What are the key monetarist beliefs?
They believe the market always clears and there should be no/little government intervention
-They model this by using the AD/AS graph
What are the key Keynesians beliefs?
They believe there is a need for governments to intervene and an increase in demand doesn’t always lead to an increase in supply
-On the keynesian model inflation only occur when the market is reaching full capacity and there is an increase in AD
Why is government spending good?
-Can increase the productive potential of an economy
-Increases AD/GDP/LRAS
-Increases employment and can increase wages
-Increases positive externalities
Why is government spending bad?
-Can cause inflation
-Imports rise and causes economic leakage
-Government spending comes from loans therefore leading to more debt and interest
What is a government grant?
This is a gift of money to a private organisation to aid the economy
What do ‘beggar thy neighbor’ policies mean?
These are economic policies where a country seeks to improve their own economic situation at the expense of its neighbours or trading partners
Why was Keynes against reparations after the war?
As it would cause Germanys’ economy to collapse as they didn’t have enough to pay the reparations, this eventually led to world war 2 along with many other factors
What is ‘herd psychology’?
This refers to the tendancy of individuals to conform to the actions and beliefs of a larger group
What are rational expectations?
This is when people make immediate/correct decisions with full knowledge of things
What are adaptive expectations?
This is when people take time to gather information and make a correct decision
What are ‘animal spirits’?
This refers to the confidence of businesses in the economy.
What are the causes of growth?
-Government spending
-Cutting income tax
-Increase minimum wage
-Privatisation
-Education and training
What are the benefits of growth?
-Better healthcare and public services
-More jobs
-Aggregate demand boost
-Increase living standards
-Increase GDP
-Higher wages
-More investment
What are the downsides of economic growth?
-Government debt
-Inflation
-Borrowing
-Trade deficit
-Increased imports
-Inequality worsens
What is hysteresis?
This is when a severe recession impacts the future output of an economy
What is the paradox of thrift?
This is an economic theory that suggests that while saving is beneficial for individuals, if everyone saves more during a recession, it can lead to a decrease in overall economic demand and ultimately lower total savings.
What are the limitations of using GDP per capita?
Not accurate estimation of how much everyone actually spends
-Cost of living
-Dosent show where money goes
-Inequality
-Black market and shadow economy
What three measures make up the Human Development Index (HDI) ?
-Income, measured through GDP per capita
-Education, measured through literacy, school enrolment and years in school
-Health, measured by life expectancy and child mortality.
-Gives a number between 0 and 1 with 1 being the best
What is purchasing power parity?
This is the difference between the cost of living between different countries
What are some other measures of a development within a country?
-Happy planet index
-OCED better life index
-Genuine progress indicator
What is the happy planet index?
It is a measure that combines: Wellbeing, life expectancy and ecological footprint to measure wellbeing and environmental sustainability of nations.
Nations like Costa Rica score high in this whilst wealthy nations like the USA and Qatar score low.
What is the OCED better life index?
This measures and compares the wellbeing of people across countries using 11 dimension:
-Housing, income, jobs, community, education, environment, governance, health, life satisfaction, safety and work life balance
What is the genuine progress indicator?
This is a metric used to measure the economic growth of a country, taking into account the environmental and social factors that are not included in GDP/ traditional economic indicators.
The calculation adjusts GDP by considering both positive and negative factors
Positive: Consumer durables, volunteer work/household labour, leisure time, education and health
Negatives: Pollution and environmental degradation, crime and social costs, income inequality, resource depletion, unpaid work
What are the limitations of GDP figures?
-Dosent show inflation unless its Real GRP
-Dosent show inequality
-Dosent show employment
-Dosent show comparisons to other countries
-Dosent show what externalities is GDP causing
