Negative output gap?
- Impact of higher inflation on real incomes?
- Assess the costs and benefits of a trade in goods deficit?
- Recovery is?
- Why unemployment has not risen?
- Why is the housing market a problem for geographical mobility in the UK (or EU - A2 students)?
- What is GDP at constant prices?
- What problems are there measuring GDP?
- Negative Output Gap?
- Discuss impact of Housing recovery?
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- Impact of higher inflation on real incomes? Inflation indicates teh cost of living so real incomes would fall since real incomes are nominal incomes (wages/benefits) minus the rate of inflation. There would be a fall in real income if household earnings are fixed (pay freeze, 0% increase in benefits). However real incomes will stay stay constant if nominal earnings (wages/benefits) are index linked i.e. increase in line with inflation e.g pensions rise 2% because CPI is 2%.
- Assess the costs and benefits of a trade in goods deficit? Costs would be recession and unemployment resulting from less export earnings and a negative multiplier effect causing UK firms to make workers redundant as there is less Aggregate Demand. Benefits could be that it indicates high Standards of Living in the UK - we can afford imports. Another benefit might be lower demand pull inflation as AD is shifting in so many firms across the UK may not incerase prices by as much as they were in the face of falling export orders.. Overall a large and sustained trade deficit though will see the costs far outweighing the benefits as the UK develops an inability to even cope with a rise in export demand as its manufacturing base is permanently weakened.
- Technically a recovery is one positive quarter of Real GDP (rise of 0.1% over 3 months) after a recession. Recently the UK has recovered its pre recession level of Real GDP and rate of unemployment - however a genuine full recovery would see the UK back on track with where its potential growth would have been if we had not had a recession.
- Unemployment has not risen as there is a time lag between a fall in AD and the final decision to let go of experienced staff - plus face the future cost of recruiting and training new staff. Secondly in this recession firms have been able to reduce the hours staff work, extreme version is zero hour contracts and thereby a criticism of the accuracy of unemployment data. Thirdly loose monetary policy and helped firms cope with servicing debts and possibly maintained business confidence, now strong signs of recovery (+3%) growth.
- Cost of living (housing and renting) is too high for labour to relocate.
- Economics Help provides a helpful definition of GDP at constant prices: Current Prices and Constant Prices Current Prices measures GDP using the current price level. Therefore, when making comparisons it shows nominal changes in GDP. Constant prices tries to remove the effect of inflation. It adjusts GDP for changes in inflation. Therefore, using constant prices to measure changes in output enables real changes in GDP to be measured. http://www.economicshelp.org/blog/glossary/current-prices-constant-prices/
- Problems measuring GDP can be summarised as: unpaid work ignored (carers); illegal activities; problems recording data especially in developing countries with remote areas. Good revision link: http://beta.tutor2u.net/economics/reference/national-income-and-the-standard-of-living-revision-presentation Plus standard issues Real GDP per capita' HDI, happiness indicator, inequality.
- Negative output gap? Actual growth less than trend growth, illustrate via economic cycle, ppf, AS/AD
- Rise in House prices - boost confidence, positive wealth effect, multiplier effect - however - slow recovery, banking failure, pay freezes - impact on growth and inflation as AD rises
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