2.2

Question 1

What is for formula for GDP

Answer 1

C + G + I + (X-M)

Question 2

What is aggregate demand

Answer 2

Total level of planned real expenditure on the goods and series produced within a country

the total demand for goods/services within a particular market

Question 3

What is on the axis for aggregate demand

Answer 3

-General price level (P)
-Real GDP (Y)
-AD for demand line

Question 4

General price level means

Answer 4

the current prices across the entire goods/services produced in the economy

Question 5

Real GDP means

Answer 5

the value of economic output adjusted for price changes

Question 6

Tailwinds
(move AD out/right)

Answer 6

-fall in the exchange rate for the £ which increases sales of exports
-cuts taxes so consumers spend more
-increase in house prices making people more wealthy
-low interest rates and increase in supply of money

Question 7

Headwinds
(moves AD in/left)

Answer 7

-reduction in gov spending
-higher interest rates and falls in borrowing
-lack of investment by firms
-fall in trade with other countries

Question 8

What is consumption

Answer 8

The total money spent on final goods/services by individuals and households for personal use

Question 9

What is the marginal propensity to consume

Answer 9

Measures the degree to which a consumer will spend or save in relation to an aggregate raise in pay

How much consumers will spend or save in relations to the aggregate raise in pay

Question 10

What are personal consumption expenditures

Answer 10

the value of goods and services purchased by us consumers

Question 11

Factors influencing consumption

Answer 11

-house prices
-real income
-unemployment rate
-consumer confidence
-interest rates
-welfare benefits
-tax rates
-Disposable income

Question 12

What is the multiplier effect

Answer 12

When one person spends money, it goes into the income of another person, then that person spends the money, and the cycle continues

Question 13

What is savings

Answer 13

the amount of household income that is not spent on consumption

Question 14

Income=
(calculation)

Answer 14

consumption + saving

Question 15

Investment is

Answer 15

The purchase of goods that are not consumed today but are used in future to create wealth

Question 16

Gross investment is

Answer 16

total investment on new capital inputs

Question 17

Net investment is

Answer 17

= Gross investment adjusts for depreciation of capital

Question 18

Fiscal policy is

Answer 18

Government adjusts its spending levels and tax rates to monitor and influence a nations economy.

Question 19

Key roles of the fiscal policy

Answer 19

-financing key areas of government spending
-Altering the distribution of income and wealth
-Providing a welfare state safety- net for families
-Managing the macroeconomic cycle
-Improving countries competitiveness
-Tackle market failure through intervention

Question 20

Expansionary Fiscal Policy

Answer 20

-Happens when the government increases gov spending and reduces tax to boost the economy

Question 21

Deflationary Fiscal Policy

Answer 21

-Happens if taxes are increased and spending is reduced

Question 22

What is the fiscal multiplier

Answer 22

The impact the government has on the whole economy

Question 23

Imports are

Answer 23

An import is a good or service bought in one country that was produced in another

Question 24

Imports will increase if

Answer 24

-exchange rates increase
-real income increases
-little amount of protectionism (due to free trade deals)

Question 25

Exports are

Answer 25

Exports are goods and services that are produced in one country and sold to buyers in another.

Question 26

Exports will increase if

Answer 26

-Exchange rate decreases

Question 27

Factors influencing Net trade

Answer 27

-Uk Real income
-Exchange rates
-Protectionism
-State of the world economy
-Non-price factors

Question 28

Impacts of trade
1) What happens to these if trade increases

Answer 28

-Aggregate demand (increase as more goods to chose from)
-Employment (Increase and move from secondary to tertiary)
-Inflation (Reduced if trade increases)
-Economic growth (Increase trade leads to economic growth)

Question 29

Budget deficit

Answer 29

Gov spending exceeds tax collected
Government spending exceeds tax revenue earned; this means that the government must have borrowed in order to finance its spending

Question 30

Budget surplus

Answer 30

The gov collects more tax than spends
Government spending is less than tax revenue earned; the government can pay back some of its debts

Question 31

Balanced budget

Answer 31

Government spending is equal to tax revenue

Question 32

Cyclical budget deficit

Answer 32

A situation in which government spending is greater than tax revenue, because the economy is in recession (growth is slowing or negative) – the government will automatically receive less tax revenue if fewer people are in work, and will automatically have to spend more as demand for benefits rises etc

Question 33

Structural budget deficit

Answer 33

A situation in which government spending is greater than tax revenue, but not related to the economic cycle
e.g. the government may choose to spend more because it wants to support particular industries or develop more infrastructure to support future growth

Question 34

Current spending involves

Answer 34

Involves recurring spending on providing public services including the pay of teachers and nurses and civil servants.

Question 35

Capital spending e.g….

Answer 35

Capital spending – e.g. projects to provide new public infrastructure