Economics (Macro) Final
5.0 / 5 based on 1 rating
- Created by: pandyay.15
- Created on: 28-03-21 17:29
Economics
Macro (Final)
1 of 134
What is GDP?
Gross Domestic Product is the total value of goods and services produced in a country within a year. In other words, a rise in economic growth means there has been an increase in national output
2 of 134
What is real and nominal GDP?
Real GDP is the value of GDP adjusted for inflation, whereas nominal GDP is the value of GDP without being adjusted for inflation
3 of 134
What is GDP per capita?
The value of total GDP divided by the population of the country
4 of 134
What are some limitations of using GDP to compare living standards?
Inaccuracy of data, inequalities, quality of goods and services, comparing different currencies and spending
5 of 134
Why is an inaccuracy of data a limitation?
Black markets, methods used to calculate GDP will change and so therefore it can be difficult to compare countries overtime, gives no indication of welfare or the distribution of income
6 of 134
Why are inequalities a limitation?
An increase in GDP may be due to a growth in income of just one
group of people and so therefore a growth in the national income may not increase
living standards everywhere
group of people and so therefore a growth in the national income may not increase
living standards everywhere
7 of 134
Why is the quality of goods and services a limitation?
The quality of goods and services is much higher
than those fifty years ago, but this is not necessarily reflected in the real price of
these goods and services
than those fifty years ago, but this is not necessarily reflected in the real price of
these goods and services
8 of 134
Why is the comparing of different currencies a limitation?
Some people argue that Purchasing Power Parity should be used to take into account the impact of differences in the cost of living in different
countries
countries
9 of 134
Why is spending a limitation?
Some types of expenditure, such as defence, does not increase standard
of living but will increase GDP
of living but will increase GDP
10 of 134
What is the multiplier ratio?
It is the ratio of the final change in income to the initial change in injection ; and
the figure multiplied by the original injection to find the final change in income
the figure multiplied by the original injection to find the final change in income
11 of 134
What is the multiplier process?
The multiplier process is the idea that an increase in AD because of an increased
injection (exports, government spending or investment) can lead to a further
increase in national income. It occurs since ‘one person’s spending is another person’s income’
injection (exports, government spending or investment) can lead to a further
increase in national income. It occurs since ‘one person’s spending is another person’s income’
12 of 134
What is a negative multiplier effect?
A negative multiplier effect can also occur i.e. a withdrawal from the economy
could lead to an even further fall in income, decreasing economic growth and
possibly leading to a decline in the economy
could lead to an even further fall in income, decreasing economic growth and
possibly leading to a decline in the economy
13 of 134
What is the formula for the multiplier?
1/(1-MPC) or 1/MPW
14 of 134
What is the formula for MPW?
MPW = MPS + MPT + MPM
15 of 134
How does the MPC affect the multiplier?
The higher the MPC, the bigger the size of the multiplier. The government could influence the MPC by changing the rate of direct tax
16 of 134
How does the MPS affect the multiplier?
If consumers save more than they spend, the size of the multiplier will be
small
small
17 of 134
How does the MPT affect the multiplier?
The higher the rate of tax, the less disposable income each consumer has,
and the smaller the size of the multiplier
and the smaller the size of the multiplier
18 of 134
How does the MPM affect the multiplier?
If consumers spend income on imports rather than domestic goods and
services, income is withdrawn from the circular flow of income. This reduces
the size of the multiplier
services, income is withdrawn from the circular flow of income. This reduces
the size of the multiplier
19 of 134
How does an elastic AS curve influence the multiplier?
If an economy has a lot of spare capacity, extra output can be produced quickly and
at little extra cost. This makes AS elastic and it means the size of the multiplier will
be larger
at little extra cost. This makes AS elastic and it means the size of the multiplier will
be larger
20 of 134
How does an inelastic AS curve influence the multiplier?
f AS is inelastic, the multiplier effect is likely to be smaller than its potential. This is
because if AD increases, prices will increase. The increase in output will not be as
significant
because if AD increases, prices will increase. The increase in output will not be as
significant
21 of 134
What are the 3 international institutions?
IMF, World Bank and NGOs
22 of 134
What does the World Bank do?
