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Economics - Macro > Topic 3 - Economic Performance > Flashcards

Topic 3 - Economic Performance Flashcards

1
Q

What is Economic Growth?

A

Growth in the productive potential of the economy. Typically measured by growth in real GDP, although this is only a proxy measure as actual GDP can be above or below productive potential of economy at a point in time

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2
Q

What can Economic Growth come from?

A

Increase in Quality / Quantity of resources
Cuts in production costs
Creating new products for market
Increased efficiency
Increases in AD that stimulates increase in the quality/ quantity of factors of production

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3
Q

What is the trend growth rate?

A

Rate at which output can grow on a sustained basis without putting pressure on inflation. It reflects the annual average percentage increase in productive capacity of economy

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4
Q

What is the Economic Cycle?

A

Upswing and Downswing in aggregate economic activity taking place over 4-12 years

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5
Q

What is seasonal fluctuation?

A

Variation of economic activity resulting from seasonal change in the economy

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6
Q

What is meant by actual output?

A

Level of real output produced in a particular year, not to be confused with trend level. Actual output differs from trend level when there are output gaps.

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7
Q

Causes of change in the phases of the economic cycle

A

Fluctuations in AD
Supply - Side Factors
Role of speculative bubbles
Political business cycle theory
Outside shocks hitting the economy
Change in inventories
Marxist explanation
Multiplier/ accelerator interaction

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8
Q

What is meant by output gap?

A

The level of actual real output is greater than the trend output level

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9
Q

What is meant by a boom?

A

A period where the rate of growth of real GDP is fast and higher than the long - term trend

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10
Q

What is a business cycle?

A

Short run fluctuations of the national output (real GDP) around its long term trend

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11
Q

What is meant by National Income?

A

Everything produced, earned and spent in a county

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12
Q

What is a slowdown?

A

A weakening of the rate of growth, real GDP is still rising but at a slower rate.

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13
Q

What is a recession?

A

A period of at least 6 months when an economy suffers a fall in output.

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14
Q

What is a recovery?

A

A phase of the cycle, after a recession, during which real GDP starts to increase and unemployment begins to fall

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15
Q

What is a depression?

A

A prolonged downturn in the economy and where a nations GDP falls by at least 10%

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16
Q

Negative output gaps

A

When level of actual GDP is less than potential GDP
Some factor resources under utilised
Main problem is likely to be higher unemployment and possible deflation risk

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17
Q

Positive output gaps

A

Actual GDP is greater than estimated potential GDP
Some resources working beyond usual capacity
Main problem is rising demand - pull and cost - push inflationary pressures

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18
Q

Demand side shocks in output gaps

A

Economic downturn in trading partner
Unexpected tax increases
Financial crisis causing bank lending to fall
Bigger than expected rise in unemployment

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19
Q

Supply side shocks in output gaps

A

Steep rise in oil, gas and other commodities
Political turmoil/ strikes
Natural disasters causing fall in production
Unexpected breakthrough in production technology

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20
Q

Possible causes of a recession

A

External events
Tightening of macro policy
Fall in asset prices or supply of credit
Drop in business and consumer confidence

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21
Q

Short term economic effects of a recession

A

Business profits and capital investment falls
Unemployment
Government finances
Inflation

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22
Q

Long term economic effects of a recession

A

Rising structural long - term unemployment and regional decline
Low rates of investment reduce size of capital stock
Persistent budget deficits and rising national debts lead to austerity

23
Q

Long term social effects of a recession

A

Falling real wages hits living standards
Widening inequality of income and wealth
Social costs

24
Q

How is someone classed as unemployed?

A

Seeking employment (part of the labour market)

25
Q

Voluntary unemployment

A

Unemployment that exists when jobs are available

26
Q

Involuntary unemployment

A

Unemployment that exists when workers can not choose to go back to work as there are no jobs available

27
Q

What is frictional unemployment?

A

Short term unemployment that arises when people are between jobs

28
Q

What is seasonal unemployment?

A

Unemployment caused by changes in seasonal demand (e.g department store santas)

29
Q

What is cyclical unemployment?

A

Unemployment caused by a recession (a lack of demand in the economy)

30
Q

What is structural unemployment?

A

Changes in the structure of the economy render the skills of some workers as unnecessary

31
Q

What is meant by Claimant Count (JSA) ?

A

The number of people officially claiming unemployment related benefits - must be actively seeking work

32
Q

What is the labour force survey?

A

Quarterly survey of UK households, of all those actively seeking and available for work, whether or not they are claiming benefits

33
Q

Which people are classed as economically inactive?

A

Students
Looking after family / home
Long - term sick
Discouraged workers
Retired

34
Q

What is meant by Long term unemployed?

A

People unemployed for at least one year

35
Q

What is the labour force?

A

The number of people working who are available, able and willing to work

36
Q

What is meant by full employment?

A

When there are enough unfilled job vacancies for all the unemployed to work

37
Q

What is meant by Inflation?

A

A sustained rise in the general price level

38
Q

How is the rate of inflation measured?

A

By the annual percentage change in consumer prices

39
Q

What is the inflation target?

A

2%

40
Q

What is meant by the CPI?

A

Consumer Prices Index

41
Q

What are some limitations of CPI as a measure of inflation?

A

Few households are ‘average’
CPI is not fully representative
Spending patterns change
Changing quality of goods + services
New products

42
Q

What is meant by Demand pull inflation?

A

Caused by excess AD
often linked to a money and credit boom
Economy close to full capacity (Inelastic AS)
Positive output gap

43
Q

What is meant by Cost Push Inflation?

A

Rising wage costs in labour market
Increasing raw material and component costs from domestic and overseas suppliers
Rising import prices due to a falling exchange rate - this increases import costs

44
Q

When does cost push inflation occur?

A

When firms respond to rising costs by increasing their prices to protect profit margins

45
Q

When does demand pull inflation occur?

A

When AD grows at an unsustainable rate leading to a positive output gap

46
Q

Internal causes of inflation

A

Large surge in property prices
Higher wages / Labour costs
Boom in credit / money supply
Rise in business taxes e.g NAT

47
Q

External Causes of Inflation

A

Increase in world oil and gas prices
Inflation in global commodity prices
Depreciation of the exchange rate
High inflation in other counties

48
Q

Why is high inflation an economic problem?

A

Inequality
Falling real incomes
Negative real interest rates
Risks of wage inflation
Business uncertainty

49
Q

Possible Winners from high inflation

A

Workers with strong wage bargaining power
Debtors if real interest rates are negative
Producers if prices rise faster than costs

50
Q

Possible losers from high inflation

A

Retired people on fixed incomes
Lenders if real interest rates become negative
Savers if real returns are negative
Workers in low paid jobs

51
Q

Why is inflation difficult to forecast accurately?

A

Volatile global energy prices
Changes in value of currency
Uncertain growth of AD
Volatile food prices
Government indirect taxes can change

52
Q

What is meant by Balance of Payments?

A

Measures all transactions between the UK (Firms, consumers, government) and the rest of the world

53
Q

What is the balance of payments split into?

A

Current account- Exports and Imports
BOP in goods and services
Net primary and secondary incomes

Economics - Macro (4 decks)

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