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National 5: Economics > Unit 2 - UK Economic Activity > Flashcards

Unit 2 - UK Economic Activity Flashcards

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1
Q

National Income

A

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

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2
Q

Measuring National Income - Output Method

A

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

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3
Q

Measuring National Income - Income Method

A

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

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4
Q

Measuring National Income - Expenditure method

A

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

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5
Q

Uses of GDP statistics

A

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

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6
Q

Measures of National Income - GDP

A

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

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7
Q

Measures of National Income - GNP

A

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

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8
Q

Measures of National Income - NNP

A

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

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9
Q

Economic Growth

A

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

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10
Q

Recession

A

Two consecutive quarters of negative economic growth

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11
Q

Real GDP

A

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

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12
Q

Nominal GDP

A

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

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13
Q

Government Economic Aims - Growth

A

Stable economic growth - steady and controlled = 2%

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14
Q

Government Economic Aims - Unemployment

A

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

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15
Q

Government Economic Aims - Balance of Payments

A

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

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16
Q

Government Economic Aims - Inflation

A

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

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17
Q

Government Economic Aims - Inequality

A

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

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18
Q

Inflation

A

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

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19
Q

Measuring Inflation - CPI

A

Consumer Price Index - does not include housing costs and mortgages

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20
Q

Measuring Inflation - RPI

A

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

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21
Q

Measuring CPI

A

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

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22
Q

Causes of Inflation - Demand Pull

A

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

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23
Q

Causes of Inflation - Cost Push

A

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

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24
Q

Causes of Inflation - Monetary

A

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

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25
Deflation
A general fall in the level of prices of goods and services in a year
26
Disinflation
A fall in the rise of the level of prices of goods and services in a year
27
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
28
Effects of Inflation - Firms
Costs of Production could rise - e.g. wages; price spiral Menu costs Decrease in demand
29
Effects of Inflation - Government
``` Less Tax Revenue Greater unemployment Exports become less competitive Imports increase Reduces real economic growth Greater inequality ```
30
Unemployment
Being willing, able and available to work but cannot find a job
31
Rate of Unemployment
Percentage of workforce (16-65 yrs) that are unemployed
32
Level of Unemployment
Number of people unemployed
33
Measuring Unemployment - Claimant Count
Based on the administrative records of people claiming unemployment benefits - i.e. Job Seekers Allowance (JSA) Those claiming must declare that they are out of work, capable for work, available for work and actively seeking work during the week in which their claim was made
34
Claimant Count - Issues
Not all people claim benefits The government can change the eligibility criteria Some choose not to claim benefits
35
Measuring Unemployment - Labour Force Survey
International measure involving a sample survey of people living in private households, students' halls of residence and NHS accommodation Around 150,000 people surveyed every quarter, asking respondents about their personal circumstances and activity in the labour market
36
Unemployment - Seasonal Adjustment
Removes seasonal trends such as Christmas
37
Frictional/Transitional Unemployment
Caused by movement between jobs - contracts ending and relocation for new contracts beginning
38
Structural Unemployment
This is when an industry disappears May be because foreign countries outcompete or new technology makes it redundant. Can also be regional unemployment
