Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
67 Cards in this Set
- Front
- Back
|
What are the four objectives of the government?
|
1. Sustainable economic growth (increasing national income per person)
2. Low unemployment – (full employment) 3. Low inflation. – (Price stability) 4. Satisfactory Balance of Payments (balancing exports and imports) |
|
|
Define real GDP
|
A measure of national income taking into account inflation or the value of goods and services produced in an economy
|
|
|
Define economic growth
|
An increase in the volume of goods and services produced in an economy in one year
|
|
|
What are the benefits of economic growth? list 4 things
|
* Higher Incomes
* Lower unemployment * Lower Government Borrowing * Improved public services * Firms make more profit |
|
|
What are the costs of economic growth? list 3 things
|
* Inflation
* Boom and Bust Economic Cycles. * Balance of Payments Deficit. * Environmental Costs * Increased Inequality |
|
|
What are the causes of economic growth?
List those that increase aggregate demand List those that increase aggregate supply (productive capacity) |
AD factors: rise in wages, lower interest rates, rise in house prices, lower income tax, fall in value of exchange rate
AS factors: Increased capital e.g. investment in new factories, Increase in working population, Increase in Labour productivity, through better education and training, more raw materials (e.g. discovering oil deposits), technological improvements |
|
|
What does sustainable economic growth mean?
|
means that growth can be maintained for a long time
|
|
|
What is inflation?
|
means a sustained increase in the general price level
|
|
|
Define price stability
|
means we have a low rate of inflation. It means prices only change by a small amount.
|
|
|
What are the two measure of inflation?
|
• Retail Price Index (RPI)
• Consumer Price Index (CPI) CPI ignores mortgage interest payments. It tends to be lower than RPI. |
|
|
What are the costs of inflation? list 4 things
|
* Higher interest rates lead to lower economic growth and higher unemployment
* International competitiveness * Confusion and Uncertainty * Menu Costs * Income redistribution |
|
|
Explain demand pull inflation.
|
• If demand in the economy increases faster than productive capacity, then firms respond to the excess demand by pushing up prices.
• Inflation tends to occur when the rate of economic growth is faster than the rate that can be maintained in the long term. |
|
|
Explain cost push inflation.
|
Inflation can also be caused by an increase in the cost of production. If there is an increase in the costs of firms then they will respond by putting up prices for consumers
|
|
|
What are the causes of cost push inflation? list 3 things
|
Higher Wages
Import prices. Raw Material Prices Declining productivity |
|
|
Define unemployment.
|
a person of working age is actively seeking work, but is unable to get a job.
|
|
|
What are some of the reasons people leave the labour market
|
o They are students
o Women taking time to have / look after children. o People who take early retirement o People who are physically incapable of work and receiving sickness or disability allowance. o People who become discouraged about finding a job. |
|
|
What are the costs of unemployment? list 3 things
|
* Loss of earnings to the unemployed
* more difficult to get work in the future * Stress and health problems * Increased government borrowing * Lower GDP for the economy |
|
|
What are the two measures of unemployment?
|
Claimant count and labour force survey
|
|
|
How does the claimant count work?
|
It counts the number of people receiving benefits (Job Seekers allowance)
• To receive benefits, an unemployed worker needs to be actively seeking work and attend a local job centre at regular intervals. |
|
|
How does the labour force survey work?
|
survey asks people whether they are unemployed and whether they are looking for a job. It includes some people not eligible for benefits. It gives a slightly higher figure than the claimant count.
|
|
|
What the different types of unemployment?
|
* Frictional Unemployment
* Structural Unemployment * Demand Deficient or “Cyclical Unemployment” * Seasonal unemployment * Voluntary unemployment * Technological |
|
|
What is frictional unemployment?
|
unemployment caused by people moving in between jobs, e.g. graduates or people changing jobs
|
|
|
What is structural unemployment?
|
This occurs due to a mismatch of skills in the labour market
|
|
|
What is cyclical unemployment?
|
occurs when the economy is operating below full capacity. In a recession demand for goods falls therefore firms produce less. With lower production, many firms will cut back on labour
|
|
|
What can the government do to reduce unemployment? List 5 things
|
1. government cut income tax
2. Expansionary monetary policy involves cutting 3. interest rates 4. Lower taxes and benefits increase the incentive for the unemployed to look for work rather than stay on benefits 5. giving the unemployed better information about available job vacancies 6. improving labour productivity and the skills of the workforce 7. Reform Trades Unions and reduce Minimum Wages Regional Grants/subsidies |
|
|
Define interest rates.
