Economics- macro

Economic growth

The growth in the value of a country measured by GDP

GDP (Gross Domestic Product)

the total value of all the goods and services produced by a country in one year

What is GDP a measure of?

The wealth of an economy

What happens if the value of goods/services increase?

Incomes will increase

How to calculate GDP

Rate of growth = change in GDP/original GDP x 100

How do you calculate GDP per capita?

GDP divided by population.

What is GDP per capita a measure of?

A measure of the average income of each person in the country

Standard of living

The degree of wealth and material comfort available to people

Calculating GDP per capita

GDP/population

Recession

A period where the country's GDP falls for two or more consecutive quarters

What is a boom in an economy?

A period of high economic activity and high levels of employment

What is a slump in an economy?

A period of drastic economic decline (the lowest point of a recession)

Recovery

A rise in economic growth after a recession.

What are the 7 determinants of economic growth?

(determinants change the quality/quantity of the FoP- CELL)

1. Investment

2. Changes in technology

3. Education and training

4. Labour productivity

5. Size of workforce

6. Natural resources

7. Government policies

Investment

Buying more capital goods such as machinery and premises allows more production

Changes in technology

improved technology means improved quality of goods and increased production of goods/ services

Education and training

better quality and quantity of work

Labour productivity

(ontput per worker) higher productivity allows for economic growth. It requires investment, technology and education

Size of workforce

the more people there are, the more labour. This can also grow due to immigration.

Natural resources

If a country has resources such as oil, this can increase production and growth

Government policies

spending on infrastructure (roads, rails) will improve economic growth.

What are the 4 benefits of economic growth?

1) A rise in the standard of living

2) Reduction in poverty

3) Rise in welfare of population

4) Fall in unemployment

A rise in the standard of living

more output available to buy and more income to spend.

Reduction in poverty

government earn more tax from workers and businesses and can ensure living standards of those on benefits are improved

How can a budget deficit lead to the rise in welfare of the population?

Better heath, education, quality of life. Government increase spending on heathcare and education. A more educated population leads to further econcmic growth.

The results in a fall in unemployment (3)

1. Rise in number of people with jobs

2. less claiming benefits

3. and more paying tax

What are the 7 costs of economic growth?

1) Environmental

2) Global warming

3) Congestion/overcrowding

4) Loss of non-renewables

5) Lower quality of life

6) Inequalities of income and wealth

7) Inflation

Environmental

Damage to land

Air and noise pollution

Global warming

E.g. rising sea levels leading to flooding

Congestion and overcrowding

Lowers quality of life.

Longer waiting times for NHS, less choice for schools.

Loss of non-renewables

e.g. oil, natural gas, damage to natural environment e.g rainforests

Lowers quality of life

Longer working hours, repetitive jobs, less exercise

Inequalities of income and wealth

gap between rich and poor widens

Inflation

Increase in prices due to higher demand

Employment

The use of labour in the economy to produce goods and services

Unemployment

When people of working age are both able and willing to work at the current wage rates but cannot find employment

What are unemployed people apart of?

The labour force that are not currently in work

Pensioners, students and those who stay at home to look after children are...

inactive NOT unemployed

Why is low unemployment an economic objective?

-People who work are paid wages which they can then spend in the economy, increasing demand and therefore output (increasing GDP)

-The employed also pay tax to the government

-Those who are unemployed don't pay tax, don't have as much income to spend, and may be paid benefits by the government

How is unemployment measured?

Claimant count

Claimant count

A way of measuring unemployment according to the number of people who are claiming unemployment-related benefits

Level of unemployment

The number of people in the working population who are unemployed.

Rate of unemployment

The percentage of the country's workforce that is unemployed

How to calculate unemployment rate

number of unemployed/ workforce x 100

What are the 4 types of unemployment?

frictional, structural, cyclical, seasonal

Seasonal unemployment

When seasonal workers are not employed out of season

Frictional unemployment

Workers leave their job but do not start their new job straight away (short term)

Structural unemployment

When there's a decline in an industry, so demand for products fall (long term)

Cyclical unemployment

Fall in total (aggregate) demand in the economy.

What does cyclical unemployment lead to?

Leads to fewer workers required to produce goods.

Unemployed people have less income to spend on goods, therefore lower demand for goods and increased unemployment

Costs of unemployment for workers/individuals

Lower living standards

Loss of status and low self esteem

Excluded workers

Costs to taxpayers

What can lower living standards lead to for workers?

