Economics Revision

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What is the difference between GDP, GNI and GNP
GDP is the total market value of all goods and services produced in the country over a period of time. GNI is GDP plus net income from abroad. GNI is the total output of citizens of the country, whether or not they are resident in that country.
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Output can be measured by volume or value, define these terms?
Volume- Adding up the quantity of goods and services produced in a year. Value- Calculating the value of all goods and services produced in one year.
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What are the limitations of using GDP to compare living standards between countries and over time?
-The extent of the hidden economy - Public spending -The extent of income inequality
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What are the uses of index numbers?
They are useful for making comparisons over time.
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Give 2 advantages of the claimant count?
-This data is easy to obtain - It is updated monthly
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Give 2 disadvantages of the claimant count?
It can be manipulated by the government -It excludes people who are looking for work but are not eligible to
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Give 2 advantages of the Labour Force Survey?
-It is more accurate than the claimant count - Easy to make comparisons
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Give 2 disadvantages of the Labour Force Survey?
-It is less up to date -It is expensive to collect -The sample may be unrepresentative
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What is structural unemployment?
When the pattern of demand and production changes leaving workers unemployed in labour markets where demand has shrunk
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What is cyclical (demand deficient) unemployment?
When there is insufficient demand in the economy for all workers who wish to work at current wage to obtain a job
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What is real wage inflexibility?
When workers are unemployed because real wages are too high, leading to insufficent demand for workers
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What are the 4 sections on the current account?
Trade in goods/Trade in services/Transfers/Investment income
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Give 3 factors influencing change in short run AS?
-Chnages in cost of raw materials and energy -Changes in exchange rates -Changes in tax rates
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Give 4 factors influencing long run AS?
-Technological advances -Changes in relative productivity -Changes in education and skills -Changes in government regulations
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What is wealth?
The total value of all assets owned by individuals e.g. savings, houses, cars- it is a stock concept.
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What is income?
The flow of money used to generate income
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What are transfer payments?
Income for which there is no corresponding output e.g. pension payments, child benefits.
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Keynesian curve?
At low levels of output AS is completely elastic-there is spare capacityin the economy so output can increase without a rise in the price level. When the currve begins to slope upwards the economy is facing increasing costs. Vertical=full capacity.
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Wage rates?
Classical economists assume that wage rates are inflexible. Keynesian economists believe wage rates may be sticky downwards hence may operate at less than full employment.
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What is potential growth caused by?
An increase in the capacity or productive potential of the economy.
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Benefits of economic growth?
Increase demand for labour leading to a fall in unemployment + higher incomes. Employees get higher wages, increase standard of living. Firms get greater profits. As employment rises, government tax revenue increases.
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Costs of economic growth?
Higher wgaes= increased responsibilities=Increase stress + reduce productivity. Cause demand-pull inflation. A deficit on B.O.P because people buy more imports. Environmental damage.
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What are the 7 Macroeconomic objectives?
Economic growth/ Low unemployment/ Low and stable rate of inflation/ Balance of payments equilibrium/Balanced government budget/ Protection of the environment/Greater income equality
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What is quantitative easing?
This involves a central bank creating new money and using it to buy assets owned by financial institutions and other firms. It increases the money supply, which will enable individuals to spend more.
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Give 2 methods to correct a budget surplus?
Lowering taxes or increasing government spending
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What is current expenditure?
Repeated spending on things which are used up quickly e.g. wages.
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What is capital expenditure?
Spending on assets which will last a long time e.g. infrastructure
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What are the consequences of a B.O.P deficit?
-Economy is uncompetitive -Fall in the value of the currency, leading to higher import prices, this can lead to inflation. Job losses domestically as fewer goods are exported.
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What are the consequences of a B.O.P surplus?
-Negative economic growth -Overreliance on exports
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Give policies to correct a B.O.P deficit?
Policies to reduce the price of domestic goods/Impose restrictions on imports/Devalue or depreciate the currency/Fiscal or monetary policy to reduce spending in the economy.
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Give policies to correct a B.O.P surplus?
Raise the value of the currency however this is likely to result in a reduction in output and increase unemployment.
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Conflicts- Inflation + Unemployment?
Low unemployment may cause consumers to spend more because they feel more confident . This may casue demand-pull inflation
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Conflicts economic growth + environment protection?
-Beutiful habitats can be destroyed when resources are overexploited. - Finite resources may be used up which may constarin growth in the future. Pollution, congestion.
