Unit 2 - UK Economic Activity Flashcards Preview

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Flashcards in Unit 2 - UK Economic Activity Deck (73)
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National Income

The value of goods and services produced by an economy in a given year - usually measure through GDP


Measuring National Income - Output Method

Final value of all goods and services produced in an economy in a year


Measuring National Income - Income Method

Total Incomes earned by households (from the factors of production) in a year


Measuring National Income - Expenditure method

Total money spent by households on the output of goods and services in a year.
Calculated using consumption + investment + government spending + (exports - imports)


Uses of GDP statistics

To check if policies have worked in improving the economy
To measure living standards
To compare with other countries
Used by international organisations (such as the EU) to decide how much each country should contribute
To decide how much aid the government should give to a country


Measures of National Income - GDP

Gross Domestic Product - Value of goods and services produced in the UK in a given year


Measures of National Income - GNP

Gross National Product - Value of goods and services produced by UK firms in a year


Measures of National Income - NNP

Net National Product - Value of goods and services produced by UK firms in a year, taking into account depreciation


Economic Growth

Increase in the productive capacity of the economy over a period of time i.e. A year



Two consecutive quarters of negative economic growth


Real GDP

Measure of the value of economic output that is adjusted for price changes (i.e. inflation/deflation)


Nominal GDP

Measure of the value of economic output without taking into account price changes (i.e. inflation/deflation)


Government Economic Aims - Growth

Stable economic growth - steady and controlled = 2%


Government Economic Aims - Unemployment

Low unemployment : around 3% - reduce structural and frictional unemployment


Government Economic Aims - Balance of Payments

Balance of payments balance - increase value of exports and reduce value of imports


Government Economic Aims - Inflation

Low inflation - Bank of England manage interest rates and money supply to achieve the targeted 2%


Government Economic Aims - Inequality

Low inequality - Reducing the gap between the rich and the poor



A general rise in the level of prices of goods and services in a year


Measuring Inflation - CPI

Consumer Price Index - does not include housing costs and mortgages


Measuring Inflation - RPI

Same as Consumer Price Index but it includes housing costs and mortgages


Measuring CPI

Complete the Living Costs and Food Survey to find out what the average family buys
Create a basket of goods and give a weight to each item based on importance
Gather prices from retailers around the country
After a period of time, check prices from the last time and calculate a percentage change (per item)
Add up all the % changes and calculate the average change - this gives us the annual inflation figure


Causes of Inflation - Demand Pull

This is when demand in the economy increases and firms reach maximum capacity - so prices are bid up


Causes of Inflation - Cost Push

This is when the price of inputs increases (e.g. better wages demanded) so firms will increase prices to maintain their profit margin


Causes of Inflation - Monetary

This is when the money supply in the economy grows and consumers spend more money. This will drive up demand and hence prices.



A general fall in the level of prices of goods and services in a year



A fall in the rise of the level of prices of goods and services in a year


Effects of Inflation - Individuals

Fall in purchasing power if incomes do not change with inflation - based on real income/wage
Savings value falls - based on real interest rate
Borrowers pay back less (in real terms)
Fiscal drag - can be dragged into a higher tax band


Effects of Inflation - Firms

Costs of Production could rise - e.g. wages; price spiral
Menu costs
Decrease in demand


Effects of Inflation - Government

Less Tax Revenue
Greater unemployment
Exports become less competitive
Imports increase
Reduces real economic growth
Greater inequality



Being willing, able and available to work but cannot find a job