1. Economic Activity

Question 1

What is the basic economic problem?

Answer 1

How to allocate the finite/scarce resources to satisfy the infinite needs and wants of the population

Question 2

What is a positive statement?

Answer 2

An objective statement that can be tested with factual evidence

Question 3

What is a normative statement?

Answer 3

Matters of opinion that cannot be factually tested as right or wrong

Question 4

Name the 3 economic agents

Answer 4

• Firms
• Government
• Households

Question 5

What are the 4 factors of production?

Answer 5

• Capital
• Entrepreneurship
• Land
• Labour

Question 6

What are capital goods?

Answer 6

Physical assets or resources that are used in the production of goods/services

Question 7

What is scarcity?

Answer 7

The shortage of resources in relation to the quantity of human wants

Question 8

What are injections + 3 examples?

Answer 8

Income that is entering the economy e.g government spending, investment, exports

Question 9

What are leakages + 3 examples?

Answer 9

Income that is taken out of the circular flow model e.g taxation, savings, imports

Question 10

What are the 2 flows in the circular flow of income?

Answer 10

• Physical flow: e.g goods, labour
• Monetary flow: e.g expenditure, income

Question 11

What are the 4 stages of the economic cycle?

Answer 11

• Economic boom: a period of rapid GDP growth
• Downturn: a period of significant decline in GDP
• Economic recession: decline for two consecutive quarters of GDP
• Recovery: phase where GDP activity increases following a recession

Question 12

What are the 5 macroeconomic objectives?

Answer 12

• Sustained growth
• Control of inflation
• Low unemployment
• Equilibrium in balance of payments
• Lower income inequality

Question 13

What is the circular flow of income?

Answer 13

Describes how money and goods move around in an endless loop between different economic agents