| What is a Demand Side Shock? Give examples | -This is where Aggregate Demand will Unexpectedly Rise or Fall
-An Example can be if Consumers Confidence is Boosted, due to House Prices Rising (Wealth Effect)
-If a Nation's Major Trading Partners goes into a Recession, this may lead to Reduced Demand for a Nation's Exports |
| What is a Supply Side Shock? Give examples | -This is where Aggregate Supply will Unexpectedly Rise or Fall
-An Example can be if a Poor Harvest leads to a Reduction in the Supply of Food, reducing the Economy's Capacity
-Finding a new Source of a Raw Materials can Greatly Reduce its Price and Increase its Supply, Increasing the Capacity of the Economy |
| What is 'Animal Spirts' and why does it challenge Classical Economic Agents? | -People act Rationally, according to Classical Economics
-But, actually, according to Keynes, Animal Spirits were used to Describe Instincts and Emotions rather than Economic Realities |
| Why can Excessive Growth in Credit + Levels of Debt seen as a Danger Sign for an Economy? | -Cheap Credit + Confident Consumers leads to more Spending and thus Accumulation of Debt
-AD can thus rise, and Inflation can follow through. To deal with Inflation, Interest Rates rise, meaning Firms may delay Investment Projects and become Cautious, which may begin a Spiral into Recession
-Furthermore, Higher Debt levels can make Consumers slow down their spending Greatly if they lose any confidence for any reason, due to fears of being Unable to pay off their Loans. Also means they'll spend Less in the Future, because they will be paying off the Debt + Interest (which would be higher!) |
| Why can Destabilising Speculation and Asset Price Bubbles be seen as a Danger Sign for the Economy? | -Speculation is the art of People buying Assets, and selling them at a Profit Later
-They assume that an Increase in the Price means it will Continue Increasing in the Future. And this reinforces itself - as more people Buy it, the price will Continue Rising and Rising.
-This create Asset Price Bubbles - the Price has Increased Beyond its True Value
-When the Bubble Bursts, the Confidence of Consumers Vanishes. And then the selling occurs, where people will keep Selling and Selling in fear of that they'll lose money
-This is seen in Property and Shares, and the effects of a Sudden Drop in the Price of Property can lead to a Downward Spiral, due to Confidence and the Wealth Effect Vanishing, and Consumers Saving Instead |
| What is Sustainable Economic Growth? | -This refers to ensuring the Economy keeps Growing without causing problems for Future Generations
-Sustainable Economic Growth is an Objective of the UK Government |
| What would Sustainable Growth rely on? | -Expand Output every Year
-Find a Continuous Supply of Raw Materials, Land, Labour... to Increase Production
-Find Growing Markets for Increased Output - so it always Bought
-Reducing Negative Externalities - Pollution to an acceptable Level
-Do All of the Above Things at the Same Time as Many other nations who are Pursuing the Same Objectives (Ensuring other Nations are also pursing Sustainable Growth) |
| What will Nations need to do to Achieve Sustainable Growth? | -Nations need to Develop Renewable Resources, as Non-Renewable Resources will Eventually Run Out. For Sustainable Growth to be achieved, you need a Continuous Supply of Raw Materials
-The Need to Innovate to make New Technologies to Reduce Negative Externalities, like Pollution, and the Degradation of Resources, like Land or Rivers, WITHOUT stopping Economic Expansion |
| What happens when a Nation reaches Sustainable Economic Growth? | -Long Term Benefits, allowing it to Plan because it is Confident with its Long Term Economic Prospects
-Environmental Preservation + Resource Efficiency
-Long Term Economic Stability and Resilience
-Improvements in Quality of Life and Social Equity (Benefits across Society) |
| Give me some Key Indicators of the UK Economic Situation. | -In 2023, there was an Annual Growth Rate of only 0.1%
-For 2024, there will be growth of 0.8%, with the First Quarter being 0.6%
-UK Total GDP is £2.53 Trillion, with 79% coming from Services and 14% coming from Manufacturing
-Unemployment Rate at 4.2%, UK NRU is at 3.5%
-Inflation rate sitting at 3.2%
-Current Account Deficit of 3.2% of GDP
£1 = $1.24 and £1 = 1.16 Euros
-Budget Deficit of roughly 4.2% of GDP, and a National Debt of 98%
-Interest Rates sitting at 5.25% |
