The Uk Economy - Performance And Policies (All Cards)

Front 1

Microeconomics

Back 1

The study of individuals, households and firms' behaviour in decision making and allocation of resources. Generally applies to markets of goods and services to deal with individual in economic issues.

Front 2

Macroeconomics

Back 2

The branch of economics that studies the behaviour and performance of an economy as a whole. It focuses on the aggregate changes in the economy such as unemployment, growth rate, GDP and inflation.

Front 3

GDP

Back 3

Value of goods and services produced in a country in one year.

Front 4

Macroeconomic objectives

Back 4

Main

1 - Economic growth

2 - Employment/unemployment

3 - Inflation

4 - Balance of Payments Current Account

Other

5 - Equality/income distribution

6 - Protection of the environment

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Aggregate

Back 5

Adding everything together.

Front 6

Aggregate demand

Back 6

The total demand for goods and services within a particular market.

Front 7

Aggregate demand formula

Back 7

C + I + G + (X - M)

Consumption + Investment + Government + (Exports - Imports)

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Consumption

Back 8

Consumer spending on goods and services that are purchased because they create utility/welfare in their own right.

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Two categories that consumer goods can be divided into

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1. Durable = consumed over a long time e.g. car, TV, fridge

2. Non-durable = consumed immediately e.g. food

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Determinants of consumption

Back 10

1. Real/disposable income

2. Credit availability

3. Expectations/confidence of personal economic activity

4. Wealth

5. Interest rates

6. Direct taxes

7. Distribution of income

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Consumption - Real/disposable income

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1. Real = after taxes

2. Disposable = after necessities

Front 12

Consumption - Credit availability

Back 12

1. Consumer durables

2. Credit cards (borrowing money)

- availability

- limit

- interest rate

Front 13

Consumption - Expectations/confidence of personal economic activity

Back 13

1. Confident = consumption high/rising

2. Not confident = consumption low/lowering

3. Expectations of inflation

4. Unemployment rates

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Consumption - Wealth

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1. Value of all assets (can be sold to generate money)

2. Can increase over time (leads to higher consumption

3. Includes houses, savings, bank account

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Consumption - Interest rates

Back 15

May cause concerns with mortgages

Front 16

Consumption - Direct taxes

Back 16

- NIC

- Income tax

- Affects disposable income

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Consumption - Distribution of income

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1. People who are well off are able to spend or save

2. If there is redistribution, consumption is likely to be higher than if there are fewer, richer people

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Average propensity to consume

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- proportion of total income spent

- total consumption / total income

Front 19

Average propensity to save

Back 19

- proportion of total income saved

- total savings / total income

Front 20

Marginal propensity to consume

Back 20

- proportion of a change in income which is spent

- change in total consumption / change in total income

Front 21

Marginal propensity to save

Back 21

- proportion of a change in income which is saved

- change in total saving / change in total income

Front 22

Consumption definition

Back 22

Total expenditure by households on goods and services over a period of time.

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Consumption function

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The relationship between the consumption of households and the factors which determine it.

Front 24

Investment

Back 24

The purchase of goods that are not consumed today but are used in the future to create wealth

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Determinants of investment

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1. State of the economy and future expectations

2. How attractive it is to invest in the economy (taxes, currency, resources e.g. skilled labour and low wages)

3. Cost of borrowing (e.g. interest rates and whether lenders are willing to lend)

4. Government encouragement (e.g. subsidies, infrastructure, tax incentives)

5. Dependence of certainty levels

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Accelerator coefficient

Back 26

Capital-output ratio

Front 27

Accelerator theory

Back 27

The theory that the level of investment is related to past changes in income.

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Animal spirits

Back 28

Business confidence: the mood of managers and owners of firms about the future of their industry and the wider economy.

Front 29

Capital-output ratio

Back 29

The ratio between the amount of capital needed to produce a given quantity of goods and the level of output.

Front 30

Depreciation (of the capital stock) or capital consumption

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The value of the capital stock which has been used up or worn out.

Front 31

Gross investment

Back 31

The addition to capital stock, both to replace the existing capital stock which has been used up (depreciation) and the creation of additional capital.

Front 32

Investment definition

Back 32

The addition to the capital stock of the economy.

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Net investment

Back 33

Gross investment - depreciation

Front 34

Retained profit

Back 34

Profit kept back by a firm for its own use which is not distributed to shareholders or used to pay taxation.

Front 35

Government spending

Back 35

Only considered to be spending (or part of AD) if the government is using the money to buy goods and services.

Front 36

Transfer payment

Back 36

Money is a gift paid by the government without anything in return e.g. state pension

Front 37

Determinants of government spending

Back 37

1. Size of GDP

2. Tax rates

3. Political choices

4. Ability to borrow

Front 38

Export

Back 38

Good or service sold to another country in return for money/payment.

Front 39

Import

Back 39

Good or service bought from another country in return for money/payment.

Front 40

Import and export impacts on AD

Back 40

- Exports create demand

- X > M = AD +

- Imports reduce demand

- X < M = AD -

Front 41

Determinants of exports and imports

Back 41

1. Exchange rate

2. Country's natural resources

3. Protectionism

4. Competitiveness

Front 42

Exports and imports - Exchange rate

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- The price of one currency in terms of another

- Appreciation (SPICED)

- Depreciation (WPIDEC)

Front 43

Appreciation

Back 43

1. Export prices increase

2. Import prices decrease

= AD decrease (dependant on elasticity)

Front 44

Deppreciation

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1. Export prices decrease

2. Import prices increase

= AD increase (dependant on elasticity)

Front 45

Exports and imports - Country's natural resources

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Natural resources are becoming less important in determining GDP.

Front 46

Exports and imports - Protectionism

Back 46

1. Tariffs = tax on imports so the greater the tariffs the less exports and imports

2. PED of imports and exports

Front 47

Exports and imports - Competitiveness

Back 47

Germany established themselves as having low-prices, high-quality technological products

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Short run

Back 48

The period of time in which at least one factor of production is fixed i.e. firms cannot change it.

Front 49

Short run aggregate supply curve direction

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- Left to right upwards sloping

- Due to higher prices being required to cover increased costs e.g. wages

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Non-fixed factors

Back 50

Wages and raw materials

Front 51

SRAS shift to the left

Back 51

- Increase in prices of non-fixed factors

- Implies costs have increased e.g. wages

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SRAS shift to the right

Back 52

- Decrease in the price of non-fixed factors

- Implies that costs have decreased

Front 53

Classical view of what should happen following a collapse in demand

Back 53

1. AD shock

2. Sales decrease

3. Prices decrease

4. Real wages increase

5. Unemployment increases

6. Wages decrease

7. Real wages decrease

8. Unemployment decreases

Front 54

Difference between a classical view and a Keynesian following a collapse in demand

Back 54

Classical view

1. Wages decrease

2. Real wages

3. Unemployment decrease

Keynesian view

1. Wages don't decrease

2. Unemployment increases

Front 55

Full capacity

Back 55

The level of output where no extra production can take place in the long run with existing resources. The full capacity level of output for an economy is shown by the long run aggregate supply curve.

Front 56

Circular flow

Back 56

Households to firms = Expenditure on goods and services & land, labour and capital

Firms to households = Rent, wages, interest and profit & goods and services

Front 57

Injections

Back 57

- Investment

- government spending

- exports

Front 58

Withdrawals

Back 58

- Savings

- taxes

- imports

Front 59

The Multiplier

Back 59

Final change in income/initial change in expenditure

Front 60

Changes in the multiplier effect

Back 60

Upwards = increase in expenditure = unemployment increase

Downwards = decrease in expenditure = unemployment decrease