Macroeconomic indicators

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  • Created on: 13-06-15 10:57
Define economic growth
Economic growth is an increase in the potential output an economy can produce
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Explain the difference between short and long run economic growth
Short run economic growth is an increase in the output that results from making use of spare capacity . It is shown by a movement onto the PPF. Long run economic growth is shown by an outward movement in the PPF it increases the potential output
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What are the causes of an increase in short run economic growth?
Increased aggregate demand
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What are the causes of an increase in long run economic growth?
increased labour productivity, increased training, increased population, investment, innovation, technical progress
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Explain technical progress
This measures how much more productive the factors of production have become
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What are the costs of economic growth?
Increase income inequality, means increased responsibility and stress causing a decrease in productivity, demand pull inflation as demand increases faster and cost push inflation as it increases demand pushing up prices, balance of payments deficit
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What are the costs of economic growth?
as increased income mean people import more, industrial expansion can cause negative externalities like pollution
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What are the benefits of economic growth?
Increased demand for labour reducing unemployment increasing incomes, increased living standards due to more incomes as long as prices font increase more than wages, greater profits increased investment, increased tax revenue for government
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Explain sustainable growth
To achieves sustainable growth countries will need to develop renewable resources as a continuous supply of raw materials is necesary
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What must a country do to achieve sustainable growth?
Expand output every year, find a continuous supply of raw materials, find growing markets for the increased output, reduce negative externalities, do all of this at once
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Explain the economic cycle
Is a period between 4 and 10 years in which actual output fluctuates above and below the trend growth line
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What factors can effect the economic cycle?
Climatic factors, speculative bubbles, inventory changes, outside shocks, supply side causes of recession, political business cycle theory
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Define a recession
Negative economic growth for at least two consecutive quarters, AD falls and unemployment rises making price levels fall
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What demand side shocks cause fluctuations in economic growth?
If a countries makor trading partners go into recession exports are reduced, if consumer confidence is boosted (e.g. due to rising house prices)
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What supply side shocks cause fluctuations in economic growth?
The discovery of a new major source of raw material it will reduce its price and increase its supply increasing capacity, a poor harvest
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Define economic development
An indicator of improved human welfare economic growth
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What is economic development measured by?
Improved living standards, Access to resources, Access to human development opportunity, sustainability and regeneration
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Define resource depletion
When finite resources are used up like oil
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Define resource degradation
Pollution of air water and land
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What is GDP and GNP per capita and what does it measure
GDP measures economic growth and GNP per capita measures living standards its calculated by dividing the total GDP by the countries population
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What is GNI
it can be used to measure economic growth and living standards it is GDP + net income
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Explain the link between living standards and GDP
Rising GDP indicates rising living standards as well as increasing income distribution
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What problems occur when using national income statistics to measure living standards?
The none moneterised economy ( goods and services produced without money being dealt), The hidden economy (illegal economic activity), The quality of goods and service (the change in the quality of goods and services is not accounted for),
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What problems occur when using national income statistics to measure living standards?
Negative externalities (living standards are over estimated because of the effect of negative externalities)
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Compare national incomes between developing and developed countries
It is difficult to compare national incomes as differently developed countries spend their money on different things so it is hard to indicate higher real incomes and living standards
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Define the standard of living
Economic welfare derived from goods and services and public goods and services and served from quality of life factors
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What are the criticisms of national income figures?
They fail to reflect the effect of resource depletion and environmental degradation as well as quality of life factors and externalities
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Explain the united nations human development index
The HDI is an average of 3 indicators living standards, life expectancy and educational attainment. It measures living standards. The maximum value is 1 the > the number the better the human development. It ignores the distribution of income
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Explain the Index of sustainable economic welfare
This attempts to capture the effects of externalities and other intangibles upon human welfare. It is better than GDP at how sustainable economic welfare is and uses consumption figures.
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Explain the genuine progress indicator
This attempts to measure whether a countries growth has actually resulted in the improvement of on the economic welfare. It distinguishes between good and bad growth
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Where is an economies ideal level of unemployment? Define the level of full employmenr
3% when 3% of the labour force are in employment
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How can the economy try and decrease unemployment
increase aggregate demand but this can increase inflation levels
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Explain the labour force survey
This estimates unemployment by surveying 60 000 households to see if they're looking for work, this includes those who are unemployed by choice
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Explain the claimant count
This measures the number of people who are claiming unemployment related benefits
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Define a discouraged worker and the economically inactive
Discouraged workers are workers that have been out of work for a long time and therefore have stopped searching, economically inactive are those who aren't looking for work
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Explain frictional unemployment
