rates to incentivise saving and discourage borrowing -so less consumption -so less demand for goods (assets) = goods' price fall -so negative wealth effect -so even less consumption -AD shifts in = inflation decrease
42
how do base rates affect inflation through expectations and confidence
-BoE rise IR to reduce inflation -So consumers and businesses use IR as an indicator on levels of inflation -high inflation = less incentive to buy=less confidence
43
how do base rates affect inflation through exchange rates
- IR rasied - More FDI put money in UK bank - so higher demand for GBP - exchange rate of GBP rise - less d for x + more d for m - AD shifts in = less inflation - high d for m = high m price = less inflation
44
what compoments of transimisson mechanism links to domestic demand
market rates, asset prices, and conmfidence
45
def of external demand
d of x - d of m
46
liquidy trap def
-when intrest rates become 0 - so savings stop being profitable - so low confidence
47
pros and cons of lowering intrest rates
- posative and negative effects of AD shifting out - assets mainly owned by wealthy so they are going to be affected heavily - low IR = more lending = more zombie companies ( companies who runs on loans)
48
why is negative intrest rates used
-encourage borrowing and discourage savings -more disposable income -more spending
49
how do QE works
1) BoE increases money supply to buy gov bonds 2) so gov can issue morew bonds 2) bonds less rare, value of bond decrease 3) discourages retail banks to invest in bonds 4) so banks invest in loans for busnesses and consumers instead 5) higher ad
50
pros of qe
-avoid deflation -reduce exchange rate = increase x -avoids liquidy trap
51
cons of qe
-banks might still invest in gov bonds - bad for pensioners who bought gov bonds - difficult to resell gov bonds by central bank
52
how do differnet policies interact
-some fiscal policies increase both LRAS and AD, which makes them both fiscal and supply side policies -sometimes monetary policy counteracts fiscal polices, (e.g. when gov increase taxes just for reducing defecit) -deflationary monetary policy cabn reduce level of LRAS ( high IR, low borrowing, low investment in capital)
53
actual and potential economic growth def
- actual: measured by annuel % change in a country's real national output - potential: measured by annuel &% change in a country's potential level of national output
54
nominal GDP, GDP per capita, real gdp and gni difference
- nominal: total market value of all products produced in the country ina given year - GDP per capita: average lv of GDP per person - real GDP: GDP adjusting for inflation - GNI: the final value of income created by a country's factors of production (whereever they are)
55
why is GDP and GNI sometimes different
GNI > GDP: factors of productions that are based overseas sent revenue so GNI topped up GDP > GNI: factors of production from overseas that based here contributed to GDP but sent revenue back home (e.g factrories or immigrents)
56
posative and negative output gap def
- posative: when national output exceeds LRAS or PPF - negative: when national output shifts inwards away from LRAS or PPF
57
what is productivity and why does it matters
- def: measure of how effiecently is the factors of production used - significance: - more ouput - higher SRAS (less cost of labour)
58
productivity gap def, causes, solutions
-def: difference in productivity of workers between countries - causes: things make LRAS shifts inwards - solution: things make LRAS shift outwards
59
benefits of growth
- tax revenue - more convidence - less unempoyment - SoL rise - FDI rise
60
Cons of economic growth
- inequality rise - inflation rise - negative externalities - economic cycle more volitile - current account defecit
61
constrains of economic growth
- poor infastructure - poor literacy - high inflation - rural population - political instability
62
problems of using GDP as an indicatior of SoL
- pollution not accounted - inequality not accounted - QoL not accounted - informal econ not accounted - CoL(cost of living) not accounted - hidden economy not accounted
63
alternatives to measure SoL
- infant mortality - literacy rate - acess to clean water - HDI - cars per person
64
ways to measure happiness
- UN happiness index: rating your residency out of 10 - financial situation - health - community and friends
65
pros and cons of measuring happiness
pros: - fundemendal goal for many people - accounts for more than just income cons: - difficult to quantify - subjective
66
relationship between income and happiness
easterlin paradox diagram - income and happiness is directly porportional: - more income, more goods, more SoL - income and happiness is iversely porportional: - amount of lisure time might be more important - higher income ususallu means more stress
67
what other policies can be used to improve SoL (exept fiscal, monetary, and supply side)
- externalities measures (micro) - higher school leaving age - max work week
68
inflation def
a general and sustained rise in the level of prices of goods and services, thus reducing the purchasing power of money
69
what is CPI
CPI: - measured through caulating average prices main goods that british people bought - uses geometric mean - used to determine inflation target and state pensions
70
what is RPI
RPI: - caulated same way as CPI - excludes top 4% earners - uses arithmetric mean - includes housing cost and council tax - used to set intrest rates for student loans and index linked gov bonds
71
What is problem with CPI
- doesnt take acount in housing cost - doesnt acount in atypical spending - not much people take part in survey - ca be regressve
72
causes of inflation
- monetarist view (increase in money supply) - demand pull inflation ( AD shifting outwards) - cost push inflation (SRAS shifting Outwards)
73
difference in deflation and disinflation
- deflation: when overall price level falls - disinflation: devline in the rate of deflation
74
problems of deflation
- prices devrease - people expect prices to fall - delay spending - less AD - prices decrease again - this cycle is known as deflation spiral other problems: - real value of debts increase, inequality rises - negative wealth effect - liquidy trap - wages are sticky demands
75
reducing deflation
increase AD with fiscal and momentary policies
76
what is stagflation and hyperinflation?
-stagflation: rising inflation + falling growth (SRAS shifting inwards) - hyper inflation: when gov tried to solve inflation by printing more money (wiemar)
77
how to define/ measure unemployment
- claiment count: unempolyed who are registered able, avalible and willing to work in any suitable job who cannot find employment (claiming benefits) - labour force survey: people who have look for work in the past four weeks and avilible to work in the next 2 weeks
78
why is the labour force survey and claiment count measured different number of unempolyed
- have a partner on high income ( cannot claim benefits) - have high savings (cannot claim benifits) - some people dont want to claim benifits because of embaressment
79
groups of people that are not working but not unempolyed
- economically inactve (retired or in school) - volunterily unempolyed - workers that are not in the formal economy
80
underempolyment def
people who are empolyed but: - not working to full potential - not using their skills and experience fully - willing to work for more hours
81
full empolyment def
- labour market in eauilbrium - everyone has a job - no of vacancies = no of unempolyed
82
types of unempolyment
- frictional unempolyment (transition between jobs) - real wage unemployment (when wages are above labour market equibrum, causing excess supply) - cylical unempolyment (caused by fluctuations in economic cycle) - structual unempolyment (when there is a change in the industry, e.g. robots as waiters) - seasonal unempolyment (caused by lack of work within a time period, e.g. no projects for construction workers)
83
what is Phillip's curve ( +explaination)
unemployment and inflation is iversley porportional 1) less unemployment, 2) rise in income 3) more consumption 4) AD shifts outwards, inflation 2) higher costs for firms 3) shift in SRAS, inflation
84
why Phillip's curve doesnt always work
- doesnt account for inflation caused by shifts in AS (except wage change)
85

A level economics (3 decks)

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