2.1

Question 1

Define ‘Economic growth’ and explain the main way it is measured

Answer 1

Increase in the real value of goods and services produced as measured by the annual percentage change in real Gross Domestic Product (GDP)

Question 2

distinguish between nominal and real

Answer 2

Nominal economic values are the current monetary values with no adjustment made for the effect of inflation whereas real values are nominal values adjusted for inflation

Question 3

What does “per capita” mean

Answer 3

Total/Population

Question 4

Explain how GNI differs from GDP

Answer 4

GNI is the total dollar value of everything produced by a country and the income its residents recieve whether its from home or abroad and thus doesnt include the profits of foreign-owned companies and income earned from people from other nations staying in said nation.

Question 5

Explain the benefits of using GDP to measure living standards

Answer 5

Measures a nation’s economy thus a measure of how much buying power a nation has. This reveals how much a country can pay in wages.

Question 6

Explain the problems of using GDP to measure living standards

Answer 6

Higher GDP may be due to other factors such as an increased popultion, differences in income distribution, differences in exchange rates

Question 7

Define purchasing power parities

Answer 7

Purchasing power parties take into account the exchange rate and the cost of living in each country by comparing a average weight of goods

Question 8

Explain the purpose of purchasing power parties

Answer 8

To make meaningful comparisons between countries about average standards of living

Question 9

Explain the way the UK gov measures national wellbeing

Answer 9

Office for national statistics
Annual population survey with 4 questions to monitor well-being

Question 10

Explain why at low levels of income, a rise in income is likely to increase the level of happiness in households

Answer 10

More money= more happiness up to a point
After a point, the marginal gain in happiness declines

Question 11

Define inflation

Answer 11

A sustained rise in the general price level

Question 12

Define deflation

Answer 12

Sustained fall in the general price level. Often a sign of stagnation in an economy

Question 13

Define disinflation

Answer 13

The fall in the rate at which the general price level is rising.

Question 14

Explain how the rate of inflation is measured using the consumer price index (CPI)

Answer 14

The living costs + food survey collects info from sample of around 7000 households
A price survey is undertaken by civil servants, who collect data once a month about changes in price of 700 of the most commonly used goods + services
Weights (a show of the proportion of income spent on items) are assigned to each item the average household buys. These weights reflect the proportion of income spent on each item in the average shopping basket.
Price changes are multiplied by the weights to give a price index. The rate of inflation can then be measured by calculating the percentage change in this index over consecutive years
The CPI doesn’t include housing costs such as rent payments + mortgage interest payments

Question 15

Explain the limitations of CPI in measuring the rate of inflation

Answer 15

Doesn’t include housing costs, a significant expenditure for most UK households.
Some people don’t have representative spending patterns + so might experience cost of living rises by more or less than the average shown by CPI
Attempts are made to taken into account changes in quality + volume but changes are not precise.
List of 700 items only changed once a year thus sudden changes in spending patterns are not reflecting in CPI
Sampling issues - families reveal not truth or not respond at all.

Question 16

Differences between CPI and RPI retail price index)

Answer 16

Housing costs in RPI
CPI takes into account that when prices rise people will switch to product that’s gone up by less. Therefore, the CPI is generally lower than the RPI thus CPI is generally lower than RPI
RPI excludes the top 4% of income earners and low income pensioners as they are not ‘average’ households whilst CPI covers all households.

Question 17

Explain how demand pull inflation might be caused

Answer 17

Aggregate demand (total demand) in the economy increases at a faster rate than aggregate supply

Question 18

Explain how cost push inflation might be caused

Answer 18

This occurs when aggregate supply decreases causing higher prices due to higher costs of production+higher costs of materials

Question 19

Explain how the growth of the money supply might lead to inflation

Answer 19

If money is released in a supply increases faster than the economy is growing inflation occurs as the increase in money circulating in an economy is more than the increase in goods produced. There’s more money chasing not as many goods in economy.