The World Bank can loan funds to member countries, and its aim is to
promote economic and social progress by raising productivity and reducing
poverty. Provide microcredit, support education, and helping the rebuilding of countries
after earthquakes
promote economic and social progress by raising productivity and reducing
poverty. Provide microcredit, support education, and helping the rebuilding of countries
after earthquakes
23 of 134
What is the World Bank made up of?
International Bank Reconstruction and Development (IBRD), International Development Association (IDA), International Finance Corporation (IFC), Multilateral Investment Guarantee Agency (MIGA), International Centre for Settle of Investment Disputes (ICSID)
24 of 134
What does the IBRD and IDA do?
The IBRD and IDA provide financing, policy advice and technical assistance : IDA
helps the poorest countries whilst IBRD helps middle income and creditworthy poorer
countries
helps the poorest countries whilst IBRD helps middle income and creditworthy poorer
countries
25 of 134
What does the IFC, MIGA and ICSID do?
IFC, MIGA and ICSID help strengthen the private sector in developing
countries by providing them with finance, technical assistance, political risk
insurance and settlement of disputes
countries by providing them with finance, technical assistance, political risk
insurance and settlement of disputes
26 of 134
What are the IMF's aims?
The IMF aims to ensure that exchange rate
systems work well, to promote monetary cooperation between nations, and
monetary problems can be consulted in the institution, they also aim to help free trade globally
systems work well, to promote monetary cooperation between nations, and
monetary problems can be consulted in the institution, they also aim to help free trade globally
27 of 134
What does the IMF do?
They provide loans to help countries when there are international exchange rate
crises or when they cannot afford to pay off their international debt. To gain loans, countries have to promise to undertake reform, including
reducing imports and government
crises or when they cannot afford to pay off their international debt. To gain loans, countries have to promise to undertake reform, including
reducing imports and government
28 of 134
What are NGOs?
These are non-profit organisations that are run independently from the government.
29 of 134
What do NGOs do?
They can provide direct assistance to countries in the form of project work (healthcare or education), they can act as pressure groups to lobby governments to adopt more
pro-development strategies
pro-development strategies
30 of 134
What is meant by the exchange rate?
The exchange rate is the purchasing power of a currency in terms of what it can buy of
other currencies
other currencies
31 of 134
What is a free floating system?
A free floating system is where the value of the currency is determined purely by
market demand and supply of the currency, with no target set by the government and
no official intervention in the currency markets
market demand and supply of the currency, with no target set by the government and
no official intervention in the currency markets
32 of 134
In a floating system what is the demand and supply for a currency equal to?
The demand for a currency is equal to exports plus capital inflows. The supply of a currency
is equal to imports plus capital outflows
is equal to imports plus capital outflows
33 of 134
What are some arguments for a floating exchange rate system?
Central bank does not need to intervene and use reserves, interest rates can be used for inflation, reduces the risk of currency speculation, it is able to partially auto-correct a trade deficit
34 of 134
What is a managed floating system?
Managed floating is where the value of the currency is determined by demand and
supply but the Central Bank will try to prevent large changes in the exchange rate on a day to day basis
supply but the Central Bank will try to prevent large changes in the exchange rate on a day to day basis
35 of 134
In a managed floating system, how does the Central Bank prevent large changes?
This is done by buying and selling currency and by changing interest rates
36 of 134
What is fixed system?
A fixed system is when a government sets their currency against another and that
exchange rate does not change. The country can decide to devalue its currency overnight to improve international competitiveness of its industry
exchange rate does not change. The country can decide to devalue its currency overnight to improve international competitiveness of its industry
37 of 134
What are the arguments for a fixed system?
It avoids currency fluctuations, reduces the cost associated with trade, may reduce inflation
38 of 134
What are the arguments against a fixed system?
It can cause conflict with other objectives as interest rates may have to be used, less flexibility, exchange rates may be set at the wrong rate and it is difficult to respond to temporary shocks
39 of 134
What is meant by an appreciation and depreciation?
An appreciation of the currency is an increase in the value of the currency using
floating exchange rates, whilst depreciation is a fall in the value of the currency
under floating exchange rates
floating exchange rates, whilst depreciation is a fall in the value of the currency
under floating exchange rates
40 of 134
What is meant by revaluation or devaluation?
A revaluation of the currency is when the currency is increased against the value of
another under a fixed system, whilst devaluation of the currency is a decrease in the
value of one currency against another under a fixed system
another under a fixed system, whilst devaluation of the currency is a decrease in the
value of one currency against another under a fixed system
41 of 134
What are the factors influencing floating exchange rates?
