2.1.1

Question 1

What is economic growth?

Answer 1

Economic growth is the increase in a country’s output.

Question 2

What are the measurements for economic growth?

Answer 2

1. GDP
   
   1. Nominal and Real
2. GDP per Capita

Question 3

What is GDP?

Answer 3

GDP is the total output of a country, calculated by adding up output of all industries in a country , this way of calculation is the nominal GDP which hasn’t been adjusted for inflation.

Question 4

What is real GDP?

Answer 4

This is GDP multiplied by the price index of the base year. A rise in real GDP measures the actual rise of output.

Question 5

What is real GDP per head?

Answer 5

It is the division of real GDP by the population, if the population increases more than the GDP the rise in output may not be growth, simply indicative of a rise in population.

Question 6

What are the limitations is measuring GDP?

Answer 6

1. Informal Economy
2. Unrecorded economic activity
3. Illega Activities
4. non-marketed goods and services (doing things by yourself)

Question 7

What is the economic cycle?

Answer 7

Growth → Boom → Downturn → recession → recovery

Question 8

What happens in a recesson?

Answer 8

This is where real GDP declines over a period of sic months or more.

Question 9

What causes recessions?

Answer 9

1. negative demand-side shock
   
   1. fall in business and consumer confidence
2. negative supply-side schock
   
   1. rise in raw material costs

Question 10

What happens after economic growth?

Answer 10

1. Improve Living Tandards
2. Higher Tax revenue, better government services
3. Poverty can reduce
4. More goods and services
5. More jobs
6. Less unemployment
7. More pollution and less non-renewable resources

Question 11

What are the government’s macroeconomic objectives?

Answer 11

1. Economic Growth
2. Low and Stable Inflation
3. Low Unemploymeny
4. BOP Surplus/Balance
5. Redistribution of Income
6. Protection of the environment

Question 12

What is inflation?

Answer 12

Inflation is the rise of price levels over a period of time.

Question 13

What is deflation?

Answer 13

It is the fall of prive levels over a period of time.

Question 14

What are the kinds of inflation?

Answer 14

1. Cost-Push
2. Demand-Pull

Question 15

What is Cost-Push Inflation?

Answer 15

This is inflation caused by the increase in costs of production, it can be caused by:

1. Increase in minimum wage > Increase in labor productivity
   
   1. Wage-Price Spiral
2. Raw Materials increase in price

Question 16

What is demand-pull inflation?

Answer 16

This is inflation caused when there is excess demand.This is caused by:

1. Increased Consumption, Increased Investment
2. Higher Exports
3. Higher Government Expenditure
4. This is when supply < demand
   
   1. Lack of skilled workers etc

Monetary inflation is also demand-pull inflation, which is created by excessive growth of the monetary supply.

Question 17

What can Inflation do to prices?

Answer 17

1. It increases prices, can cause a fall in the value of money

Question 18

What can inflation do to wages?

Answer 18

1. Wages can decrease due to cutting costs

Question 19

What can inflation do to exports?

Answer 19

1. As inflation can depreciate the value of money
2. This will increase exports due to cheaper costs

Question 20

What can inflation do to businesses?

Answer 20

1. They can cause shoe-leather costs
   
   1. This is when money is moved around for higher interest rates
2. They can cause many costs, as prices should be adjusted to inflation

Question 21

What can inflation do in general?

Answer 21

Increase uncertainty, reduce business and customer confidence, decrease investment. and Fiscal drag → tax brackets not measured to inflation.

Question 22

What is unemployment?

Answer 22

This is being without job despite being able to work.

Question 23

What are the types of unemployment?

Answer 23

1. Cyclical
2. Structural
3. Seasonal
4. Voluntary
5. Frictional

Question 24

What is cyclical unemployment?

Answer 24

This is unemployment caused by a lack of demand. This occurs during a recession, as demand for labour falls due to cost-push inflation.

Question 25

What is Structural Unemployment?

Answer 25

THis is unemployment caused by the decline in industries. Some forms of this are: 1. Technological Unemployment 2. Regional Unemployment This lasts for longer periods, and affects more workers. This especially affects immobile labour.

Question 26

What is frictional unemployment?

Answer 26

This is unemployment that is the time period for workers in between jobs. Some kinds of this are: 1. Search Unemployment(People who are looking for new jobs) 2. Casual Unemployment (Actors, Migrant Workers) 3. Seasonal Unemployment (Fall of demand at certain times)

Question 27

What is the impact of unemployment?

Answer 27

On the Unemployed: 1. Loss of self worth, loss of income, stress 2. decline of mental and physical health 3. Less education on the children 4. can lead to relationship distress On Firms: 1. More Labour Supply 2. Minimum wage may not rise 3. Workers more willing to negotiate 4. low demand for products On the Economy: 1. Market Failre 2. Tax revenue is lower, Government expenditure increases 3. Free rider issue 4. Opportunity Cost

Question 28

How can each kind of unemployment be dealt with?

Answer 28

Structural Unemployment → Supply-side policies (Training, Education) Cyclical Unemployment → Monetary and Fiscal Policies Frictional Unemployment → cut income tax

Question 29

What is the BOP?

Answer 29

This is a record of all economic transactions done by a country

Question 30

What does the current account of balance of payments consist of?

Answer 30

1. Trade in Goods(goods ) 2. Trade in Services (payments and services) Primary Income (general income) 3. Secondary INcome (gifts)

Question 31

What is a current account surplus/deficit?

Answer 31

Surplus → Export \> Import Deficit → Import \> Export

Question 32

What causes deficits?

Answer 32

1. Better foreign goods 2. cheaper foreign goods 3. stronger currency

Question 33

What causes Surplus?

Answer 33

1. Better domestic goods 2. weaker exchange rate 3. Cheaper domestic goods.

Question 34

What is the impact of a current account deficit?

Answer 34

1. Output and employment lower than possible 2. more primary and secondary income leaving 3. low demand for exports 4. can be inflationary if prices rise abroad

Question 35

How do businesses damage the environment?

Answer 35

All kinds of pollution

Question 36

How can the government reduce these environmental impacts?

Answer 36

1. LEgislations 2. FInes 3. Subsidies 4. Regulation 5. Pollution Permits

Question 37

Why does the government want to redistribute income?

Answer 37

So that the income inequality gap can close, to break vicious circle of poverty.