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86 Cards in this Set
- Front
- Back
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GDP
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The sum of all goods and services produced in a country in a year
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Evaluation of increasing GDP
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Good:
People can have more goods and services and so a better standard of living Bad: Longer hours/increased pressure Higher cost of living Increased pollution |
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Problems of comparison of GDP
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Subsistence, barter and the black economy
Currency values Income distribution Size of public sector Consumer and capital spending Quality issues |
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Inflation
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A sustained rise in the general price level
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Assessing RPI
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Good:
More inclusive Bad: Unreliable for international comparisons Makes policy-makers look incompetent |
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Assessing CPI
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Good:
Index so easy for comparisons Bad: Does not include housing costs Average household Sampling problems Unreflective of changing fashions/deals Unrepresentative for atypical spending habits Breaks down when quality of goods changes |
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Unemployed
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People who are willing and able to work, but are not currently employed
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Workforce
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The employed and the unemployed
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Factors influencing levels of employment
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School leaving age
Number of school leavers entering higher or further education Level of net migration Availability of jobs Level of taxes and benefits |
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Assesing the Labour Force Survey
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face-toface interview followed by a quarterly telephone survey of 60,000 households
Good: Inclusive Bad: Out of date |
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Assesing the Claimant count
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A measure of unemployment which records the number of people who are claiming JSA
Good: Quick/cheap to obtain data Useful measure of hardship Bad: Stigma attatched Tight criteria |
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Classical view on unemployment
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There are only unemployed people who are not able and willing to work at the going wage rate
Leave market to get on with it No support for unemployed |
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Keynesian view on unemployment
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People can be unemployed due to deficient demand
Cyclical unemployment |
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Reasons for cyclical unemployment
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Too much saving
Lack of business confidence Increase in the value of a currency External shocks Increased use of imports from low wage countries |
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Structural unemployment
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Unemployment due to changes in the economy leaving the skills of the workforce redundant
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Frictional unemployment
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Unemployment whilst people move from one job to another
A sign of a healthy, flexible labour market with people willing to change jobs in order to improve their prospects |
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Costs of unemployment
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Individual/dependants
Firms Government |
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Balance of payments
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A record of payments between one country and the rest of the world
Records: Trade in goods Trade in services Investment income Transfers |
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Trade in goods
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The movement of tangible products across international borders
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Trade in services
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The movement of intangible output
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Investment income
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Interest, profit and dividends that are rewards for capital investments in another country
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Transfers
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The movement of funds for which there is no corresponding tade in goods and services
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Causes of a current account imbalance
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A country is spending too much
A country is not producing anything that potential customers abroad want to buy The stage in the business cycle The strength of the currency Loss of international competitiveness in the manafacturing sector |
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Costs of a current account imbalance
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Fall in the value of a currency
Net income leaves country |
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Economic development
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The quality of growth
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HDI
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A measure of standards of living that comprises of three equally weighted elements:
Health (life expectancy at birth) Years of schooling GDP per capita at purchasing power parity |
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Purchasing power parity
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The rate of conversion of the local currency into US dollars such that the same basket of goods and services could be bought in each country
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HDI rankings
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1-0.8 = high
0.8-0.5 = medium 0.5-0.0 = low |
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Assessing the HDI
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Good:
Reliable/easy to obtain data Qualifies income in terms of cost of living Bad: No indication of the distribution of incomes Indication of deprivation might be more useful Life expectancy does not give any indication of quality Years of schooling might be unreliable |
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Human Poverty Index
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Records what people go without rather than what they have
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Other measures of development
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Mobile phones per thousand of the population
Proportion of workers involved in agriculture |
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problems in using other measures of development
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Data collection problems
Overlapping indicators |
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Leakages
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Savings
Tax Imports |
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Injections
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Investment
Government spending Exports |
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The Multiplier
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The number of times a change in incomes exceeds the change in net injections that caused it
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The marginal propensity to consume
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How much of any extra pound earned is e-spent within the economy
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Wealth
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The sum of all the assets in an economy
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Aggregate demand
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The total planned expenditure of goods and services produced in the UK
Consumption Investment Government spending Exports |
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Why the AD curve is downwards-sloping
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Lower prices = increased international competitiveness
Real balance effect Control of inflation |
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Consumption
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Spendign by hosueholds on goods and services
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Determinants of consumption
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Consumer confidence
Interest rates Housing market |
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Investment
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Spending by firms on goods and services
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Determinants of investment
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Interest rates
Interest elasticity of demand Actions of competitors Government incentives/regulations Prospects for future interest rates Confidence in future sales |
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National Debt
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The accumulation of budget deficits over the years
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Keynesian view on an imbalance in the flow of government income