Inflation, speculation, other currencies, government finances, balance of payments, international competitiveness
42 of 134
How does inflation influence floating exchange rates?
A lower inflation rate means exports are relatively more competitive. This increases
demand for the currency. This causes the currency to appreciate
demand for the currency. This causes the currency to appreciate
43 of 134
How does speculation influence floating exchange rates?
If speculators think a currency will appreciate in the future, demand will increase in
the present, since they believe a profit can be made by selling the currency in the
future. This can cause an increase in the value of the currency
the present, since they believe a profit can be made by selling the currency in the
future. This can cause an increase in the value of the currency
44 of 134
How do other currencies influence floating exchange rates?
If markets are concerned about major economies, such as the EU, the currency might
rise. This happened with the Swiss Franc in 2010 when markets were worried about
the EU economy
rise. This happened with the Swiss Franc in 2010 when markets were worried about
the EU economy
45 of 134
How do government finances influence floating exchange rates?
A government with a high level of debt is at risk of defaulting, which could cause the
currency to depreciate. This is since investors start to lose confidence in the
economy, so they sell their holdings of bonds
currency to depreciate. This is since investors start to lose confidence in the
economy, so they sell their holdings of bonds
46 of 134
How does the balance of payments influence floating exchange rates?
When the value of imports exceeds exports, there is a current account deficit.
Countries which struggle to finance this, such as through attracting capital inflows,
have currencies which depreciate as a result
Countries which struggle to finance this, such as through attracting capital inflows,
have currencies which depreciate as a result
47 of 134
How does international competitiveness influence floating exchange rates?
An increase in competitiveness increases demand for exports, which increases
demand for the currency. This causes an appreciation of the currency
demand for the currency. This causes an appreciation of the currency
48 of 134
How can the government influence the value of their currency?
Interest rates, quantitative easing, gold and foreign currency reserves
49 of 134
How do interest rates influence currency?
An increase in interest rates, relative to other countries, makes it more attractive to
invest funds in the country because the rate of return on investment is higher. This causes an appreciation
invest funds in the country because the rate of return on investment is higher. This causes an appreciation
50 of 134
How does quantitative easing influence currency?
This is used by banks to help to stimulate the economy when standard monetary
policy is no longer effective. This has inflationary effects since it increases the money
supply, and it can reduce the value of the currency
policy is no longer effective. This has inflationary effects since it increases the money
supply, and it can reduce the value of the currency
51 of 134
How does gold and foreign currency reserves influence currency?
If the value of the pound is too high and they want to weaken it, they can increase supply by buying foreign currency or gold with pounds and vice versa if the pound is too low
52 of 134
What is meant by competitive devaluation?
This is where a country deliberately intervenes in foreign exchange markets to
drive down the value of their currency to provide a competitive boost to their
exporting industries but a problem is other countries may retaliate
drive down the value of their currency to provide a competitive boost to their
exporting industries but a problem is other countries may retaliate
53 of 134
What is the Marshall-Lerner condition?
The Marshall-Lerner condition states that the sum of the price elasticities of imports and exports must be more than one if a currency
devaluation is to have a positive impact on the trade balance
devaluation is to have a positive impact on the trade balance
54 of 134
How does exchange rates influence FDI?
A fall in the currency may increase FDI because it becomes cheaper to invest.
However, if the currency is continuing to fall then this is an indication that an
economy has serious economic difficulties which will discourage investment
However, if the currency is continuing to fall then this is an indication that an
economy has serious economic difficulties which will discourage investment
55 of 134
How do exchange rates influence inflation?
Falls in the exchange rate will increase inflation as imports
become more expensive, causing a rise in prices and a fall in SRAS. Also, the net
exports section of AD will increase and so inflation will rise further
become more expensive, causing a rise in prices and a fall in SRAS. Also, the net
exports section of AD will increase and so inflation will rise further
56 of 134
How do exchange rates influence economic growth and unemployment?
A weaker exchange rate is likely to
increase exports, since they become cheaper, and decrease imports so lead to an
increase in AD. This will increase employment and economic growth
increase exports, since they become cheaper, and decrease imports so lead to an
increase in AD. This will increase employment and economic growth
57 of 134
How do exchange rates influence the current account?
