Economics Theme 2 (Moi)

Define economic growth

The increase in the potential output of an economy on goods and services

Define GDP

It measures the value of real upturn in the economy over a period of time

Whats real GDP

The nominal value adjusted for inflation

Whats real GDP per capita

The national income per person (measures living standards)

Whats GNI

Is the final value of income flowing into a countries owned factors of production

What is purchasing power parity

It's used to assess living standards between countries - use a basket of priced items (goods and services) and compare in different countries

Whats does standards if living measure

Economic welfare and wellbeing

What factors effect standards of living

Access to education

Access to healthcare

Quality of housing and food

What are limitations of using GDP (per capita) to measure standards of living

Unpaid work isn't accounted for

Negative externalities of consumption

Distribution of income

Whats subjective happiness

Refers to "self-reported" levels of happiness

What are some factors that happiness includes

Income and wealth

Health

Social influences

Define the easterlin paradox

Refers to life satisfaction - happiness reside with average income but only up to a point the after the marginal rate of happiness declines again

Define inflation

It's a sustained rise in the general price level

Define deflation

Is a sustained decrease in the general price level

Define disinflation

It's a slow Down in the increasing rate of inflation

Whats the consumer price index

It's one way to calculate inflation by tracking changes in the prices of a basket of goods and services ( popular items in households) and is expressed in a index number

Whats the formula or CPI

Current CPI - previous CPI divided by periods CPI x100

Whats a price survey

Is another measure of inflation where the basket is monitored each month - each item ins weighted according to income from households

Whats some limitations of the CPI measure

Needs regular updates

International comparisons might not be accurate

What's negative about inflation

Fall in real incomes

Loss of competition

Potent on wage-price spiral

Economic uncertainty

Whats some benefits of low inflation

Reduced economic debt

Efficient labour markets as don't need to cut wages

Real wages fall

Increased consumption

Define unemployment

A person has to be of working age, willingness and able to work and actively seeking work

Define economic inactivity

This is people like students or pensioners who aren't actively seeking work

Whats the labour force survey

It's a measure of unemployment that's asks 60-70k hjousehoulds tho self classify there employment status

Whats a claimants count

It's the total number of recipients the claim job seekers allowance

Define hidden unemployment

The people who do not work and aren't counted in government reports of unemployment

Define underemployment

This is individuals who are employed but dont have sufficient working hours

Define a gig economy

This is a true of work arrangement usually people on a zero-hour contract ( this is usually Uber drivers etc)

Whats are the 4 causes of unemployment

Frictional

Cyclical

Structural

Seasonal

Define frictional unemployment

Usually caused by people being in between jobs

Define cyclical unemployment

It's due to the businesses cycle for example a downturn in the economy

Define structural unemployment

This is due to a decline in traditional job roles leaving people unskilled for new jobs available

Define seasonal unemployment

People will be out of work due to the time of year

What are some costs/negatives of unemployment

Fall in real disposable incomes

An increase in poverty

Lower standards of living

Social issues

Slowing of economic growth

Increased government spending

Define balance of payments

It's a record of all the flow of money from a country to the rest of the world

What are some benefits of unemployment

Reduction in inflation

Incentivises businesses to invest

Low interest rates

Whats a current account in BOP

It's the section that records international trade of goods and services

Give an example of trade in goods

Oil

Raw materials

Food

Give and example do trade in services

Finance

Business

Insurances

Give and example of primary income

Inflow of investment

Profits

Dividends

Give and example of secondary incomes

Foreign aid

Payments to and from the EU

What's a Current account deficit

This is when a country's imports exceeds its exports

What are some causes of a current account deficit

Recession in industries

Under-investment

High inflation

Increased demand

Define globalisation

It's the interconnectedness between countries trading for example using trading bloc (EU, USMCA)