|
the cost that borrowers pay for the money they receive and the reward that savers get for the money they deposit
|
|
|
How many different types of interest rates can you name?
|
1. Base Rate
2. Current account rates 3. Savings Account rates 4. Personal loans 5. Mortgage rates 6.Credit Card Rates 7. Immediate Cash |
|
|
What are the aims of monetary policy?
|
1. Control the rate of inflation. Inflation target for MPC is - 2.0% +/-1
2. Maintain sustainable economic growth. 3. It may also involve influencing the exchange rate. |
|
|
What are the effects of higher interest rates?
|
1. Higher interest rates makes borrowing more expensive; therefore people spend less on credit.
2. Firms will be less willing to invest by borrowing money. 3. The cost of mortgages increases, therefore people have less disposable income causing a fall in consumption. 4. Saving money in a bank is more attractive therefore there is less spending 5. Exchange rate increases, due to hot money flows into the UK. The appreciation in the exchange rate depresses demand for UK exports |
|
|
List at least 4 evaluation point of interest rate policy.
|
1. The effect of higher interest rates depends on the situation of the economy.
2. The effectiveness of monetary policy depends upon other variables in the economy e.g. If confidence is low 3. There may be time lags for lower interest rates to have an effect. 4. Monetary policy may conflict with other macro economic objectives. 5. Interest rates may conflict with the exchange rate. 6. Monetary Policy will have a big effect on the housing market. |
|
|
What is meant by fiscal policy?
|
Fiscal Policy involves the government changing the levels of taxation and Government Spending in order to influence aggregate demand.
|
|
|
What is expansionary fiscal policy?
|
Involves lower tax, higher spending to increase AD.
|
|
|
What is deflationary fiscal policy?
|
Involves higher tax and lower spending to reduce AD.
|
|
|
Define the multiplier effect.
|
This states that if there is an initial injection (e.g. higher govt spending) into the economy, then the final increase in AD and Real GDP will be greater.
|
|
|
List at least 4 evaluation points for fiscal policy.
|
1. Poor information may reduce accuracy of forecasting economic growth and inflation
2. It depends on other components of AD, e.g. consumer confidence. 3. Higher income taxes to reduce inflation can create disincentives to work, reducing productivity. 4. Time lags involved in deciding to increase government spending. 5. Expansionary fiscal policy will increase government borrowing. |
|
|
Which government objective conflict?
|
Economic Growth vs. Inflation
Economic Growth vs. Current Account (BOP deficit) Economic Growth vs. unemployment |
|
|
What is budget deficit?
|
A budget deficit occurs when government spending is greater than tax revenues. Therefore the government has to make up the shortfall by borrowing from the private sector.
|
|
|
What is a budget surplus?
|
A budget surplus occurs when government spending is less than tax revenues.
|
|
|
What are the causes of government borrowing?
|
1. Recession. In a recession, spending falls, therefore the government receive less VAT. People earn less so they receive less income tax. Also the government spend more on unemployment benefits.
2. Spending decisions. If the government decide to spend more on infrastructure or welfare payments |
|
|
What are the problems of government borrowing?
|
1. National Debt will increase leading to higher debt interest payments in the future.
2. Government may have to increase taxes in the future which may create disincentives to work. 3. Government may have to cut public spending which leads to lower quality of services like health and education. 4. The government borrows from the private sector meaning the private sector have less money available for spending and investment. |
|
|
What are the advantages of government borrowing?
|
1. It enables the government to invest in public investment. This can enable higher rates of economic growth.
2. In a recession, government borrowing may enable the government to stimulate the economy. |
|
|
What is government revenue?
|
the money that the government receives
|
|
|
List 5 types of taxes.
|
Income tax
National Insurance VAT Excise duties. Corporation Tax Stamp Duty Council Tax |
|
|
What is the purpose of a tax?
|
1. Raise revenue for the government to spend on public services.
2. Redistribute income. 3. Discourage consumption of certain goods. |
|
|
What are the qualities of a good tax?
|
1. Fair – Taxes should be proportional to ability to pay.
2. Easy to Understand. 3. Low administration costs. 4. Efficient. 5. Discourage consumption of harmful goods. |
|
|
What is a direct tax? Give an example
|
A tax paid by individuals consumers and businesses .