The J-curve shows how the current account will
worsen before it improves and Marshall-Lerner condition must be met for there to be positive impact on trade balance
worsen before it improves and Marshall-Lerner condition must be met for there to be positive impact on trade balance
58 of 134
What does it mean to be unemployed?
Those of working age who are without work, able to work and
seeking work and have actively sought work in the last 4 weeks and are
available to start work in the next 2 weeks
seeking work and have actively sought work in the last 4 weeks and are
available to start work in the next 2 weeks
59 of 134
How is unemployment measured?
The Claimant Count is the number of people receiving benefits for being
unemployed or the labour force survey which asks about activity in the labour market
unemployed or the labour force survey which asks about activity in the labour market
60 of 134
What is meant by the unemployment rate?
The unemployment rate is the percentage of the economically active who are unemployed
61 of 134
What is frictional unemployment?
Frictional unemployment is due to people moving between jobs
62 of 134
What is structural unemployment?
It is where the demand for labour
is lower than the supply in an individual labour market. This is much more serious as it is a long term decline in demand in an industry leading to reduction in employment and workers need retraining
is lower than the supply in an individual labour market. This is much more serious as it is a long term decline in demand in an industry leading to reduction in employment and workers need retraining
63 of 134
What is seasonal unemployment?
Some employment is strongly seasonal in demand and an example is tourism
64 of 134
What is cyclical (demand deficient) unemployment?
This is unemployment due to a general lack of demand of goods and services
within the country also known as a Keynesian ‘demand deficient’
unemployment
within the country also known as a Keynesian ‘demand deficient’
unemployment
65 of 134
What is unemployment due to real wage inflexibility?
This is unemployment considered to be the result of real wages being above their market clearing level leading to an excess supply of labour
66 of 134
What are some impacts of unemployment?
Loss of income, fall in profits, smaller pool of skilled labour, firms can offer lower wages, less choice and fall in tax revenue
67 of 134
What are supply-side policies?
Supply side policies are government policies aimed at increasing the productive potential
of the economy and moving the supply curve to the right
of the economy and moving the supply curve to the right
68 of 134
What are market-based policies?
Policies which limit the intervention of the government and are designed to remove anything that prevents the free market system working efficiently, causing lower output and higher
prices
prices
69 of 134
What are interventionist policies?
Policies rely on the government intervening in the market and are designed to correct market failure, for example the free market under provides education and so the government provides it
70 of 134
What are some market-based policies?
To increase incentives (reduce income or corporation tax, reduce benefits), to promote competition (privatisation), to reform the labour market (reduce the NMW)
71 of 134
What are some interventionist policies?
To promote competition (reduce monopoly power), to reform the labour market (subsidise relocation of workers), to improve skills and quality of the labour force, to improve infrastructure
72 of 134
What are the strengths of supply-side policies?
They are able to both increase output
and decrease prices, more long-term, can improve balance of payments,
and decrease prices, more long-term, can improve balance of payments,
73 of 134
What are some weaknesses of supply-side policies?
Time lags, unequal distribution of wealth, negative impacts on budget, may impact AD before AS and so inflationary pressures, lot of spare capacity or when LRAS is elastic means no impact
74 of 134
What is the economic cycle?
The periodic but irregular up and down movements in economic activity, measured by fluctuations in real GDP and other macroeconomic variables - Boom, downturn, recession, recovery
75 of 134
What is a recession?
Negative economic growth over two consecutive
quarters
quarters
76 of 134
What are characteristics of a boom?
High rates of economic growth, positive output gaps, near full capacity, high employment, demand-pull inflation, high investment and consumption, govt budgets improve due to more revenue and less welfare payments
77 of 134
What are characteristics of a recession?
Negative economic growth, negative output gaps, demand-deficient unemployment, low inflation, low consumption and investment, govt budgets worsen and lots of spare capacity
78 of 134
What are fair trade schemes?
Fairtrade schemes ensure farmers can receive a fair price for their goods. This helps farmers since they have a guaranteed income and
certainty about their sales, so they can plan for the future
certainty about their sales, so they can plan for the future
79 of 134
What is meant by a fair price?
Agreements are made to buy a guaranteed amount of produce over a period of time at a price which is above the market price when the
agreement was made
agreement was made
80 of 134
What are arguments for fair trade schemes?
