2.5

Question 1

Why does a boom cause an increase in inflation

Answer 1

More demand
More output
Low unemployment
More spending
Shortage of resources
Diseconomies of scale
Cost of production higher 
Prices higher
Inflation occurs

Question 2

What’s Ad

Answer 2

Aggregate demand

C + I + G + (X-M)

Consumer spending
Investment
Government spending
Exports - imports

Question 3

Factors influencing as

Answer 3

Aggregate supply is total output from all sources in the economy

Increases with an increase in demand
Skill shortage decreases it
Productivity increases as increases

Question 4

What are the CPI and the RPI

Answer 4

CPI: consumer price index : basis for the governments inflation target, doesn’t include mortgage

RPI: retail price index, includes all. Decides pensions and benefits

Question 5

What’s real income?

Answer 5

The value after inflation has been removed

Question 6

Causes of inflation

Answer 6

Demand pull : economy is overheating (a boom)

Cost- push: costs of production rise

Question 7

What’s the main impacts inflation has on businesses and the individual

Answer 7

B: uncertainty, loss of competitiveness

C: loss of real income, savers and borrowers

Question 8

Measures of unemployment

Answer 8

Claimant count - those claiming u/e benefits

Labour force survey- those available and seeking work

Question 9

Causes of unemployment

Answer 9

Structural
Cyclical
Real wage
Technological