Economic performance

Question 1

Trend rate growth

Answer 1

the average rate of economic growth over periods of booms and slumps

Question 2

Economic growth

Answer 2

is a increase in the productive potential in the economy

Question 3

economic growth on a ppf

Answer 3

movement from inside the ppf from point a to point B on the curve

Question 4

Boom

Answer 4

when the economy is growing quickly shown by a increase in AD and fall in unemployment

Question 5

recession

Answer 5

when theres negative economic growth for two consecutive quaters

Question 6

Negative output gap

Answer 6

the difference between actual output and trend output when actual output is below trend output

downward pressure on inflation, high unemployment, low AD

Question 7

positive output gap

Answer 7

the difference between actual output and trend output when actual output is above trend output

it creates upward pressure on inflation and low unemployment

Question 8

AD and AS curve for positive and negative output gap

Answer 8

positive output gap is shown to the right of the LRAS curve

negative output gap is shown to the left of the LRAS curve

Question 9

three benefits of economic growth

Answer 9

increase demand for labour leading to fall in unemployment and higher income

increase tax revenues due to higher incomes

greater profits for firms as consumers have higher incomes to spend more

Question 10

three costs of economic growth

Answer 10

economic growth can create cost and demand push inflation due to an increase in demand

negative externalities created for industry expansion

could increase budget deficit as higher incomes could lead to more demand for imports

Question 11

Short run economic growth

Answer 11

this is created by a rise in AD shifting to the right causing national output to shift.

A rise in SRAS could also cause short run growth when it shifts to the right

Question 12

Long run economic growth

Answer 12

caused by supply side factors increasing the productive potential of the economy

supply side factors could increase in quantity and quality of factors of production could be innovation in technology, increase in education and increase in population

this causes LRAS to shift to the right 6

Question 13

Unemployment on a PPF

Answer 13

if theres unemployment then the economy wont be operating at full capacity so it will be shown on a point within the PPF

if theres full employment the economy will be at full capacity and it will be shown on a point within the PPF

Question 14

Under employment

Answer 14

is when someone has a job but its a job which doesnt utilise a persons skills experience and availability

Question 15

Cyclical unemployment

Answer 15

this is demand deficient unemployment when AD falls employment will fall too

Question 16

Seasonal unemployment

Answer 16

when demand for labour isnt the same all year round

Question 17

Structural unemployment

Answer 17

this when its caused by a decline in a certain industry or occupation due to consumer preferences or technological advances

Question 18

Occupational immobility

Answer 18

this when workers dont have the skills required to do a certain job

Question 19

Geographical immobility

Answer 19

this when workers cant leave a certian region which has high unemployment to another region which has jobs

Question 20

frictional Unemployment

Answer 20

is unemployment caused by leaving one job and starting another. The time lag caused for looking for a new job can be caused by

a slump as there could be a shortage of jobs, lack of information as they wont know the jobs available, benefits as its a disincentive to get another job

Question 21

Real wage unemployment

Answer 21

cause by wages being pushed above the equilibrium level of employment

Question 22

Real wage unemployment graph

Answer 22

introducing a NMW above the equilibrium wage rate causes supply of labour to increase from Qe to Qs causing demand to fall from Qe to Qd causing unemployment between Qs and Qd due to excess supply

Question 23

Costs and consequences of unemployment

Answer 23

reduces firms profit due to lower incomes

less income tax and indirect tax due to a decrease in spending

skills and training could be outdated reducing employability

Question 24

cost push Inflation

Answer 24

cost push inflation is inflation caused by the rising costs of inputs to production

Question 25

cost push inflation graph and its causes

Answer 25

rising costs of inputs force producers to pass high costs in the form of high prices this causes AS to shift from AS 1 to the left causes of this could the rise in cost of raw materials, also a rise in indirect taxes

Question 26

demand pull inflation

Answer 26

inflation caused by excess growth in aggregate demand compared to supply

Question 27

Demand pull inflation graph and its causes

Answer 27

it shifts aggregate demand to the right from AD to AD1 increasing price this could be caused by higher consumer spending, high demand for exports , money supply growing faster than output

Question 28

Fishers equation of exchange

Answer 28

Money suppply* velocity of money= price level * aggregate transactions both sides of the equation are equal so an increase money supply will cause an increase in price level

Question 29

costs and consequences of inflation

Answer 29

will cause standard of living to fall

decrease competitiveness as exports will be more expensive imports will become cheaper

inflations discourages saving as the value of your savings could fall

Question 30

deflation

Answer 30

when inflation falls below 0% this means the economy is doing badly as theres falling agregate demand and increase unemployment

Question 31

Inflation rate for Government and how do they intervene

Answer 31

The Government considers low and stable inflation of 2% per year and anything over that is excessive the Government might use monetary, fiscal and supply side policies to keep it low

Question 32

Trade off

Answer 32

how important on certain objectives have an affect on others

Question 33

how changes in aggregate demand could conflict other objectives

Answer 33

it could increase output decreasing unemployment due to derived demand

a shift in AD could increase price level meaning a decrease competitive decreasing exports worsening balance of payments

Question 34

conflict between inflation and unemployment

Answer 34

when unemployment is is decreased demand for workers increase this means an increase in wages causing higher prices leading to cost push inflation

Question 35

conflict economic growth and environmental protection

Answer 35

increased production lead to air and water pollution also increase in waste, ecosystems damaged due to increased production

Question 36

economic growth and inflation

Answer 36

a rapid growing economy can increase prices due to demand causing inflation, low inflation can restrict economic growth

Question 37

inflation and equilibrium of balance of payments

Answer 37

low inflation is maintained by high interest rates increasing the value of exports decreasingits demand worsening budget deficit

Question 38

economic growth and reduction in wealth inequality

Answer 38

economic growth can increase inequality as not everyone benefits equally

increasing tax and welfare payments can damage economic growth

Question 39

Phillips curve

Answer 39

if the government wants to reduce unemployment it has to increase agreggate demand increasing inflation

Question 40

unemployment rate equation

Answer 40

number of unemployed people/total unemployment + total employment

Question 41

Long run Phillips curve

Answer 41

no trade off between inflation and unemployment, based on the expected rate, the line is vertical