Child labour is not used and that production is sustainable and does not take place at the expense of environmental degradation, higher income and satisfaction so they can save for the future and send kids to school
81 of 134
What are arguments against fair trade schemes?
The system has an insignificant impact on the developing world, it
benefits the Fairtrade producers but can leave others worse off since non-Fairtrade
producers see a fall in demand, reduces incentive to diversify
benefits the Fairtrade producers but can leave others worse off since non-Fairtrade
producers see a fall in demand, reduces incentive to diversify
82 of 134
What is primary product dependency?
Primary products are raw materials in industries such as agriculture, mining, forestry and for countries whose main exports are primary products, their ability to pay foreign debts and for imports relies on this
83 of 134
What are some problems with primary product dependency?
Natural disasters, they are finite, they have a low income elasticity of demand (as people get wealthier they don't purchase more primary products), Prebisch Singer hypothesis, volatility of prices, Dutch disease
84 of 134
What is the Prebisch Singer hypothesis?
The long run price of primary goods declines
in proportion to manufactured goods, which means those dependent on primary
exports will see a fall in their terms of trade
in proportion to manufactured goods, which means those dependent on primary
exports will see a fall in their terms of trade
85 of 134
What is meant by Dutch disease?
The rapid development of one sector of the economy (particularly natural resources) precipitates a decline in other sectors as demand for the currency goes up making exports less competitive elsewhere
86 of 134
What is a free trade area?
This is where countries agree to trade goods with other members without protectionist barriers. Each member is able to impose its own tariffs and quotas on goods it imports from
outside bloc i.e. NAFTA
outside bloc i.e. NAFTA
87 of 134
What is a customs union?
Involves the removal of tariff barriers between
members and the acceptance of a common external tariff against non-members
members and the acceptance of a common external tariff against non-members
88 of 134
What is a common market?
This establishes free trade in goods and services, a common external tariff and
allows free movement of capital and labour across borders i.e. EU
allows free movement of capital and labour across borders i.e. EU
89 of 134
What is a monetary union?
These are two or more countries with a single currency, with an exchange rate that is monitored and controlled by one central bank or several central banks with closely coordinated monetary policy i.e West Africa
90 of 134
What is an economic union?
The final step of economic integration. There will be a common market with coordination of social, fiscal and monetary policy
91 of 134
What are some costs and benefits of trading blocs?
Increased specialisation, comparative advantage, larger consumer market, domestic firms are protected, enhanced competition, more jobs, reduced transaction costs, migration, trade diversion and creation
92 of 134
What is trade creation and diversion?
Trade creation is when a country
moves from buying goods from a high cost to a lower cost country, whilst trade diversion is
when they go from low cost to a higher cost
moves from buying goods from a high cost to a lower cost country, whilst trade diversion is
when they go from low cost to a higher cost
93 of 134
What is the role of the WTO?
To bring about trade liberalisation and to ensure countries act according to the trade agreements they have signed. It also settles trade disputes, by acting as the judge, and organises trade negotiations
94 of 134
What happens to those who break rules within the WTO?
Those who break the rules face trade
sanctions
sanctions
95 of 134
What are possible conflicts with the WTO?
For any agreement to take place, all countries must agree, regional trade agreements contradict WTO’s principles, some might argue the WTO is too powerful or that it ignores the developing countries, could lead to a rise in protectionism
96 of 134
What are demand-side policies?
Policies designed to manipulate consumer demand. Expansionary policy is aimed at increasing AD to bring about growth, whilst deflationary policy attempts to decrease AD to control inflation
97 of 134
What is monetary policy?
Monetary policy is used by the government to control the money flow of the
economy. This is done with interest rates and quantitative easing. This is conducted
by the Bank of England, which is independent from the government
economy. This is done with interest rates and quantitative easing. This is conducted
by the Bank of England, which is independent from the government
98 of 134
What is fiscal policy?
Fiscal policy uses government spending and revenues from taxation to influence AD.
This is conducted by the government
This is conducted by the government
99 of 134
What are interest rates?
The cost of borrowing money and the reward for saving money in a bank
100 of 134
How do interest rates affect AD?
The rise in interest rates will increase the cost of borrowing for firms and consumers. This leads to AD falling as consumption and investment will decrease
101 of 134
How else do interest rates affect AD?
