2.5.1 - 2.5.4

Question 1

Economic cycle

Answer 1

Diagram to show economic growth

Boom, recession, slump, recovery

Question 2

Boom

Answer 2

Optimum levels of spending and growth
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Unstable growth 
Employment high
Pay increases for workers
Higher spending
Unemployment lower
Prices rise (demand-pull inflation)
BofE increase interest rates to encourage saving and reduce spending (may slow growth rate)
Abrupt end could be a recession (2007)

Question 3

Soft landing

Answer 3

Bank of England increase interest rates to reduce growth

If this works then it is known as a soft landing

Question 4

Recession

Two or more successive quarters of falling GDP

Answer 4

Phase of economic cycle where GDP is falling
Linked to rising unemployment and low business confidence
—————————————————————————
Customers demand less
Businesses supply less
Fewer jobs
Less investment
Can lead to downward spiral

Question 5

Stagflation

Answer 5

Combination of falling GDP and rising prices at comfortable rates

Question 6

Social capital

Answer 6

Capital assets that are publicly owned

Eg. Schools, roads

Question 7

Leading indicators

Answer 7

Falling confidence
Less investment
Share prices fall
House prices fall

Question 8

Lagging indicators

Answer 8

Unemployment
Businesses adjust to falling customer spending

Question 9

John Maynard Keynes

Answer 9

Animal spirits
State of mind of producers/consumers
Related to mood of customers

Question 10

Hyman Minsky

Answer 10

People realise that they are unable to pay debts, bank loans, mortgages, etc.

Question 11

Recovery

Answer 11

Technological breakthrough
Successful government action
Shift in consumer confidence

Question 12

Dividends

Answer 12

Income received by the owners of businesses or shares

Question 13

Leakages

Answer 13

Savings
Imports
Taxation

Question 14

Injections

Answer 14

Income coming from other sources than the main injections
(I, G, X)
—————————————————————————
Investment
Exports
Government spending

Question 15

Aggregate demand

AD

Answer 15

Measures total demand from all sources of the economy

Question 16

Capital growth

Answer 16

Productive assets, acquired by investment, which are expected to contribute in future

Question 17

Aggregate supply curve

Answer 17

Diagram showing total quantities of output in the economy at different price levels

Question 18

Supply constraints

Answer 18

Demand for scarce resources increases which forces prices upwards

Question 19

Aggregate Supply

AS

Answer 19

Classical:
People will work for any wage if they want to work, Employment at 96%
(Looks like -I)

Keynesian:
Wages are “sticky” and do not fall below a certain point
People will not work for any wage
(Looks like -‘)

Philips:
As demand increases, jobs increase
Jobs increase, workers demand higher wages
As economy reaches full employment, workers demand more wages
(Include intermediate on graph)

Question 20

Inflation

Answer 20

A rise in the general level of prices and fall in the purchasing power of money
Target is 2%

Question 21

Deflation

Answer 21

When the rate of inflation becomes negative

Question 22

Index numbers

Answer 22

Take data for a period of time every year and the index gives the percentage change from the base year

Question 23

Weights

Answer 23

Allow us to adjust raw data to allow for the relative importance of items such as those items bought frequently in the case of a price index

Question 24

Consumer price index

CPI

Answer 24

The main UK measures of inflation

Excludes mortgage payments and tax changes

Question 25

Retail Price Index | RPI

Answer 25

Takes mortgage payments and tax changes into account

Question 26

Real Values

Answer 26

Have the effect of inflation/deflation removed so that they show actual quantity changes Using current prices without modifying the inflation, gives us nominal values

Question 27

Cost Push

Answer 27

Prices increase

Question 28

Demand Pull

Answer 28

Demand rises above maximum output

Question 29

Employment

Answer 29

Being economically active, normally in a paid role (self-employment included)

Question 30

Unemployment

Answer 30

Someone of working age, available to work, but with no job

Question 31

Underemployment

Answer 31

When people who want full-time employment can only find part-time Or Skilled and qualified people can find unskilled work

Question 32

Claimant count

Answer 32

Measures unemployment by counting everyone who claims Job Seekers Allowance

Question 33

Structural Unemployment

Answer 33

When demand for a product is falling because of changing customer preferences or competition from imports or new products

Question 34

Technological unemployment

Answer 34

When labour saving equipment and other new techniques reduce the need for labour

Question 35

Geographical mobility

Answer 35

The ability for workers to move from one area to another

Question 36

Occupational mobility

Answer 36

The ability to move from one type of work to another

Question 37

Seasonal unemployment

Answer 37

Varies through the year

Question 38

Frictional unemployment

Answer 38

When people have left one job and take a short time to find the next one

Question 39

Labour Force Survey | LFS

Answer 39

Samples population | Could be biased

Question 40

International Labour Organisation | ILO

Answer 40

Used when international comparisons made