Economic growth

Question 1

What is GDP?

Answer 1

The value of goods and service within an economy

Question 2

What is GDP per capitia?

Answer 2

the sum of gross value added by all resident producers in the economy plus any product taxes

Question 3

What is PPP?

Answer 3

PPP (Purchasing Power Parity) is a measure that compares different countries’ currencies by determining the relative price of a similar basket of goods and services in each nation.

Question 4

What is GNI and what does it do?

Answer 4

Gross national income- is the total amount of money earned by a nation’s people and businesses.

Question 5

What is inflation?

Answer 5

an increase in the general price level due to the increase in the money supply

Question 6

What is deflation?

Answer 6

A fall in the general price level due to a decrease in the money supply

Question 7

What is disinflation?

Answer 7

A reduction in the rate of inflation

Question 8

What is CPI?

Answer 8

The Consumer Price Index (CPI) measures the monthly change in prices paid by consumers

Question 9

What is RPI?

Answer 9

Measure of prices of goods and services, includes housing costs like mortgage interest and council tax

Question 10

What is demand pull inflation?

Answer 10

A rise in the general price level when demand for goods and services exceeds supply in the economy

Question 11

What is cost pull inflation?

Answer 11

Cost-push inflation, occurs when overall prices increase due to increases in the cost of wages and raw materials.

Question 12

What are the different government policies?

Answer 12

Supply side-policies, demand side-policies, monetary policy, fiscal policy

Question 13

What are the main government objectives?

Answer 13

T-Trade
I-Inflation (+/- 2%)
G-Growth
E- Employment
R-Redistribution of income
S-Sustainability

Question 14

What are supply side policies

Answer 14

government strategies that focus on enhancing an economy’s ability to produce goods and services.( usually through intervention ie : education)

Question 15

What are demand side policies

Answer 15

focused on increasing or decreasing aggregate demand to influence unemployment, real output, and the price level in the economy ( includes fiscal policies, tax etc..)

Question 16

What is monetary policy?

Answer 16

a set of actions to control a nation’s overall money supply and achieve economic growth.

Question 17

What is fiscal policy?

Answer 17

The use of government spending and taxation to influence the economy.

Question 18

What are automatic stabilisers?

Answer 18

Automatic stabilisers are automatic fiscal changes as the economy moves through stages of the business cycle

Question 19

What is the accelerator affect?

Answer 19

an increase in national income (GDP) results in a proportionately larger rise in capital investment spending.

Question 20

What is the multiplier effect?

Answer 20

a phenomenon whereby a given change in a particular input, such as government spending, causes a larger change in an output, such as gross domestic product.

Question 21

What is discretionary fiscal policy?

Answer 21

These are intentional government policies to increase or decrease spending or taxation

Question 22

What is contractionary fiscal policy?

Answer 22

measures governments take to reduce their spending and increase taxes, leading to a decrease in economic growth

Question 23

What is expansionary fiscal policy?

Answer 23

increasing spending or cutting taxes to prevent or end a recession or depression

Question 24

What is quantitative easing?

Answer 24

Purchase of assets such as bonds in order to increase money supply

Question 25

What is quantitative tightening?

Answer 25

To decrease liquidity within the economy, reducing money supply ( bond holdings BOE)

Question 26

What is contractionary monetary policy?

Answer 26

the rate of monetary expansion by a central bank

Question 27

What is expansionary fiscal policy?

Answer 27

a policy by monetary authorities to expand the money supply and boost economic activity by keeping interest rates low to encourage borrowing by companies, individuals and banks.

Question 28

What is crowding out?

Answer 28

public sector spending drives down or even eliminates private sector spending

Question 29

What is the formular for the multiplier effect?

Answer 29

1/(1-MPC)

Question 30

Formula for MPS?

Answer 30

1/(1-MPC)=1/MPS

Question 31

Formula for MPW?

Answer 31

1/MPW (MPS+MPT+MPM)

Question 32

What would a reduction in GDP lead to?

Answer 32

Increased unemployment, reduction in government tax revenue , fall in living standards

=> Less demand so firms will reduce costs

=> Consumers working less/making less profit

=> Drop in demand for goods/services

Question 33

What is potential economic growth?

Answer 33

the rate of growth that an economy can sustain over the medium term without generating excess inflation.

Question 34

What is actual potential economic growth?

Answer 34

the yearly increase in real Gross Domestic Product (GDP), reflecting the economy’s performance over a short period

Question 35

What are characteristics of a recession?

Answer 35

Inflation, unemployment, falling profits , increased budget defecit

Question 36

What would cause an increase in the value of the multiplier effect?

Answer 36

• Increase in government spending, Increase MPC, Decrease MPS, Low tax rates, low import rates