Since less people are borrowing and more are saving, there is a fall in demand for
assets such as stocks, shares and government bonds. This leads to a fall in prices
for these assets leading to a negative wealth effect
assets such as stocks, shares and government bonds. This leads to a fall in prices
for these assets leading to a negative wealth effect
102 of 134
How do interest rates affect net trade?
Higher rates will increase the incentive for foreigners to hold their money in British
banks as they can see a higher rate of return causing an appreciation leading to X going down and M going up
banks as they can see a higher rate of return causing an appreciation leading to X going down and M going up
103 of 134
What are some problems with using interest rates?
A trade deficit occurs, interest rates can take 18 months to actually have an impact, if interest rates are already low then it is difficult to stimulate demand, interest rate volatility will discourage investment in the long run
104 of 134
What is quantitative easing?
This is when the Bank of England buys assets in exchange for money in order to increase
money supply and get money moving around the economy during times of very low demand
money supply and get money moving around the economy during times of very low demand
105 of 134
What is one way for the Bank of England to buy assets?
The Bank of England could simply increase the size of banks’ accounts at the Bank of England, called the ‘reserves’, which encourages them to lend money but they may buy bonds or securities as banks preferred keeping money
106 of 134
How does quantitative easing stimulate AD?
Since the bank is buying assets, there is a rise in demand and so asset prices rise incurring a positive wealth effect, money supply increases, commercial banks may lower interest rates as they receive money from the Bank of England
107 of 134
What are some problems with quantitative easing?
Hyperinflation is a risk, wealth effect may not be strong enough, rising share prices increased inequality
108 of 134
How can fiscal policy increase AD?
A rise in income tax will cause a fall in disposable income. This will lead to a
reduction in consumption and thus decrease AD and the same goes for corporation tax
reduction in consumption and thus decrease AD and the same goes for corporation tax
109 of 134
What is a budget deficit and surplus?
A budget deficit is when the government spends more money than they receive. A budget surplus is when the government receives more money than they spend
110 of 134
What is expansionary fiscal policy?
This aims to increase AD. Governments increase spending or reduce taxes to do this
111 of 134
What is deflationary fiscal policy?
This aims to decrease AD. Governments cut spending or raise taxes, which
reduces consumer spending
reduces consumer spending
112 of 134
What are direct taxes?
Direct taxes are imposed on income and are paid directly to the government from
the tax payer e.g. income, corporation, NICs and inheritance tax
the tax payer e.g. income, corporation, NICs and inheritance tax
113 of 134
What are indirect taxes?
Indirect taxes are imposed on expenditure on goods and services, and they
increase production costs for producers
increase production costs for producers
114 of 134
What are some problems with fiscal policy?
Government spending also impacts LRAS, can increase income inequality, raising taxes can reduce political popularity, expansionary fiscal policy is difficult to undertake during austerity, depends on the multiplier, crowding out, national debt, time lag
115 of 134
What do classical economists argue about demand-side policies?
Classical economists argue that any demand management, whether fiscal or
monetary, will have no effect on long-run output so supply side policies should be
used
monetary, will have no effect on long-run output so supply side policies should be
used
116 of 134
What are some problems with demand-side policies?
An expansionary policy is inflationary whilst a deflationary policy brings unemployment, the impact of changes in AD depend on where the
economy is operating
economy is operating
117 of 134
Why is monetary policy is useful?
Monetary policy is useful as the government is able to increase demand without
having to increase their spending, which would result in a larger fiscal deficit
having to increase their spending, which would result in a larger fiscal deficit
118 of 134
Why is fiscal policy useful?
Fiscal policy can have significant impacts on the supply side of the economy, for
example increases in spending on education to increase AD will also increase LRAS
example increases in spending on education to increase AD will also increase LRAS
119 of 134
How does primary product dependency influence growth and development?
Ability to pay foreign debts and for imports relies on primary products, a fall in export incomes then can make it hard to fund infrastructure and education, these resources are finite
120 of 134
How does the volatility of commodity prices influence growth and development?
Primary products tend to have inelastic demand and supply, so large changes in price mean that producers’ income and the country’s
earnings are also rapidly fluctuating making it difficult to plan out long term investment causing poverty
earnings are also rapidly fluctuating making it difficult to plan out long term investment causing poverty
121 of 134
What is meant by the savings gap?
