Economic Performance ( Macro )

Question 1

What’s economic growth?

Answer 1

The increase in the potential level of real output that the economy can produce over a period of time

Question 2

What does the movement from C to A represent?

Answer 2

Short-run economic growth

Question 3

What does going from A to B represent here?

Answer 3

Long-run economic growth

Question 4

What does a movement across the trend line show?

Answer 4

Long-run economic growth

Question 5

What is the primary cause of changes in the economic cycle?

Answer 5

fluctuations in aggregate demand

Question 6

What are some benefits of economic growth?

Answer 6

• Increases standards of living
• Increases people’s welfare
• Increases people’s life expectancy

Question 7

What is frictional unemployment?

Answer 7

As new products are developed, and demand and cost conditions change, firms demand more of some labour skills while the demand for other types of labour declinesº

Question 8

What is “structural unemployment”?

Answer 8

• Unemployment that results from the structural decline of industries which are unable to compete or adapt in the face of changing demand or new products
• May also be caused by changing skill requirements as industries change ways of producing their products

Question 9

What is “cyclical unemployment”?

Answer 9

Unemployment occurring at the downturn of economic cycles

Question 10

How can cyclical unemployment be reduced?

Answer 10

Through fiscal and/or monetary policy to stimulate aggregate demand

Question 11

What is inflation?

Answer 11

Inflation is the continuous and persistent rise in the price level and fall in the value of money

Question 12

What causes demand-pull inflation? Why?

Answer 12

• An increase in aggregate demand
• After a rightwards shift in AD, price levels have to rise to persuade firms to produce more output and meet the extra demand

Question 13

What type of inflation is this?

Answer 13

Demand-pull inflation

Question 14

What type of inflation is this?

Answer 14

Cost-push inflation

Question 15

What are the components of Aggregate demand?

Answer 15

C + I + G + ( X - M )

Question 16

What causes cost-push inflation?

Answer 16

A leftwards shift in short run AS, because rising costs of production lead to firms increasing their price

Question 17

What’s the good part of inflation?

Answer 17

creeping inflation, which comes as a result of:
- growing markets
- healthy profits
- general climate of business optimism
is acting as a necessary side-effect of expansionary policies to reduce unemployment

Question 18

What’s the difference between malign and benign deflation?

Answer 18

Benign ( good ) deflation results from a rightwards supply shift, whilst malign ( bad ) deflation results from a collapse ( leftwards shift ) of demand