Theme 2

• First, is real wage unemployment, also known as classical unemployment. 

  Second, demand deficient unemployment, which is also known as cyclical unemployment. 

  Third, structural unemployment is where jobs shift from one sector to another. 

  Fourth, frictional unemployment is where people are temporarily unemployed when between jobs. 

  Finally, seasonal unemployment occurs when people are unemployed at certain times of the year.
• The Balance of Payments is a record of payments (or transactions) between one country and the rest of the world.
• What are the four parts of the Current Account:

  1. Trade in goods

  2. Trade in services

  3. Investment Income

  4. Current Transfers
• A Current Account deficit always needs to be balanced by a Capital & Financial Account surplus. A Capital & Financial Account surplus means foreign investors invest in UK assets such as buying shares or property. Any profit from these investments will then be sent overseas to those foreign investors meaning even more money is withdrawn from the UK economy. By reducing a Current Account deficit, the Capital & Financial Account surplus will be smaller. This means that there will be less foreign investment and so less future earnings leaking out of the economy. 
• When the pound appreciates, import expenditure will increase because the stronger pound makes it cheaper for UK consumers, increasing their demand. This means that more money is leaving the UK economy, and export revenue will decrease because the stronger pound makes it more expensive for foreign consumers, decreasing their demand. This means that less money is entering the UK economy. This will decrease the UK's current account. Outflows will increase and inflows will decrease, so the current account will decrease.
• Spain’s high inflation rate means that their exports are comparatively more expensive than Greek exports. Therefore, fewer foreign consumers will choose to buy Spanish exports. This means that demand for Spanish exports will fall and so export revenue for Spain will decrease. This will worsen (decrease) their current account.
• If a country’s inflation rate is lower relative to other countries, its exports will become relatively cheaper, so foreign consumers will buy more of its exports. This means that export revenue will increase, which will increase the current account. 
• Greece's low inflation rate means that their exports are comparatively less expensive than Spain's exports. Therefore, more foreign consumers will choose to buy Greece's exports. This means that demand for Greek exports will increase and so export revenue for Greece will increase. This will improve their current account.
• If a country has lower production costs, its export prices will decrease. This will increase foreign consumers’ demand for its exports, which will increase its export revenue. This will increase its current account.
• A country which produces lower quality exports will sell fewer exports, which will cause export revenue to decrease. This will then decrease the current account.
• Inferior goods are goods where demand decreases as income increases. For normal goods, demand increases as income increases. So, as income increases, demand for normal goods will increase and demand for inferior goods will decrease. 
• As consumers import more normal goods, import expenditure will increase, which means the current account will decrease. 
• The government uses two types of tax in order to raise tax revenue. The first is direct tax, such as income tax and corporation tax.

  The second is indirect tax, such as specific tax and ad valorem tax.
• A specific tax is a fixed amount of tax paid on each unit sold. An ad valorem tax is charged as a percentage of the price of the good. Eg. VAT
• Budget Deficit is when government spending is greater than tax revenue. A current account deficit is when current account outflows are greater than current account inflows.
• When the government is in a budget deficit and doesn't have enough tax revenue to afford its government spending, the government will borrow money and pay it back later. It will take on debt to afford its spending, and if you add up all the government debt, you get national debt.
• A government bond is a method of government borrowing. A government can borrow money by issuing government bonds. The government sells these bonds (also known as Treasury bills) to investors, businesses, banks and individuals. The government then pays these people back, with interest, at a later date.
• The government is trying to reduce the use of non-renewable fossil fuels such as coal, oil and gas. Instead, they are trying to increase the use of renewable energy sources such as wind, tidal and solar energy.
• The first macroeconomic objective is an inflation rate of 2% plus or minus 1%. The second macroeconomic objective is economic growth as measured by an increase in real GDP. The third macroeconomic objective is to achieve full employment. The fourth macroeconomic objective is to achieve a current account equilibrium, whereby the inflows equal the outflows. The fifth macroeconomic objective is to achieve a balanced budget, whereby government spending equals tax revenue. The sixth macroeconomic objective is reduced inequality. The seventh macroeconomic objective is environmental sustainability.
• A negative output gap occurs when actual GDP is below potential trend GDP.
• What are the 5 characteristics of a boom:

  1. High animal spirits increase consumption and investment. 
  2. High economic growth, measured by an increase in real GDP. 
  3. Demand-pull inflation as the price level increases. 
  4. Low unemployment as firms demand more workers. 
  5. An improved budget as government spending decreases and tax revenue increases.