Theme 2.1 Flashcards

Question

What are the triggers for demand pull inflation?

Answer 1

*A depreciation in the exchange rate, which causes imports to become more expensive, whilst exports become cheaper. This causes AD to rise. *Fiscal stimulus in the form of lower taxes or more government spending. This means consumers have more disposable income, so consumer spending increases. *Lower interest rates make saving less attractive and borrowing more attractive, so consumer spending increases. *High growth in UK export markets means UK exports increase and AD increases.

Answer 2

Inflation that occurs when firms face rising costs. (supply side)

Answer 3

*Raw materials become more expensive - oil prices rising *Labour becomes more expensive - trade unions *Expectations of inflation – if consumers expect prices to rise, they may ask for higher wages to make up for this *Indirect taxes could increase the cost of goods if producers choose to pass the costs onto the consumer. *Depreciation in the exchange rate, which causes imports to become more expensive, which pushes up the price of raw materials. *Monopolies, using their dominant market position to exploit consumers with high prices.

Answer 4

Extreme increases in the money supply usually cause hyperinflation, when the rate of inflation is incredibly high and uncontrollable. It is only inflationary if the money supply increases at a faster rate than real output.

Answer 5

* Purchasing power decreases * Those on low/fixed incomes are hit hardest * Loan repayments become less burdensome

Answer 6

Increased value of state pension and welfare payments.

Answer 7

1) Low interest rates, borrowing more attractive than saving. With high inflation, interest rates higher, so cost of investing will be higher and firms are less likely to invest. 2) Workers might demand higher wages, which could increase the costs of production for firms. Firms may be less price competitive on a global scale if inflation is high. 3) Unpredictable inflation will reduce business confidence, since they are not aware of what their costs will be. This could mean there is less investment.

Answer 8

Real incomes fall with inflation, so workers will have less disposable income. If firms face higher costs, there could be more redundancies when firms try and cut their costs.

Answer 9

1) The Claimant Count 2) The international labour org and the UL labour force survey

Answer 10

The number of people claiming unemployment-related benefits, such as the Job Seekers Allowance.

Answer 11

◦Not every unemployed person is eligible for, or bothers claiming JSA. ◦Those with partners on high incomes will not be eligible for the benefit, even if they are unemployed. ◦Although there may be instances of people claiming the benefit whilst they are employed, the method generally underestimated the level of unemployment.

Answer 12

An organization that collects data on unemployment through surveys. It directly asks people if they meet the following criteria: *Been out of work for 4 weeks *Able and willing to start working within 2 weeks *Workers should be available for 1 hour per week. Part time unemployment is included.

Answer 13

Since the part time unemployed are less likely to claim unemployment benefit, this method gives a higher unemployment figure than the Claimant Count.

Answer 14

Workers who have jobs but their labor is not used to its full productive potential. Those who are in part-time work but are looking for full-time jobs are underemployed

Answer 15

those able and willing to work but are not employed. They are actively seeking work and usually looking to start within the next two weeks

Answer 16

If consumers are unemployed, they have less disposable income and their standard of living may fall as a result. There are also psychological consequences of losing a job, which could affect the mental health of workers.

Answer 17

1) With a higher rate of unemployment, firms have a larger supply of labour to employ from. This causes wages to fall, which would help firms reduce their costs. 2) With higher rates of unemployment, since consumers have less disposable income, consumer spending falls so firms may lose profits.

Answer 18

With unemployment, there is a waste of workers’ resources. They could also lose their existing skills if they are not fully utilized. Those in jobs are likely to see a fall in their wages as supply of labour increases.

Answer 19

If the unemployment rate increases, the government may have to spend more on JSA, which incurs an opportunity cost because the money could have been invested elsewhere. The government would also receive less revenue from income tax, and from indirect taxes on expenditure, since the unemployed have less disposable income to spend.

Answer 20

There is an opportunity cost to society, since workers could have produced goods and services if they were employed. There could be negative externalities in the form of crime and vandalism, if the unemployment rate increases.

Answer 21

If the number of the economically inactive increases, the size of the labour force may decrease, which means the productive potential of the economy could fall.

Answer 22

Long-term unemployment caused by a decline in demand for specific industries.

Answer 23

The temporary unemployment that occurs between jobs.

Answer 24

Unemployment that occurs at certain times of the year, usually around summer and winter.

Answer 25

Unemployment caused by a lack of demand for goods and services during economic decline.

Answer 26

*Wages above the market equilibrium may cause unemployment. *Classical economists would argue that by letting wages be flexible, by removing trade union power and removing the NMW, wages could fall and unemployment would fall to 0. *However, cutting wages during times of weak consumer spending would cause further falls in consumer spending, and there would be even lower economic growth.

Answer 27

* Increases labor supply * Can bring high-quality skills leading to more productivity and better skilled labour force, increasing global competitiveness * May affect wages of the lowest paid

Answer 28

Increases with more migration ## Footnote Migrants are usually of working age and many are looking for a job.

Answer 29

They bring high quality skills, increasing productivity and the skillset of the labor market ## Footnote This could enhance global competitiveness.

Answer 30

It tends to bring down wages for the lowest paid ## Footnote The impact is small and primarily affects those from economies with lower average wages.

Answer 31

A record of all financial transactions between a country and other countries ## Footnote It includes expenditures on imports and earnings from exports.

Answer 32

Goods and services sold to foreign countries, positive in the balance of payments. This is because they are an inflow of money ## Footnote They represent an inflow of money.

Answer 33

Goods and services bought from foreign countries, negative in the balance of payments. They are an outflow of money. ## Footnote They represent an outflow of money.

Answer 34

* The current account * The capital account * The official financing account

Answer 35

A net inflow of money into the circular flow of income ## Footnote The UK has a surplus with services but a deficit with goods.

Answer 36

The UK spends more on imports than it earns from exports ## Footnote A long-standing large deficit could lead to financial difficulties.

Answer 37

* Full employment * Low, stable inflation * A sustainable current account * Sustainable economic growth

Answer 38

It falls due to decreased consumer spending ## Footnote This is typical during recessions.

Answer 39

Larger deficit due to higher consumer spending ## Footnote Consumers can afford to consume more.

Answer 40

The sum should be zero ## Footnote What one country exports will be imported by another.

Answer 41

Demand for UK goods and services will fall ## Footnote Consumers in the EU may be less able to afford imports.

Answer 42

Interdependence ## Footnote Economic conditions in one country affect another due to changes in exports or imports.

Theme 2.1 Flashcards

(66 cards)