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Economics 2.6.4
Economics- Edexcel 2.6.4
Term | Definition |
---|---|
potential conflicts with economic growth | inflation(demand-pull), balance of payments(trade deficit rises), inequality(no even distribution) |
potential conflicts with unemployment | inflation |
potential conflicts with per capita income | environmental degradation |
potential conflicts with income inequality | high inequality could cause slower long-term growth |
when is the risk of accelerating inflation greatest? | when SRAS is inelastic when economy has low spare capacity |
stagflation | when an economy suffers from high inflation and a slowdown in economic growth |
how to resolve conflict between growth and inflation | supply-side policies |
what diagram shows the worsening trade-off between economic growth and inflation | Keynesian aggregate supply curve |
why does rapid real GDP growth conflict with a country’s trade balance? | consumers buy more imported goods and services(worse trade balance), worse price competitiveness of domestic industries, businesses need to import extra raw materials to expand production |
measures to overcome potential trade-off between economic growth and balance of payments | supply-side policies(reforms, incentives & measures to increase investment), exchange rate depreciation(depends on PED of exports & imports), sound macroeconomic policies |
effects of environmental assets from economic growth | waste, climate change risk, depletion of natural capital, loss of biodiversity |
Phillips Curve | shows relationship between pay growth and balance of labour market supply & demand(unemployment) |
what trade-off does the Phillips Curve show? | unemployment and inflationary |
Phillips Curve high unemployment rate | when unemployment rate is high then low wage pressures in labour market, plenty of spare capacity in labour market, fears over job security leads to workers being unwilling to bid for higher wages |
Phillips Curve low unemployment rate | labour shortages cause increase in wage inflation, leads to increase in wage inflation & higher unit labour costs, higher costs as high derived demand, suppliers raise prices to increase profit margins |
Inelastic Phillips curve | as unemployment falls labour shortages cause increase in wage inflation & unit labour costs, derived demand leads to higher costs, suppliers raise prices to increase profit margins, workers have more bargaining power as they are a scarce resource |
Long run Phillips curve | vertical as it is independent of the level of short run demand and the general price level |
natural rate of unemployment | equilibrium rate of unemployment estimated by adding frictional and structural unemployment |
successful supply-side policies can help long run Philips curve shift to the left how? | improve occupational mobility/immobility/attraction of people and lift labour productivity, leads to fall in natural rate of unemployment, country is better able to maintain lower inflation whilst cutting rate of unemployment |
flatter Phillips Curve | relationship between unemployment and wage inflation becomes softer, unemployment rates can fall further without significant pick-up in wage demands and pay agreements |
why can there be an improved trade-off between unemployment and inflation | improved labour mobility & incentives, skilled migration into labour market, reduced worker bargaining power, rise of monopsony employers, effects of globalisation or tech change on consumer prices |
monopsony | a market condition in which there is only one buyer |