This is transitional unemployment as people move between jobs imperfect information in the labour market worsens frictional unemployment. Incentive problems can cause frictional unemployment
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Explain Structural unemployment
This is when there is a long term decline in demand in an industry leading to fewer jobs being available, it occurs when there is a mismatch between skills and requirements of new job opportunities
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Explain technological unemployment
A special case of structural unemployment resulting from the successful growth of new industries using labour saving technologies
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Explain classical unemployment
This is a form of disequilibrium unemployment that occurs when the aggregate labour market fails to clear
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Explain seasonal unemployment
This results in seasonal fluctuations in demand for labour
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Explain the natural rate of unemployment
It is the rate of unemployment when the labour market is in equilibrium , its the difference between those that would like a job and those who are willing and able to take a job and includes frictional and structural unemployment
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How can the natural rate of unemployment be shown on a graph
it is shown on the phillips curve where the curve crosses the x axis
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What are the determinants of NAIRU?
Availability of job information, skills and education, degree of labour mobility, flexibility of labour market, hysterisis
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Define disenfranchised workers
Workers who feel the wage rate is too low to support their labour
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Define deflation
A continuous and persistent fall in the price level and an increase in the value of money
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Define reflation
An increase in real output and employment following an increase in aggregate demand
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What are the causes of deflation?
It is normally associated with falling AD causing a negative output gap and can be caused by an increase in productive potential leading to excess aggregate supply over demand
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What are the costs of deflation?
It discourages consumer spending ( people delay purchases as they think prices will fall more), Increase in the real value of debt (harder to pay off debts decreasing disposable income) , Increased real interest rates ( leads to more unemployment and
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What are the costs of deflation?
Higher growth), Real wage unemployment ( real wages rise due to sticky wages), Lower profit margins
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What are the benefits of deflation?
Deflation from increase efficiency and lower costs of production ( good deflation occurs from increased productivity and better technology, increasing real GDP), Improved international competitiveness (if one country has deflation and the others have
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What are the benefits of deflation?
inflation it becomes more internationally competitive leading to a rise in exports)
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Explain Benign deflation
If falling prices are caused by higher productivity due to improving technology or better managerial practices how long it stays benign depends on how people react
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Explain Malign deflation
This occurs when prices fall because of a lack of demand making companies go out of business and sack people
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Define inflation
A sustained increase in the general price level for two or more consecutive quaters
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Explain the monetarist view of inflation
This believes that inflation is always a monetary phenomenon
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What are the key features of the monetarist view of inflation?
The main cause of inflation is an excess supply of money in an economy, higher control of money and credit is required to maintain price stability, attempts by the government and bank to change the rate of AD are ineffective
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Explain narrow money
This comprises notes and coins in all banks of the UK it reflects changes in the economic cycle but does not cause them
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Explain broad money
A wider definition of what constitutes money it includes time and sight deposits saved with banks and building societies and money created in the form of lending
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Explain the velocity of circulation
This represents the number of times that a unit of currency is used in a given period of time
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How can a surge in the amount of money feed through to higher inflation?
consumers will increase demand, excess money is invested in housing markets pushing up house prices, some balances will be saved in bonds decreasing interest rates
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Explain the consumer price index
A measure of inflation that examines the weighted average prices of a basket of consumer goods and services with the goods being weighted according to their importance, it excludes mortgage interest payments and housing costs
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Explain the retail price index
This measures inflation and is calculates each month by taking a sample of goods and services a typical household would use. The more important the good the higher the weight this includes mortgage interest payments
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Explain RPI-X
This is the same as RPI except it excludes mortgage interest payments
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Explain the RPI-Y
This is the same as the RPI-X but excludes indirect taxes.
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Explain the philips curve
This explains the trade off between inflation and unemployment, it is only a short run phenomena as in the long run inflationary policies don't affect unemployment.
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What are the costs of inflation?
It causes a redistribution of income and wealth from lender to debtors, from tax payers to the government due to fiscal drag, less international competitiveness as imports are cheaper, less business confidence, falling real incomes,
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What do the costs of deflation depend on?
the degree of inflation, whether the inflation was anticipated or not, whether its higher than inflation in trading countries, whether the exchange rate adjusts
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What is demand pull and cost push inflation?
Demand pull inflation is inflation caused by excess aggregate demand and cost push is inflation caused by rising costs of inputs of production
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What are the benefits of inflation?
It enables adjustment of wages and prices and can boost growth
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Card 2


Explain the difference between short and long run economic growth


Short run economic growth is an increase in the output that results from making use of spare capacity . It is shown by a movement onto the PPF. Long run economic growth is shown by an outward movement in the PPF it increases the potential output

Card 3


What are the causes of an increase in short run economic growth?


Preview of the front of card 3

Card 4


What are the causes of an increase in long run economic growth?


Preview of the front of card 4

Card 5


Explain technical progress


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