Workers lose their jobs and therefore their income

Excluded workers

Can't get a job as they've been out of work for too long

Costs to taxpayers

Taxes are used to pay benefits

Costs of unemployment for the government

Labour resources are wasted

Unemployment leads to more unemployment

Budget deficit

Labour resources are wasted

The economy isn't producing as many goods/services as it can

Budget deficit

The government spends more than it receives

Costs of unemployment for regions

Unemployment leads to some areas of the country to go into decline

They become 'depressed areas'

Property values decline and the area may become crime ridden

The benefits of unemployment

Frictional unemployment occurs because of changes in types of jobs required, expanding the skills of workers in various fields

Wages stay low which benefits businesses and gives them more choice of workers

Low wages lower costs for a business and increases competition which benefits consumers

How does unemployment impact the supply curve?

Supply of Labour increases from S to S1, Wages decrease from W-W1 and quantity of workers supplied increase from Q-Q1

Distribution of income

How the total income of the economy is shared out among people

Inequality of income

Some people have high incomes, some people have low incomes

What are the 5 types of income?

-Wages

-Profit

-Rent

-Interest

-State benefits

Where do you get wages from

jobs

who earns a profit?

business owners

where do you earn interest?

from savings in the bank

how do you earn money from rent?

if you have a property to rent out

Examples of state benefits

-Pensions

-Unemployment benefit

-Job seekers allowance

Income

The flow of money over time.

(e.g wages from hourly work, monthly salary, interest on savings or rent from a property)

Wealth

The value of stocks, assets and material possessions at a certain point in time.

Income vs wealth

Income is how much one earns, wealth is how much one owns such as houses, cars, personal belongings

Unequal distribution of income

In the UK, the average gross income of the richest 10% is our 27 times higher than that of the poorest 10%.

What are 5 reasons why income is unevenly distributed?

1) Income earning assets are distributed unevenly

2) Difference in wages

3) Reliance on benefits

4) Age

5) Gender

Income earning assets are distributed unevenly

There are different ways to earn income but not all people can an income through these ways. Assets such as property, money in the bank and company shares generate rent, interest and income. More assets = higher income

Difference in wages

Most people in the UK sell their labour for wages. Different jobs pay different wages. High labour demand and low labour supply = higher wages. Some people in the UK are paid the national minumum wage

Reliance on benefits

Some people receive no income. These are the poorest households and they rely on state benefits which are generally lower than the average wage

Age

The younger and older age groups have lower average incomes than those in the middle. Young people have not had time to gain experience and older groups have often retired from working

Gender

The average income of females is lower than that of males. In the UK, there is equal pay by law, however women often come out of work to raise children and therefore take time out of their career.

How wealth is shared in the UK

What are the 4 reasons why wealth is unevenly distributed?

1) Inheritance

2) Savings

3) Purchase of property

4) Enterprise

Inheritance

Some families have assets that they pass on to the next generation. The poor have no assets to pass on

Savings

Savings can earn interest, which can in turn be added to savings and build up wealth.

Purchase of property

Property can earn income for owners (rent). Shares in a company are also a type of property. Shares can increase in value and therefore increase wealth. People who own their own property also increase their wealth.

Enterprise

Some people own their own business which if successful can increase wealth through profits and value.

What are the 4 consequences of differences in income and wealth for an economy?

1) Poverty and deprivation

2) Poor housing

3) Poor health

4) Inequality of opportunity

Poverty and deprivation

Some people may be very poor, or homeless. Relative poverty is what a particular society considers to be poor. In developing countries, the poorest often suffer from deprivation with no access to clean water, toilets and electricity.

Poor housing

• Some people live in mansions

• Middle income people can afford to buy their own homes

• Low income people may have to rent accommodation which may be of a poor standard.

• In developing countries, the poor may live in shanty towns

What can poor health lead to for poorer people?

Poor people are more likely to suffer ill health, and have a lower life expectancy due to a less healthy diet/lifestyle

Inequality of opportunity

The poorest in society live in areas where the standard of services (e.g education) is lower than average. If poor families receive a substandard education, they are likely to remain poor, making it difficult to leave the cycle of poverty.

What is inflation?

A sustained rise in the general price level over time

What is general price level?

the measure of overall prices of goods and services in an economy at a particular point in time. W

What is general price level expressed as?

As an index

What is price stability?

When the general level of prices stay constant over time or grows at an incredibly low rate.

What happens to consumer money as the prices of goods and services rise?

Consumer money will not purchase as much as before

What causes a fall in the purchasing power of money? And why?

Inflation because it costs more to buy the same goods/services as before

What does inflation do to the cost of living?

Increase it

What is the rate of inflation?

The percentage rise in the general level of prices overtime.

What is the rate of inflation expressed as?

It is expressed as an annual rate of inflation.

What is deflation?

Negative inflation (very rare) which means prices are falling

What is nominal value?

The value of a good in terms of money