A savings gap is the difference between actual savings and the level of savings needed to achieve a higher growth rate
122 of 134
How does the savings gap influence growth and development?
Developing countries have lower incomes and thus they save less. This means there
is less money for banks to lend, reducing borrowing and thus reducing
investment/consumption
is less money for banks to lend, reducing borrowing and thus reducing
investment/consumption
123 of 134
How does the Harrod-Domar influence growth and development?
The Harrod-Domar model suggests savings provide the funds which are borrowed
for investment purposes and that growth rates depend on the level of saving and the
productivity of investment
for investment purposes and that growth rates depend on the level of saving and the
productivity of investment
124 of 134
How does the foreign currency gap influence growth and development?
A foreign currency gap exists when the country is not attracting sufficient capital
flows to make up for a deficit in the capital account on the balance of payments. The value of the current account deficit is larger than the value of capital inflows
flows to make up for a deficit in the capital account on the balance of payments. The value of the current account deficit is larger than the value of capital inflows
125 of 134
How does capital flight influence growth and development?
Large amounts of money are taken out of the country, rather than being left there
for people to borrow and invest
for people to borrow and invest
126 of 134
How do demographic factors influence growth and development?
There is a link between keeping birth rates down and fighting hunger, poverty and environmental damage. If population grows by 5%, the economy needs to grow by 5% to even
maintain living standards and youth unemployment can occur
maintain living standards and youth unemployment can occur
127 of 134
How does debt influence growth and development?
Developing countries received vast loans from banks in the developed world. Now, they suffer from high levels of interest repayment. This means they have less money to spend on services for their population and they may need to raise taxes limiting growth
128 of 134
How does the access to credit and banking influence growth and development?
Developing countries have limited access to credit and banking compared to
developed countries, who have complex systems. This means those in developing
countries cannot access funds for investment
developed countries, who have complex systems. This means those in developing
countries cannot access funds for investment
129 of 134
How does infrastructure influence growth and development?
Poor infrastructure discourages MNCs from setting up premises in the country as production is less reliable
130 of 134
How do education and skills influence growth and development?
Adequate human capital ensures the economy can be productive and produce goods and services of a high quality. It helps generate employment and raise standards of living
131 of 134
How does the absence of property rights influence growth and development?
Property rights are where individuals are allowed to own and decide what happens to
certain resources. A lack of rights mean that entrepreneurs cannot use the law to protect their assets, leading to reduced investment and reduced incentive to innovate
certain resources. A lack of rights mean that entrepreneurs cannot use the law to protect their assets, leading to reduced investment and reduced incentive to innovate
132 of 134
How does corruption influence growth and development?
Corruption means individuals will
make decisions which maximise the bribes they receive as oppose to those which
maximise development and output
make decisions which maximise the bribes they receive as oppose to those which
maximise development and output
133 of 134
How does poor governance/civil wars influence growth and development?
This could hold back infrastructure development and is a constraint on future
economic development. It could destroy current infrastructure and force people into
poverty
economic development. It could destroy current infrastructure and force people into
poverty
134 of 134
Other cards in this set
Card 2
Front
What is GDP?
Back
Gross Domestic Product is the total value of goods and services produced in a country within a year. In other words, a rise in economic growth means there has been an increase in national output
Card 3
Front
What is real and nominal GDP?
Back
Card 4
Front
What is GDP per capita?
Back
Card 5
Front
What are some limitations of using GDP to compare living standards?
Back
Related discussions on The Student Room
- GES (government economic service) placement year interview? »
- a level economics »
- AQA 25 marker structure »
- Economics modules »
- OCR GCSE Economics Introduction to economics J205/01 - 18 May 2022 [Exam Chat] »
- Edexcel A Level Economics A Paper 3 (9ECO 03) - 5th June 2023 [Exam Chat] »
- Master Economics: LSE vs Cambridge vs UCL vs CEMFI vs BGSE »
- economics vs economics and finance bsc »
- Predictions for AQA A Level Economics paper 1,2,3 2023 »
- A-Level Economics?? »
Similar Economics resources:
0.0 / 5
5.0 / 5 based on 1 rating
Teacher recommended
3.0 / 5 based on 1 rating
5.0 / 5 based on 1 rating
Teacher recommended
0.0 / 5
0.0 / 5
0.0 / 5
0.0 / 5
5.0 / 5 based on 1 rating
Comments
No comments have yet been made