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Conflicts- Economic growth + inflation?
A rapidly growing economy can cause large increases in prices, due to an increase in demand. Similarly attempts to keep inflation low can restrict grwoth. for example if interest rates are high to redcue inflation by discouraging spending.
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Conflicts inflation and B.O.P?
Low inflation, increases exports creating a surplus. However low inflation is often maintained by high interest rates which encourage FDI which increases exports.
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What are the benefits of globalisation?
Trade encourages countries to specialise which increases output. Producers can benefit from E.O.S. Improvement in efficiency. Lower production costs= lower prices. Greater consumer choice. Improve living standards.
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What are the drawbacks of globalisation?
Cause price of some goods to rise/Economic dependency/Imbalances in B.O.P of some countries/Overreliance on few industries
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What are the positive impacts of MNCS?
FDI by MNCs creates new jobs and brings skills and wealth to an economy. MNCs can benefit from E.O.S. Raise living standards by providing employment
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What are the negative impacts of MNCs?
MNCs exploit local workers/Force local firms out of business/Withdraw profits from country
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Give factors influencing a countries terms of trade?
Relative inflation rates/Relative productivity rates/Changes in exchange rates/Changes in the demand for exports/imports/Changes in incomes
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What are the benefits of regional trade agreements?
Elimination of transaction costs/price transparency/increased attractiveness for FDI
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What are the costs of regional trade agreements?
Transition costs/ Loss of independent monetary policy/ Loss of exchange rate flexibility
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What are the factors influencing growth and development?
Primary product dependency/ Volatility of commodity prices/ Savings gap: Harrod Domar model/ Foreign currency gap/ Capital flight/ Demographic factors/ Debt
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What are the market orientated strategies? (influencing growth and development)
Microfinance schemes/ Removal of governmnet subsidies/Privatisation/ Promotion of FDI/ Floating exchange rate/ Trade liberalisation
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What are the interventionist strategies?
Infrastructure development/ Managed exchange rates/ Development of human capital/ Protectionism/ Buffer stock schemes
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What are other strategies to influence grwoth and development?
Industrialisation: The Lewis Model/ Development of tourism/ Development of primary industries/ Fairtrade schemes/ Aid/ Debt relief
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What do NGOs do? (NON-government organisations)
They may offer microfinance, training in business skills, technical or medical assistance, or advice on environmental sustainability.
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What do the International Monetary Fund do?
The IMF offers loans as well as technical advice to developing countries in order to fight poverty and to help countries facing economic difficulties.
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What is devaluation?
When a government or central bank fixes a new lower exchange rate for the currency.
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Progressive tax?
A tax where the higher the income of the taxpayer, the larger the proportion of income is paid in tax.
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Proportional tax?
A tax where as income of taxpayers increases, the same proportion of income is paid in tax
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Regressive tax?
A tax where the higher the income of the taxpayer, the smaller the proportion of income is paid in tax.
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What is capital flight?
When savings are sent abroad by citizens and firms of a country to another country which is seen as being more secure.
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What are the roles of financial markets?
To facilitate saving/ To lend to businesses and individuals/ To facilitate the exchange of goods and services/ To provide forward markets in currencies and commodities/ To provide a market for equities
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What are the roles of central banks?
Implementation of monetary policy/ banker to the government/ Banker to the banks- Lender of last resort/ Role in regulation of the banking industry
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What is crowding out?
When extra government spending leads to lower private sector spending.
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What is cyclical deficit?
The part of the fiscal deficit which is caused by government spending and taxes changing through the trade cycle.
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What is structural deficit?
That part of a fiscal deficit that exists even when the cyclical deficit is zero.
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What are the roles of the WTO?
Promote free trade/ Resolve trade disputes
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Give 3 causes of current account deficits?
Relative low productivity/ High value of countrys currency/ high rate of inflation
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What are expenditure switching policies?
The use of protectionist measures such as tarriffs or quotas or a devaluation of the exchange rate
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What are expenditure reducing policies?
Measures designed to reduce AD such as deflationary fiscal policy. As a result people spend less on imports
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Other cards in this set

Card 2

Front

Output can be measured by volume or value, define these terms?

Back

Volume- Adding up the quantity of goods and services produced in a year. Value- Calculating the value of all goods and services produced in one year.

Card 3

Front

What are the limitations of using GDP to compare living standards between countries and over time?

Back

Preview of the front of card 3

Card 4

Front

What are the uses of index numbers?

Back

Preview of the front of card 4

Card 5

Front

Give 2 advantages of the claimant count?

Back

Preview of the front of card 5
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