CC3

Question 1

Purchasing Power Parities

Answer 1

The rate at which the currency of one country would have to be converted into that of another country to buy the same amount of goods and services in each country

Question 2

Standard of living

Answer 2

A measure of welfare of people living in an economy

Question 3

Shadow Economy

Answer 3

Economic activity that is deliberately hidden from official transactions (e.g to evade tax or because it is illegal)

Question 4

Boom

Answer 4

A period of growth faster than the long term trend.
High profits, low unemployment, High demand for imports

Question 5

Output gap

Answer 5

Occurs if there is a difference between actual and potential output in an economy

Question 6

Negative output gap

Answer 6

GDP falls below its potential level (in recession) leaving spare capacity in the economy

Question 7

Positive output gap

Answer 7

When GDP is above potential output or when nominal GDP continues to grow (driven by rising AD) when the economy is at full capacity

Question 8

Easterlin Paradox