39
Cylical/General Unemployment
Relates to the business cycle (demand) - should self right once the economy improves. Recession = high unemployment
40
Seasonal Unemployment
Changes in unemployment due to seasonal jobs such as berry picking
41
Real-wage Unemployment
Caused by wages being above equilibrium
42
Impact of Unemployment - Individual
Lower income as they are on benefits Lose skills is unemployed for a long time - makes it harder to find work May be socially excluded - cannot afford to go out Mental & Physical Problems - increased stress and social isolation cause health issues
43
Impact of Unemployment - Firms
Less demand for goods and services - meaning lower profits | They offer lower wages since many people are available to work
44
Impact of Unemployment - Government
Need to spend money on benefits Less tax revenue since less people pay income tax Fewer purchases - so less VAT revenue Associated rise in crime - money must be spent to deal with this NHS might require greater funding to deal with an increase in poor health Lower demand - results in a fall in national income
45
Living Standards
Includes measures of health, wealth and income
46
Direct Taxation
Taxes which are taken from individuals and firms and paid straight to the government. These are usually taken from income or wealth
47
Direct Taxes - Examples
``` Income Tax Corporation Tax National Insurance Council Tax Inheritance Tax Stamp Duty ```
48
Indirect Taxation
Taxation paid through an intermediary to the tax authorities. These are generally taken from expenditure
49
Indirect Taxes - Examples
Value Added Tax (VAT) Fuel Duty Customs Excise Duties
50
Types of Taxation - Progressive
Higher income earners pay more as a proportion of their income than lower income earners.
51
Progressive Taxation - Example
UK income tax - don't pay any tax on first £11,500, then you pay greater percentages thereafter
52
Types of Taxation - Regressive
Higher income earners pay less as a proportion of their income than lower income earners
53
Regressive Taxation - Example
Value Added Tax - 20% for all
54
Indirect Tax - Reasons for Imposing
To decrease/discourage consumption To raise tax revenue To copy other countries who have successfully introduces similar taxes - e.g. tax on fizzy drinks To reduce pressure on healthcare if a good is a demerit good
55
Impacts of Indirect Taxation - Individuals
Means less tax taken from incomes Can have a regressive effect Can choose whether to pay tax Increased prices
56
Impacts of Indirect Taxation - Firms
Have to pay tax to government so may increase prices | This can reduce demand for goods and services - which will reduce profit
57
Impacts of Indirect Taxation - Government
Can reduce demand for goods and services Can increase inflation Can increase inequality
58
Expenditure - Why Spend?
To provide merit goods (that if left to the free market some would go without) - healthcare, education etc. To provide public goods (that if left to the free market, it wouldn't be provided due to the "free-rider" problem) - e.g. street lighting and defence To reduce inequality and improve living standards
59
Types of Expenditure - Capital
Long term spending on fixed assets e.g. spending on new hospitals/schools/highways
60
Types of Expenditure - Current
Regular day to day spending e.g. salaries of teachers and healthcare workers and drugs used in NHS
61
Types of Expenditure - Transfer Payments
Welfare payments made available through the social security system e.g. state pensions, child benefit and JSA
62
The Budget
The balance between government expenditure and taxation
63
Types of Budget - Deficit
When Spending exceeds taxation revenue
64
Deficit Budget - Impacts
Rise in national income - creates economic growth Increases inflation Increases imports Decreases unemployment
65
Types of Budget - Balanced
When taxation and spending are equal - no impacts on national income and economic growth
66
Types of Budget - Surplus
When taxation revenue exceeds government spending
67
Surplus Budget - Impacts
Fall in national income - reduces economic growth Increases unemployment Decreases inflation Decreases imports
68
Scottish Industry - Examples
Food and Drink -Whisky Financial Services - Banking and Insurance Energy - including oil, gas and renewables
69
Scottish Entrepreneur - Example
Sir Brian Souter - Founder of Stagecoach
70
Scottish Entrepreneurism - Impact
Stagecoach - 36,000 jobs, produce output (bus services), pay taxes to government , increase national income and boost economic growth
71
Consumer Demand Increases - Economic Impact
Firms will demand more factors of production from the households. This means that incomes (received from the factors of production) will rise. This may also lead to an increase in employment - if Labour is demanded by firms. Overall, since there is more money in the circular flow, national income will rise - boosting economic growth
72
Consumer Demand Falls - Economic Impact
Firms will demand fewer factors of production from households. This leads to a fall in incomes (received from the factors of production). This may also cause a rise in unemployment - if less labour is demanded by firms. Overall, since their is less money in the circular flow, national income will fall - reducing economic growth
73
Measuring National Income - Problems
Cash-in-hand jobs may go undocumented Double counting : input AND output both counted Voluntary work : produce output for no income

National 5: Economics (3 decks)

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