Economics Paper 2 Key Terms

Question 1

What is economic growth ?

Answer 1

Growth in GDP over time

Question 2

What is GDP?

Answer 2

Total value of good and services produced in the country in a year

Question 3

What is a boom ?

Answer 3

Period of high economic activity and high levels of employment

Question 4

What is a recession ?

Answer 4

Period when the country’s GDP falls for 2 or more consecutive quaters

Question 5

Give me 3 benefits of economic growth

Answer 5

1) reduction in poverty
2) rise in living standards
3) rise in healthcare

Question 6

Give me 3 costs of economic growth

Answer 6

1) air pollution leading to global warming
2) inflation
3) environmental costs

Question 7

What is the claimant count ?

Answer 7

Measures unemployment by the number of people claiming benefits

Question 8

What is the level of unemployment?

Answer 8

Number of people unemployed in a working population

Question 9

What is the rate of unemployment?

Answer 9

Percentage of country’s work force that’s is unemployed

Question 10

What is structural unemployment?

Answer 10

Unemployment caused by a permanent decline of an industry

Question 11

What is cyclical unemployment?

Answer 11

Unemployment caused by a lack of demand in the economy

Question 12

What is the difference between gross income and net income ?

Answer 12

Gross income - Income before taxes and benefits
Net income - Income after taxes and benefits

Question 13

What is inflation ?

Answer 13

A rise in the general price level

Question 14

What is a budget deficit ?

Answer 14

When the government spending is greater than the government revenue

Question 15

What is fiscal policy?

Answer 15

A policy that uses government spending and taxation to affect the economy as a whole

Question 16

What is monetary policy ?

Answer 16

A policy that aims to control the total supply of money in the economy to try to achieve the goverments economic objectives. Like price stability

Question 17

What are the government’s economic objectives ?

Answer 17

1) economic growth
2 ) low unemployment
3) price stability
4) better in the balance of payments

Question 18

What are examples of direct taxes?

Answer 18

1) income tax
2) corporation tax
3) inheritance tax
4) pension contributions
5) national insurance

Question 19

What are examples of indirect taxes?

Answer 19

1) VAT
2) Excise duties

Question 20

How can a surplus budget reduce pressure of price?

Answer 20

A surplus budget reduces pressure on prices by reducing the risks of demand-pull inflation and helps to keep wages low

Question 21

How does subsidies help consumers?

Answer 21

Subsidies encourages consumers to consume goods with positive externalities

Question 22

What are balance of payments?

Answer 22

Balance of payments are the record of all financial transactions between one country and the rest of the world

Question 23

What are the opportunity costs with government spending ?

Answer 23

1) they must increase debt
2) they must raise taxes to generate more income
3) they must cut spending in another area

Question 24

How is wealth re-distributed?

Answer 24

1) Through progressive tax
2) Through benefits
3) Through decreasing direct taxes
4) Through national wages

Question 25

What is quantitive easing ?

Answer 25

Quantitative easing is where the Bank of England buys bonds from financial institutions (mostly from the government) using newly created digital money. This means there is more money in the economy which keep interest rates low and promotes growth and employment.

Question 26

When does quantitative tightening happen ?

Answer 26

Quantitative tightening happens when the Bank of England sells bonds, or doesn’t re-invest funds from maturing bonds. This means there is less money in the economy, raising interest rates and lowering inflation.

Question 27

What are the 2 monetary policy choices ?

Answer 27

1) Raise interest rates to help control inflation and improve the balance of payments 2) Lower interest rates to promote employment and economic growth

Question 28

What does SPICED stand for?

Answer 28

Stronger Pound Imports Cheaper Exports Dearer

Question 29

What does WPIDEC stand for?

Answer 29

Weaker Pound Imports Dearer Exports Cheaper

Question 30

What is supply-side policy?

Answer 30

A policy that increases aggregate supply of goods and services

Question 31

What is cost push inflation ?

Answer 31

Inflation that occurs when the cost of production increases, causing prices to rise

Question 32

What Is demand pull inflation ?

Answer 32

Inflation when the demand for goods and services is higher than the economy’s ability to supply them

Question 33

What are some supply side policies?

Answer 33

1) investing in education 2) reducing direct taxes 3) reducing benefits 4) reducing the power of trade unions

Question 34

What are the costs of supply side policy?

Answer 34

1) financial costs 2) time lags 3) opposition to policies 4) income inequality 5) unintended consequences

Question 35

What are the benefits of supply side policies?

Answer 35

1) ability to target different markets 2) reduces inflation 3) increases employment and economic growth 4) improves balance of payments

Question 36

What can governments use to correct externalities?

Answer 36

- taxes - subsidies - state provision - legislation/regulation - information campaigns/ provision

Question 37

Why do different countries have different specialties ?

Answer 37

- Availability of natural resources - Differing climates - Differing labour markets

Question 38

What is a free trade agreement ?

Answer 38

A free trade agreement is when 2 or more countries agree on tiles that allow the free movement of goods and services between countries, and it avoids tariffs and quotas

Question 39

What is a tariff ?

Answer 39

Additional fee on imports

Question 40

What are quotas ?

Answer 40

Only allow a certain amount of the good or service to enter a country each year

Question 41

What is the Balance of Payments on the current account made up of ?

Answer 41

- trade in goods - trade in services - income flows - income on investments - transfers - aid,remittance