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Economics Macro > Unit 8 > Flashcards

Unit 8 Flashcards

(52 cards)

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1
Q

What is short run economic growth?

A

The actual annual percentage change in RNO

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2
Q

What is long run economic growth?

A

An increase in potential productive capacity of an economy

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3
Q

How is short run economic growth measured?

A

The annual percentage change in RNO
or
GDP

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4
Q

How is long run economic growth measured?

A

Maximum potential output of the economy using all factor resources as illustrated in the PPF

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5
Q

What are the causes of short run economic growth?

A

Increase in AD

Increase in SRAS

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6
Q

What are the causes of long run economic growth?

A

Increase in productive capacity or an increase in LRAS

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7
Q

Evaluating economic growth?

A

Balance between SR and LR economic growth policies as a change in AD but remaining AS can cause inflation. But focussing on AS can cause spare capacity and unused resources.
Time lags and productivity issues

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8
Q

What is the economic cycle?

A

Variations in the level of productive capacity of an economy over time

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9
Q

What is GDP?

A

The value of goods and services produced by an economy over a period of time

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10
Q

What are the characteristics of a boom?

A
  • High rate of economic growth
  • High demand
  • Low unemployment
  • Inflationary pressure
  • Labour skills shortages
  • High confidence
  • Capital investment is high
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11
Q

What are characteristics of a recession?

A
  • Demand falls
  • Unemployment rises
  • Some firms may go out of business
  • Confidence and investment is low
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12
Q

What are characteristics of a slump?

A
  • Low or negative growth
  • Demand/inflation are low
  • High unemployment
  • Low confidence
  • High rate of bankrupcy
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13
Q

What are characteristics of a recovery?

A
  • Economic growth starts to rise
  • Demand increases
  • Unemployment falls
  • Inflation starts to rise
  • Confidence increases
  • Capital investments
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14
Q

What is the output gap?

A

The difference between actual GDP and potential GDP

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15
Q

What are demand side shocks?

A

Unexpected changes in the economy that directly impact on AD

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16
Q

What are the 2 ways of measuring unemployment?

A

Claimant count and labour force survey

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17
Q

What is the definition on unemployment?

A

The number of people looking for a job but can not find one at a point in time.

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18
Q

What is the rate on unemployment?

A

Unemployment/labour force x 100

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19
Q

What is the Claimant Count?

A

Amount of people receiving JSA

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20
Q

What is the Labour Force Survey?

A

Quarterly survey of approximately 60,000 households compiled by the Office of National Statistics studying the employment circumstances of the UK population

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21
Q

What are some problems with the Claimant Count?

Study These Flashcards
A
  • Does everyone sign up
  • Temporarily unemployed may not claim
  • Under 18s and Over 60s don’t count
  • JSA criteria changes
  • Some people aren’t looking for a job
  • Jobs in black economy but still claim
22
Q

What are some problems with Labour Force Survey?

Study These Flashcards
A

Costly

Sampling and extrapolation errors

23
Q

What are the consequences for a business as a result of high unemployment?

Study These Flashcards
A
  • Reduced AD for goods/services
  • Reduced productivity
  • Reduced profitability
  • Less incentive to invest
  • Reduced productivity for remaining workforce
24
Q

What are the consequences of unemployment for the unemployed?

Study These Flashcards
A
  • Lower living standards
  • Social costs
  • Financial costs
  • De-skilling
  • Reduced chances of finding work
25
What is frictional unemployment?
When workers move between jobs, typically short term
26
What is seasonal unemployment?
When workers are unemployed at different times of the year. Leisure, tourism and farming Unemployment is seasonally adjusted which smooths out the fluctuations
27
What is structural unemployment?
Long term shifts in the structure of the economy impact the job market. The UK has moved to the tertiary sector Large pools of highly skilled workers can be unemployed
28
What is technological unemployment?
When capital replaces labour as a factor or production
29
What is regional unemployment?
When unemployment occurs in certain locations. | As the location is specialised in the production of something which is no longer demanded
30
How has globalisation affected employment and unemployment?
- Competition from low cost economies has lead to a decline in UK manufacturing - Fallen from 22% to 11% as traditional industries have been undercut by foreign imports.
31
What is inflation?
The rate of change in the average price level over time.
32
Why is inflation important?
It erodes the value of money, if wages remain constant
33
What are the 2 ways to measure inflation?
CPI and RPI
34
What are the 2 causes of inflation?
Demand Pull | Cost Push
35
What is demand-pull inflation?
Caused by excessive demand. There is too much money but not enough goods/services
36
What are causes of demand pull inflation?
- Reduced taxation - Lower interest rates - Rise in consumer spending - Improved availability of credit - Weak exchange rate - Fast growth in other countries - General rise in confidence - Certainty
37
What is cost-push inflation?
When firms respond to rising costs of production by increasing prices. Firms do this to protect profit margins
38
Causes of cost-push inflation?
- Wage increases - Higher raw materials costs - Higher taxes - Higher import prices - Natural disasters
39
What is deflation?
A decreasing average price level
40
Causes and problems of deflation?
Occurs during periods of low growth As prices fall consumers tend to delay purchasing decisions because they think prices will fall further Consumption slows significantly Firms will lose confidence to invest
41
What is balance of payments?
A record of country's trade/transactions with the rest of the world
42
What is the current account?
Trade in goods Trade in services Investment Income Transfers
43
What is the financial account?
Transactions in financial assets Investment flows Government transactions
44
What is the capital account?
Transfer of assets by individuals
45
What is a surplus?
When the sum of exports of goods and services investment income and transfers is greater than imports
46
What is a deficit?
When the sum of exports of goods and services, investment income and transfers is less than imports
47
What is the trade in goods?
Measures net exports (X-M) of visible goods. UK has traditionally run on a significant deficit Reasons for this: - Increase in the demand for consumers goods which need to be imported - Decline in UK manufacturing sector - Lower production of oil and gas - Strong currency makes imports more affordable
48
What is the trade in services?
Measure net exports of invisible goods (banking, insurance, tourism) UK runs on a large surplus Reasons: - Shift towards tertiary sector employment - UK is more competitive in the provision of these services and can offer better services at lower costs
49
What is investment income?
Investment income is generated by UK owned oversea assets, might generate income overseas. The profits and dividends that are received are sent back to the UK
50
What are transfers?
Payments made (or received) usually by the government to or from other countries. Main transfers: - Foreign Aid - Payments for the EU
51
Factors affecting a country's current account balance?
Improving productivity is crucial for lowering unit costs and making the UK more competitive Inflation reduces competitiveness of an economy by raising prices and making exports less attractive A strong exchange rate makes exports more expensive lowering demand for UK goods/services Economic activity in other countries has a significant impact on open economies such as UK
52
What is bureaucracy?
when large organisations have overly complex administrative procedures which increases costs

Economics Macro (6 decks)

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