Economics - module 2 - unit 3 - part 2

Question	Answer
How does employment benefit an individual and the economy?	Higher disposable income and so higher spending -> Higher spending leads to higher tax revenues -> Higher tax revenues leads to higher government spending. Employment also raises productivity.
Define unemployment.	Unemployment the percentage of individuals who are out of work and actively seeking employment.
What is the working population?	The working population is defined as those individuals aged between 16 and 65 who could potentially work and includes students and parents raising children.
How is the claimant count used to measure unemployment?	The claimant count (CC) is based on those individuals who are claiming job seekers allowance. This measure excludes those unemployed individuals who are not eligible for JSA because either they have a high level of savings or live with a partner who is in work.
How is the Job seekers allowance used to measure unemployment?	The labour force survey (LFS) measure of unemployment is based on those individual who are actively seeking work and could start within two weeks. The LFS will always exceed the CC measure.
Why may some individuals in the working population be out of work?	1. Students in full time education 2. Disabled and therefore unable to work 3. In prison 4. Caring for dependents such as children, elderlyor handicapped
What are the 4 types of unemployment?	1. Seasonal 2. Frictional 3. Structural 4. Cyclical
What is structural unemployment?	Seasonal unemployment represents unemployment that is affected by seasonal factors. e.g. Unemployment may fall in the run up to Christmas and rise in the New Year when demand falls.
What is frictional unemployment?	Frictional unemployment usually lasts for less than one year and represents individuals who are moving between jobs or entering the labour market for the first time such as graduates.
Why may frictional unemployment increase during a recession?	Fewer jobs may be available during a recession and so there is higher competition. School and college leavers are at a disadvantage because they lack the qualifications.
Why may school, college and university leavers find it difficult to get their first job?	They don't have the experience in work. They may have high expectations. There may be high competition for jobs.
What is structural unemployment?	Structural unemployment represents those individuals who remain unemployed from longer than one year.
Why may individuals be unemployed over a long period of time?	They lack the necessary skills for the supply of jobs available and so are occupationally immobile. They can’t move location to where jobs are available and so are geographically immobile.
Why is structural unemployment supply-side?	Because it represents a mismatch between the demand for and supply of labour in the economy.
What is cyclical unemployment?	Cyclical unemployment is caused when the level of aggregate demand falls below the level of aggregate supply necessary to maintain the economy at its trend rate of economic growth.
Why is cyclical unemployment demand-side?	It determined by demand side factors, but can lag behind changes in GDP by up to 12 months. Therefore, an initial change in the economic cycle will take longer to cause an initial change in the level of unemployment.
What is the balance of payments on the current account?	This is a country's financial record of its trade flows with rest of the world.
What is the difference between a trade deficit and a trade surplus?	A trade surplus means the value of exports exceeds the value of imports. A trade deficit means the value of imports exceeds the value of exports.
What is the trade balance in goods?	The balance of trade in goods represents the difference between the exports and imports of physical goods. Physical goods are also known as visibles.
What are some examples of visible UK exports and imports?	Food, tobacco, alcohol, cars, defence, oil, minerals, aircraft, engines, technology, medicine, clothing, furniture and animals.
What are the main reasons for the UK deficit in the trade balance of goods?	The decline of manufacturing in the UK. Rising consumer incomes. China emerging as a major expoter of manufactured goods.
What is the trade balance in services?	The balance of trade in services represents the difference between the exports and imports of services. Services are also known as invisibles.
What services does the UK import and export?	Exports - Banking, finance, tourism, communications, TV (BBC), music royalties, private health care, foreign students, transportation. Imports - transportation, US sitcoms, tourism, UK students studying abroad, private health care.
What is the current state of the trade balance in services of the UK?	The trade balance of services in the UK is currently in surplus, meaning the exports of servives exceed imports. The main UK service export is financial services. The main UK service import is travel.
What is net investment income?	This represents the difference between the income the UK receives from investments made abroad and the income the UK pays the rest of the world for investing in the UK.
Why is UK households buying shares in microsoft treated as an export?	UK households buying shares in Microsoft will provide a net inflow of investment income in the form of dividends that is paid from Microsoft’s profits, which brings in income into the UK.
Why is consumers buying cars made by foreign manufacturers treated as an import?	The profits will go back to the country the car is manufactured.
What is the current state of the net investment income in the UK?	The level of net investment income in the UK is currently in deficit.
What are transfers?	This represents money: -Sent to the UK from abroad -Sent abroad from the UK
What is the cause of the UK transfer deficit?	The UK transfer deficit means money going out of the UK exceeds the money coming in, and a rise in immigrartion is a key factor in this, as money is being sent from the UK to countries when the migrants have come from.
What is the exchange rate?	The exchange rate is the price of one national currency in terms of another national currency and therefore measures the external value of a nation’s money.
How does a rise in the exchange rate affect trade prices?	A rise in the exchange rate of a country's currency is known as an appreciation. This means that export prices are dearer, and import prices are cheaper.
How does a fall in a country's exchange rate affect trade prices?	A fall in the echange rate of a country's currency is known as depreciation. This means that import prices are dearer and export prices are cheaper.
How does an appreciation of a currency affect supply?	An appreciation of the exchange rate will cause the AS curve to the shift to the right because imports are now cheaper and this helps lower the domestic price level.
How can an appreciating currency help lower cost push inflation?	By reducing the cost of imported materials and foods and energy.
How does a depreciation of a currency affect supply?	A depreciation of the exchange rate will shift the AS curve to the left because imports are now dearer and this causes the domestic price level to rise.
How can a currency depreciating in value leadnto cost push inflation?	It increases the price of imported materials, foods and energy leading to cost push inflation.

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Economics - module 2 - unit 3 - part 2

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	Created by Amardeep Kumar almost 9 years ago