Define demand-pul inflation

This is when AD exceeds AS in the economy

What are some causes of demand-pull inflation

Lower interest rates

High animal spirts

The positive wealth effect

The depreciation of the pound

Define cost-push inflation

This is caused by the increase in the cost of cost of production

What are some causes of cost-push inflation

Skill shortages

Indirect tax increase

The deprecation of the pound

What are some costs of deflation

Interest may rise

Ewan value of debt increases

Lower prices of goods and services reduces business profit

What are some benefits of deflation

Falling rices for consumers

Increases in real disposable incomes

Affordable housing

What are the characteristics of AD

Consumption

Investment

Government spending

Imports and exports

What are some factors that influence consumption

Income

Wealth effect

Animal spirit

Interest rates

What are some benefits of consumption

Increase in AD

Less spare capacity

A fall in unemployment

What are some negatives of consumption

Inflationary pressures

And increased current account deficit

What is the Keynesian paradox of thrift

States that an increase in saving can lead to a decrease in economic activity

What is investment

Is in addition to capital stock of the economy

Why do firms invest?

Increase output capacity

Increase efficiency and productivity

How does investment impact AD

It increases AD by lowering unemployment

What are some factors that influence investment

Interest rates

Demand for a product

Business confidence

Tax

How might investment influnce a macroeconomy

Injects money into the circular flow of income

Boosts both SRAS and LRAS

Creates jobs

Can reduce inflationary pressures

What is government spending

It's the costs that the government spend on public services

Whats the aim of government spending

It's a fiscal policy that can be used to change levels of AD

How will governments spending change in the trade cycle falls

Government spending will increase. For example on welfare benefits or subsidies

Define net trade

This is when the value of exports is less than the value of imports

What are injections into the economy

This is money that flows into the economy for example from exports

What are withdrawals from the economy

This is money leaving the economy for example spending on imports

Define demand side policies

They're policies that aim to increase AD and achieve the macroeconomic objectives

What are the 2 demand-side policies

Fiscal policy

Monetary policy

What is fiscal policy

It's is a policy that uses taxation, as well as government spending and borrowing to influnence the economy

What is monetary policy

It's a policy that uses interest ages and money supply to increase AD - this is dependant on the Bank Of England

Define progressive tax

It's a tax that takes a higher proportion of incomes from people who have a higher income

Define regressive tax

Tax that takes a lower proportion of incomes from people on incomes incomes

What is a budget/fiscal deficit

This is the amount the government borrows to lower the gap between its income and spending

Define national debt

It's the total accumulation of deficits that need repaying

What is the aim of quantitative easing

It's a scheme to increase money supply

Whats the target rate of inflation

2%

What is automatic fiscal policy

It's the changes in fiscal policy that occurs naturally due to changes in AD

What are the key roles of fiscal policy

To correct market failures

Stabilise AD

Improve AS

Change health and income

What is the Laffer curve

Problems of using GDP to compare standard of living:

• innacuracy of data

• inequalities

• quality of goods and services

• comparing different currencies

• spending

Why is the AD curve downward sloping?

• income effect

• substitution effect

• real balance effect

• interest rate effect

Cause of movement along the demand curve

is a change in price, which leads to a change in the quantity demanded, illustrating the law of demand.

influences on consumer spending

• price

• interest rates

• consumer confidence

• wealth effects

• distribution of income

• tastes and attitudes

influences on investment

• rate of economic growth

• interest rates

• business expectations

• demand for exports

• costs

Influences on government expenditure:

• the trade cycle

• fiscal policy

• age distribution of the population

Influences on net trade balance:

• real income

• exchange rates

• state of world economy

• degree of protectionism

Factors influencing short run AS:

• changes in costs of raw materials and energy

• changes in exchange rates

• change in tax rates

Causes of shift in LRAS:

• technology advances

• more productiveity

• changed in education and skills

• changes in government regulations

• migration and population

• competition policy

Injections CFM

• government spending #

• investments

• exports

Withdrawals CFI

• taxes

• savings

• imports

Causes of economic growth

Increase in quality or quantity of factors of production

Macroeconomic objectives

• economic growth

• low unemployment

• low and stable inflation

• balance of payment equilibrium on the current account

• balance government budget

• protection of the environment

• greater income equality

Examples of demand-side policies

• interest rates

• tax rates

• government spending

• devaluation

• quantitative easing

Examples of supply-side policies

• privatisation/deregulation

• investment in education/training

• more flexible labour markets

• reduced power of trade-unions