A2- Economics

Define unemployment
The number of people willing and able to work but unable to find work
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How do you calculate the unemployment rate?
(Unemployed/Labour force) ×100
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What are the economic costs of unemployment?
Waste of resources as the economy won’t be producing at full capacity, lower GDP for the economy leading to lower incomes and output
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What are the political costs of unemployment?
Increased government borrowing- government will have to spend more on unemployment benefits, the government loses tax revenue as fewer people pay income tax as fewer people work, and fewer people pay VAT as spending is reduced. May cause budget defic
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What are the social costs of unemployment?
May lead to an increase in social problems. Areas of high unemployment (especially youth unemployment) tend to have higher crime rates and vandalism.
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What is voluntary unemployment?
Occurs when people choose not to work at the current equilibrium wage rate.
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What is involuntary unemployment?
Occurs where people are able and willing to work at the current equilibrium wage rate, but there are no jobs available
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What demand side policies can be used to reduce unemployment?
Expansionary fiscal policy- involves reducing taxes and/or increasing government spending. Expansionary monetary policy- involves cutting interest rates
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What supply side policies can be used to reduce unemployment?
Education and Training- The aim is to give the long term unemployed new skills which enable them to find jobs in developing industries. Employment Subsidies-Firms could be given tax breaks or subsidies for taking on long term unemployed. This will he
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What is the classical/ monetarist view of unemployment?
They believe that in the long run everyone who wants to work can get a job, if the unemployed lower their wage expectations. They don’t believe in involuntary unemployment
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What is the Keynesian view of unemployment?
They believe that unemployment is caused when AD is too low and the government haven’t implemented expansionary fiscal or monetary policy in order to boost AD
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What are the 2 ways of measuring unemployment in the UK?
Claimant count- You count the number of people claiming job seekers allowance. Labour force survey- The international labour force asks people who aren’t working if they are actively seeking work, and use the people who answer yes to produce the unem
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Define international trade
The exchange of goods and services between countries
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Define specialisation
The concentration on producing a narrow range of goods by an individual, a firm or a country in cooperation with others
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Define free trade
International trade without any restrictions such as tariffs or quotas
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Define terms of trade
Is the relative price of a country’s exports compared to its imports
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How do you calculate terms of trade?
(Index of export prices/ Index of import prices)×100
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What would cause a country’s terms of trade to improve?
If export prices increase compared to import prices, then a country’s terms of trade index will increase
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What would cause a country’s terms of trade to worsen?
If export prices fall relative to import prices, a country’s terms of trade index will fall
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Define globalisation
Is the increasing integration of economies internationally
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What has led to an expansion in globalisation?
There has been reductions in barriers to trade, technological advancements has improved communication, advances in transport
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Define comparative advantage
When a country is able to produce a good at a lower opportunity cost than another country
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Define absolute advantage
When a country is able to produce a good using fewer resources than another country
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Define economic growth
An increase in the productive potential of an economy. An increase in real GDP
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Define output gap
The difference between the level of actual output and the trend output
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What is a positive output gap?
When the level of actual output is above the trend output
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What is a negative output gap?
When the level of actual output is below the trend output
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State the characteristics of a depression
High unemployment, low levels of aggregate demand, low output
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State the characteristics of a recovery
Rising output, falling unemployment, aggregate demand is increasing
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State the characteristics of a boom
Rising output, falling unemployment, aggregate demand is increasing
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State the characteristics of a recession
At least 2 consecutive quarters of negative GDP growth, falling output, rising unemployment, reduced inflationary pressures, balance of payments improved
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Define PPF
The maximum combination of goods and services an economy can produce in a given time period and with current resources
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What is sustainable economic growth?
Sustainable economic growth means a rate of growth which can be maintained without creating other significant economic problems, especially for future generations.
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How can a country achieve sustainable economic growth?
To be able to achieve sustainable economic growth, countries will need to develop renewable resources, innovate to create new technologies that reduce negative externalities
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Define inflation
Inflation means a sustained increase in the aggregate or general price level in an economy
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Define deflation
Deflation is a fall in the price level of the economy. It means there will be a negative inflation rate
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What is demand pull inflation?
It is caused by excessive growth in aggregate demand compared to aggregate supply. As firms reach full capacity, they increase the price of goods which leads to inflation
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What is cost push inflation?
Is caused by an increase in production costs (e.g. wages, raw materials) which is then passed on to consumers in the form of higher priced goods
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What factors cause cost push inflation?
Rising wages- wages are the most significant cost for many firms, import prices increasing, raw material price increasing, declining productivity, higher taxes
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What are the costs of inflation?
Reduced international competitiveness, Shoe leather costs, Menu costs, Planning difficulties- Firms being uncertain about future profits and costs will reduce investment, Wage spiral- As prices rise, so will the demand for higher wages
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What demand side policies can be used to reduce inflation?
Contractionary fiscal policy- Involves reducing government spending and/or increasing taxation, contractionary monetary policy- Involves setting higher interest rates
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Other cards in this set

Card 2

Front

How do you calculate the unemployment rate?

Back

(Unemployed/Labour force) ×100

Card 3

Front

What are the economic costs of unemployment?

Back

Preview of the front of card 3

Card 4

Front

What are the political costs of unemployment?

Back

Preview of the front of card 4

Card 5

Front

What are the social costs of unemployment?

Back

Preview of the front of card 5
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