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Fiscal policy is a powerful tool in shifting AD
Made more effective by multiplier |
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Classical view on an imbalance in the flow of government income
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Overspending by government is similar to quantitative easing - purely inflationary
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Net exports
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The diffrence between imports and exports
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Government spending
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Spending by the government on goods and services
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Determinants of the value of next exports
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Exchange rate
PED for exports/imports Global economy Inflation Non-price factors |
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Aggregate supply
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The amount that firms are willing to produce at various price levels
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Classical view on AS
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In the long run theeconomy will operate at full capacity - no unemployed resources
Prices of unemployed resources will fall until the surplus disappears |
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Keynesian view on AS
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Equilibrium level of output can occur below the full employment level of output
As curve = L shaped Demand defficiency |
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Labour market causes of an outwards shift in the AS curve
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Productivity gap closes
Education/skills improve Health spending increases |
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Product market causes of an outwards shift in the AS curve
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Sources of raw materials change
Exchange rates fall International trade increases Technological advances Regulation changes |
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Actual growth
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An increase in real GDP
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Potential growth
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An increase in capacity in the economy
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Boom
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Real GDP rises fast
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Recession
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Real GDP falls for at least two consecutive quarters
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Slowdown
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The level of GDP rises below the trend/falls
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Output gap
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The diffrence between actual output and potential output
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Causes of actual growth
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An increase in a componenet of AD
An increase in AS |
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Constraints on growth
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Absence of capital markets
Government instability Labour market problems External constraints |
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Benefits of growth
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Employees
Firms Governments |
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Costs of growth
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Income inequality
Environmental problems Balance of payment problems on the current account Bottlenecks in the economy Social dislocation/stress Problems of rapid growth |
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The Macroeconomic objectives of governments
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Increased economic growth
Control of inflation Reduction in unemployment Restoration of equilibrium in the balance of payments on the current account More equal distribution of income Protection of environment |
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Inflation vs Unemployment
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Low unemployment = high inflation - wage pressures
Increase in GS to reduce unemployment - absorbed in wage increases - inflation As inflation goes up - newly employed realise wages being eroded/firms realise less profit - increase in unemployment unlikely to last |
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Unemployment vs Protection of the environment
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More employment = more pollution
Higher incomes = more holidays More employment = more scope for green taxes Effect of mroe employment depends on sector |
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Economic growth vs Balance of payments on the current account
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Increase in growth = worse current account
Exceptions = export-led growth/growth caused by increase in AS |
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Economic growth vs Income equality
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Economic growth = widening of inequality
Long run - increased wages for low-skilled Skill shortages = gaps filled by immigration - no benefit Constant percentage rise in wages = increase in inequality in absolute terms |
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Inflation vs Equilibrium on balance on payments
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Low inflation = better current account
Control of inflation will not remove surplus High interest rates = high exchange rates - worsens current account in long run |
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Demand-side policy
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A deliberate manipulation by the government of AD in order to achieve macroeconomic objectives
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Fiscal Policy
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The government's management of its spending and taxation with the aim of changing the total level of spending in the economy
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Monetary Policy
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Decision making using monetary instruments e.g. interest rates
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Criticisms of Fiscal Policy
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Time lag
Crowding-out effects Purely inflationary |
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Demand-pull inflation
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Inflation caused by an outwards shift of the AD curve
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Cost-push inflation
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Inflation caused by an inwards shift of the AS curve
Occurs when costs of production increase |
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Monetarists view on inflation
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Caused by increases in the money supply above the rate of the increase in real output in the economy
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Costs of inflation
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Loss of international competitiveness
Redistribution of income Increased uncertainty Investment from abroad decrease |
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Benefits of inflation
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Reduces the real interest rate
Firms can make more profits Provides a cushion against deflation Allows real wage differentials to be changed |
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Criticisms of Monetary policy
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18 month to 2 year time lag
Fixed-rate mortgages Blunt tool that hits the whole economy Increase in interest rates usually worsen income distribution Raises costs of production where they are the cause of inflation |
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Supply-side Policies
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Any action by the government intended to increase the amount that firms are willing to supply at any given price level
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Supply-side Policies
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Increasing labour market flexibility
Investing in infrastructure Investing in education/healthcare Subsidising firms |
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Criticisms of Supply-side policies
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Allows exploitation of workers/reduces supply of labour
Expensive/short run has negative impacts Wage increases for staff/used for economically inactive, so many ways to improve, short run no help Costly, successful ideas should recieve funding from banks |
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Fiscal policy vs supply-side policy
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GS on health/education works in tandem with supply-side policy
Contractionary fiscal policy might result in an inwards shift of AS curve |
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Fiscal vs monetary policy
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Budget deficit financs by treasury bills - inflationary
looser fiscal policy might mean that MPC favours a tighter monetary policy |
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Monetary policy vs Supply-side policy
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Tight monetary policy = increased costs for firms
Raising IR = rise in ER - cheaper costs of production Higher ER harm firms trying to export Loose monetary policy = cheaper borrowing/international competitveness but increased import costs for firms |