For the purposes of this Unit 'Direct' taxes include: Income Tax Corporation Tax Capital Gains Tax National Insurance Contributions Statutory Payments Inheritance Tax Petroleum Revenue Tax Student Loans Stamp Taxes |
|
|
What is an indirect tax? Give an example
|
A tax on activities
VAT Customs Duty Excise Duties Insurance Premium Tax the environmental taxes including Air Passenger Duty Climate Change Levy Aggregates Levy Landfill Tax |
|
|
What is a progressive tax?
|
a progressive tax takes a higher % of income from high earners or takes a higher proportion of income from high earners
|
|
|
What is a proportional tax?
|
Takes the same % from everyone regardless of income.
|
|
|
What is a regressive tax?
|
A regressive tax bears down more heavily on lower income households—in effect—the percentage rate of tax paid rises as average incomes fall.
|
|
|
What is the impact of an increase in income tax?
|
1. Increase revenue for government
2. Make tax system more progressive. 3. Could create disincentives |
|
|
What is the difference between wealth and income?
|
• Wealth is a stock concept. It is the amount of assets that you have at a particular time.
• Wealth could include bank savings, house, stocks and shares. If an asset could be sold to raise money it is considered part of your wealth. • Income is a flow concept. It is the amount of money you receive per week / per month or an annual salary. For example, the annual salary of an MP is £65,738 (2010) • Income could involve wages, rent, dividends, benefits or interest payments |
|
|
What is income inequality?
|
Income inequality refers to the fact that some people’s income may be a much smaller % than other people’s income.
|
|
|
Why does wealth inequality occur?
|
1. People on low incomes cannot afford to save and increase their wealth. People with high incomes can afford to save and increase wealth.
2. Wealth can be inherited. Houses and wealth can be passed on from one generation to the next. Income cannot be passed on like this. 3. People with wealth will earn rent, interest or dividends. This can be reinvested to increase future wealth. |
|
|
What are the two types of poverty?
|
• Absolute Poverty: This measures the number of people living below a certain income level, which is necessary to be able to afford basic goods and services.
• Relative Poverty: This occurs when the income of a household is low compared to others; e.g. one definition of relative poverty is income below 50% of the national average. |
|
|
What are the causes of poverty and income inequality?
|
1. Inequality in Wages and Earnings Growth.
2. Falling Relative value of State Benefits. 3. Unemployment. 4. Regressive Taxes. 5. Reluctance to Claim Benefits. 6. Pensions. |
|
|
What are policies are used to overcome poverty?
|
1. Minimum Wages.
2. Redistribute Income Through Changing Tax System. 3. Benefits for Poor. |
|
|
What is market failure?
|
This occurs when there is an inefficient allocation of resources in a free market.
|
|
|
What is an externality?
|
These occur when a third party is affected by the decisions and actions of others.
|
|
|
Define social benefit.
|
This is the total benefit to society. It includes private and external benefits.
|
|
|
Define social cost.
|
This is the total cost to society. It includes private and external costs.
|
|
|
What is a positive externality? give an example
|
Positive externalities occur when the consumption or production of a good causes a benefit to a third party.
|
|
|
What is a negative externality? give an example
|
Negative externalities occur when the consumption or production of a good causes a harmful effect to a third party.
|
|
|
What is a merit good?
|
A merit good is usually under-consumed in a free market. This is because:
i) People do not realise the true benefit of consuming the good. ii) Usually these goods have positive externalities |
|
|
What is a demerit good?
|
A demerit good is usually over-consumed in a free market. This is because
i) People don’t realise or ignore the costs of consuming the good. ii) Usually these goods have negative externalities. |
|
|
What is a public good?
|
Public goods are often not provided at all. Public goods have two characteristics.
• Non-rivalry: When a good is consumed it doesn’t reduce the amount available for others. E.g. street lighting. • Non- excludability: This occurs when it is not possible to provide a good without it being possible for others to enjoy. For example, if you pay for the police and provide law and order, that service (law and order) is available for everyone. |
|
|
What is the purpose of government spending?
|
1. Redistribution of Income
2. Provide important public services. 3. Investment in infrastructure 4. Provide public goods. 5. Debt interest payments. 6. Stimulate economic activity. |