Question 20

Define unemployment

Answer 20

Those who are able, available and willing to work but does not have a paid job

Question 21

Define Underemployment

Answer 21

Those who are seeking or available for extra work
ONS measures underemployment as those wanting to work more hours than they do and are available to start in 2 weeks

Question 22

Define Employment rate

Answer 22

The number of people in work as a percentage of the working age population

Question 23

Define unemployment rate

Answer 23

The number of people unemployed as a percentage of the labour force

Question 24

Define inactivity

Answer 24

Economically inactive people are simply those who are neither employed nor unemployed; they’re not in paid work, but they’re also not looking for a job or available to start work

Question 25

Explain how unemployment is measured through:
The claimant count
Uk labour force survey (ILO)

Answer 25

Based on the claimants of unemployment-related benefits either from jobseeker allounce (JSA) or Universal credit (UC)

A survey of a sample of households. Asks people between 16-65 if theyve been in work over last 4 weeks and if they can start within 2 weeks.

Question 26

Explain why the unemployment rate measured by the labour force survey will always be higher than the claimant count methord

Answer 26

Not everyone unemployed claims benefits

Question 27

Define Structural unemployment + solution

Answer 27

Where industries are in decline and workers skills are becoming obselete

Retraining

Question 28

Define frictional unemployment + Solution

Answer 28

Where people are between jobs

Reduce unemployment benefits
Bettwer matching between labour and vacant positions

Question 29

Define seasonal unemployment + solution

Answer 29

Where people are out of work for some period of the year

Try to diversify economy
Gov create jobs in the off-season to improve infastructure

Question 30

Define cyclical unemployment + solution

Answer 30

Lack of spending in the economy/recession means that people are out of work.

Increasing GDP by stimulating demand

Question 31

Define real wage infelxibility + solution

Answer 31

Real wage unemployment occurs when wages are set above the equilibrium level causing the supply of labour to be greater than demand.

cut wages

Question 32

Explain how migration affects employment and unemployment levels in countries

Answer 32

Migrants fill vacancies leading to more employment
If migrants cant find vacancies they will be unemployed or displace others from their job causing an increase in unemplyment or neutral

Question 33

Explain how the skills of the workforce affects employment and unemployment levels in countries

Answer 33

Highly skilled workers are less likely to be unemployed and have more stable+secure employment

Question 34

Explain how unemployment affects the following entities
Workers
Firms
Government
Society

Answer 34

Loss of skills+income
Lower living standards

Easier to recruit
Less consumer spendig leads to less revenue and profit

Increase spending on welfare benefits
Less revenue of income + taxes

Inequality increases perhaps causing more crime

Question 35

List the 4 components of the current account on the balance of payments

Answer 35

The trade in goods balance: value of goods exported - value of goods imported
+
The trade in services balance: value of services exported - value of goods imported
= the balance of trade
+
Asset Income
+
Transfers in the form of money or goods+ services
= the current account

Question 36

Define
Current account surplus
Current account deficet

Answer 36

surplus = when more money is flowing into the country than is flowing out
deficet= when more money is flowing out of the country than flowing in

Question 37

What are the causes of a current account surplus

Answer 37

Occurs when either: currency is too weak relative to other countries, theres a low rate of inflation reative to other countries, low wage costs relative to other countries or theres low rate of economic growth in a country

Question 38

Explain benefits to an economy of “export-led” growth

Answer 38

Exports of goods+ services are injected into the circular flow of income leading to a rise in aggregate demand + expansion of output. This helps raise per capita incomes + reduce poverty especially in developing/ emerging economies.
Increased export sales provide revenue and profit for businesses which can be used to purchase capital goods which increased countries productivity which then increases the potential for exports

Question 39

Macroeconomic Objectives 4 main

Answer 39

High sustainable economic growth
Low unemployment (around 4%= full capacity in Uk)
Low inflation
Balanced current account

Question 40

Alternative Macroeconomic objectives 3

Answer 40

Reducing budget deficit
Reducing inequality
Environmental