Economic performance

Question 1

Long run economic growth

Answer 1

Growth based on increasing the potential output of the economy

Question 2

Cons of econ growth

Answer 2

-Enviromental externalaties due to increased output
- can be unsustainable
- wealth and income inequality
- inflation if short run growth rises to quickly
- possible increases in inequality

Question 3

benefits of econ growth

Answer 3

• rising income leads to better living standards
• better job prospects
• less unemployment
• goods and services are more affordable
• more tax revenue
• higher international competitvness
• lower absoloute poverty

Question 4

recession

Answer 4

two or more consecutive quarters of negative real gdp growth

Question 5

positive output gap

Answer 5

when the actual level of rgdp is greater than the potential underlying level of real gdp

Question 6

negative output gap

Answer 6

when the actual level of real gdp is less than the potenital underlying level of real gdp

Question 7

unemployment

Answer 7

the number of people who are activley seeking a job but currently without a job

Question 8

Seasonal Unemployment

Answer 8

Unemployment due to seasons of the year

Question 9

Cyclical unemployment

Answer 9

Unemployment due to changes in the business cycle normally due to insufficent aggregate demand within the economy

Question 10

structual unemployment

Answer 10

Unemployment caused by a mismatch between the skills that labour can offer and skills that are required by employers

Question 11

Frictional unemploymnet

Answer 11

Unemployment due to people moving between jobs

Question 12

Supply side

Answer 12

Supply of labour by workers

Question 13

Demand side

Answer 13

Demand for labour from firms

Question 14

Consequences of unemployment

Answer 14

-gdp will fall
- less government revenue
- reduced living standards and higher inequality
- crime

Question 15

Disinflation

Answer 15

A decrease in the rate of increases of prices , inflation falls but remains positive

Question 16

Deflation

Answer 16

Persistant decrease in the general price level

Question 17

Inflation

Answer 17

Persistant increase in the general price level

Question 18

Measures of inflation

Answer 18

CPI - measuring the change in the value of a basket of goods and services
RPI

Question 19

Cost-push inflation

Answer 19

Due to a rise in the cost of production. Causes the SRAS to shift up , reducing the profit margins of the firms

Question 20

Causes for cost push inflation

Answer 20

-NMW increasing
-Trade union wage increasing
-external supply side shocks
- rise in indirect taxes
- rise in cooperation tax
- falling productivity

Question 21

Impact of currency depreciation

Answer 21

• Exchange rate depretiation causes proce of imports to rise in domestic currecy terms
• after the UK left the EU in 2016 the price of imports rose and inflation increases

Question 21

Demand pull inflation

Answer 21

Increase in AD outstripping AS

Question 22

Reasons for demand pull inflation

Answer 22

• Exchange rate depreciation/price of exports in foreign countries is cheaper hence demand for exports rises
  -rising confidence
• excessive borrowing
• global ecnomoy experiancing faster growth in incomes

Question 23

Gov causes of demand pull inflation

Answer 23

• Loose fiscal policy / income tax coul dbe cut too much or gov spending can increase too quick
• loose monetary policy - interest rates could be cut too much

Question 24

Factors which would cause LRAS

Answer 24

• increase in labour supply
• improvements in labour productivity
• capital investment
• new technology to improve productivity
• education
• government policy

Question 25

Causes of long run economic growth

Question 27

Sustainable economic growth

Answer 27

economic growth that does not compromise the economy’s ability to grow in the future

Question 28

Economic cycle

Answer 28

the repeated pattern of fluctuations in short-run economic growth and how it differs from the trend growth of an economy

Question 29

Boom

Answer 29

A period of above average short-run economic growth
- Consumer confidence is high
- Business confidence is high
- unemployment is low / may find it hard to find skilled labout
- Government normally move towards of further into a budget surplus
- more defecit in the current account
- inflations rises

Question 30

Downturn

Answer 30

Period where short run economic growth falls from above average to below average
- Cosnumers reduce consumption
- business confidence will fall
- unemployment start to increase but not neccesarily a lot as fims may keep labour if the downturn is shortlived
- tax revenue may begin to fall
- spending on imports is likely to fall
- current account is more likely to move towards a smaller defecit or into a surplus

Question 31

Recession

Answer 31

Two sucessive quaters where there is negative economic growth
- falling incomes
- rising unemployment
- less consumption
- budget defecit is likely to be high

Question 32

Recovery

Answer 32

when economic growth starts to increase after a recession

Question 33

Voluntary unemployment

Answer 33

Where people are unwilling to accept a job at the going wage rate even though jobs are available.

Question 34

Involuntary unemployment

Answer 34

where people are unable to find employment at the current market wage rate

Question 35

Real wage unemployment

Answer 35

unemployment that exists when the real wage is not allowed to fall below the equilibrium price.

Question 36

Consequences of inflation

Answer 36

• uncompetitive exports
• menu costs
• search costs
• Fiscal drags ( if real incomes are left unchanged there will be a rise in nominal income due to inflation therefore may ‘drag’ people into higher tax bands)
• Uncertainty (businesses will find it harder to budget for expenditure therefore GDP will not rise as quickly then if inflation was under control)
• deflationary policies

Question 37

Fiscal drag

Answer 37

taxpayers pulled into a higher tax band despite incomes not rising in real terms

Question 38

Bening deflation

Answer 38

A fall in the price level due to increases in aggregate supply. This is usually due to decreases in the cost of production.

Question 39

Malign deflation

Answer 39

a fall in the price level due to a fall in aggregate demand

Question 40

Consequences of deflation

Answer 40

• Delays in consumption ( if deflation exists consumers are more likely to delay purchasing goods until prices are cheaper , more likely with luxury or high value items)
• Rising real value of debt
• Wage rigidity ( some wages are often ‘sticky’ , workers/trade unions may will resist cuts in money wages. Sticky wages may also lead to real wage unemployment because wages are too high for the labour market to ‘clear’
• good deflation may lead to bad deflation ( if benign deflation is occuring due to increases in AS people may delay purchases therefore reducing consumption and reducing AD causing malign deflation to occur)

Question 41

Commodity

Answer 41

A homogenous product that is used a basic input into production e.g oil , copper , minerals

Question 42

Money illusion

Answer 42

where workers in the sr confuse nominal wages and real wagesada

Question 43

adaptive expectation

Answer 43

where workers take time to adjust their expectations of the inflation rate to match the actual inflation rate