Economics Theme 2

Question 1

What does GDP mean?

Answer 1

The sum of all goods and services produced in one economy in one year

Question 2

What is Real GDP?

Answer 2

does consider inflation, using a base year to make comparisons

Question 3

What is Nominal GDP?

Answer 3

Nominal GDP is an economic measure that does not account for changes in the price level. It is the market value of all final goods and services in an economy over a period

Question 4

What is GNI?

Answer 4

Includes income received from abroad, including dividends

Question 5

What is GNH?

Answer 5

Attempts to steer policy objectives towards development and living standard by measuring happiness rather than production and incomes

Question 5

What is GNP?

Answer 5

Same as GNI but excludes incomes from non-national claims

Question 6

What are the effects of inflation?
10 Answers

Answer 6

Diminishes value of savings
Shoe-leather costs
Menu costs
Disposable Incomes
Costs of living
Discontent
Government Taxation
Unemployment
International competitiveness
Anticipated Inflation

Question 7

What is CPI?

Answer 7

Consumer Price Index is a measure of inflation which measures the percentage change in prices

Question 8

What is RPI?

Answer 8

Same as CPI but does not include housing costs, whereas CPI uses energy costs

Question 9

What are the limitations of using CPI to measure inflation?
5 answers

Answer 9

Quality
Shocks
Differing measures
Unrepresentative
Substitutes

Question 10

What are the causes of unemployment?
4 Answers

Answer 10

Structural unemployment
Seasonal unemployment
Frictional unemployment
Cyclical unemployment

Question 11

Effects of unemployment to workers?

Answer 11

No longer receiving an income, more difficult to afford goods and services
Human capital depreciates as skills are forgotten
More difficult to get employed

Question 12

Effects of unemployment to consumers

Answer 12

Consumers will reduce their spending if their income falls

Question 13

Effects of unemployment to consumers

Answer 13

Demand for firms products may fall

Question 14

Effects of unemployment to the government

Answer 14

More people claiming Jobseeker’s Allowance
Receives lower income tax
Less financing means may cause an expenditure deficit, which will lead to higher levels of national debt

Question 15

What are the 2 measures of unemployment?

Answer 15

ILO Unemployment Rate
Claimant Count

Question 16

What is ILO Unemployment Rate?

Answer 16

A sample oh households to make a percentage of how many people are unemployed

Question 17

What is the claimant Count?

Answer 17

The number of people claiming Jobseeker’s Allowance

Question 18

What is the calculation for Aggregate demand?

Answer 18

AD = C + I + G + (X - M )

Question 19

Why would the aggregate demand curve slope downwards?

Answer 19

Real-balance effect
International competitiveness

Question 20

What are the main influences on consumption?
5 Answers

Answer 20

Disposable Income
Interest rates
Wealth effect
Consumer confidence
Marginal propensity to consume

Question 21

What are the main influences on investment?
6 Answers

Answer 21

Rate of economic growth
Business expectation, Keynes Animal Spirits
Exports
Interest rates
Access to credit
Government intervention

Question 22

Main influence on the governmment expenditure
2 Answers

Answer 22

Trade cycle
Fiscal policy

Question 23

Main influences on the trade balance

Answer 23

Real income
Exchange rates
State of the world economy
Degree of protectionism
Non price factors

Question 24

What does short run mean?

Answer 24

At least one factor of production is fixed

Question 25

What does long run mean?

Answer 25

All factors of production can be changed

Question 26

What factors influence short run aggregate supply?
3 Answers

Answer 26

Raw materials and energy
Exchange rates
Increased taxes

Question 27

What factors influence long run aggregate supply?
6 Answers

Answer 27

Technological advances
Relative productivity
Education and skills
Government regulation
Demographic and migration
Competition policy

Question 28

What is the difference between a Keynesian and a Classical LRAS curve?

Answer 28

Classical is fixed, as if everyones producing efficiently then you should not be able to produce more, Keynesian has a slope going upwards.

Question 29

What are the different types of inflation

Answer 29

Demand-pull inflation
Cost-push inflation
Growth in money supply

Question 30

What does income mean

Answer 30

The money that a person receives in exchange for something, such as wages

Question 31

What does wealth mean?

Answer 31

The money that a person holds, such as assets

Question 32

What is a withdrawal?

Answer 32

Taking money out of the circular flow income

Question 33

What is an injection?

Answer 33

bringing more money into the circular flow of income

Question 34

What is the marginal propensity to save?

Answer 34

The portion of income that will be leaked into saving

Question 35

What is the marginal propensity to tax?

Answer 35

The proportion of income that will be leaked due to taxes

Question 36

What is the marginal propensity to import?

Answer 36

The proportion of income that will be leaked by buying imports

Question 37

What are the 2 different ways to calculate the MPW

Answer 37

1 - MPC=MPS + MPT + MPM

Question 38

What is the multiplier?

Answer 38

The process occurs after an injection, which causes the economy to grow beyond the original amount injected

Question 39

How do you calculate the multiplier?

Answer 39

1 / marginal propensity to withdraw

Question 40

What is actual growth?

Answer 40

the true amount of growth that is observed in real life

Question 41

What is potential growth?

Answer 41

The predicted growth of the economy in the long run, using previous treneds, illustrated by the “trend growth rate”

Question 42

What are the factors that cause growth?
7 Answers

Answer 42

Technological advances
Education and skills
government regulation
demographic and migration
investment
Natural disasters and war
Export led growth

Question 43

effects of economic growth on consumers and workers?

Answer 43

Increased growth means that the economy is expanding and there will be more jobs
increased incomes means people can have increased savings, which increases their wealth
increased incomes mean people can consume more
more choice and increased production

Question 44

What are the 7 macroeconomic objectives?

Answer 44

Economic growth
Low unemployment
Protect the environment
balanced government budget
balanced balance of payments
greater income equality
low and stable inflation

Question 45

what is a deflationary fiscal policy

Answer 45

Where the government tries to reduce the econoomy, they do this by reducing government expenditure, or increase taxation which decreases AD

Question 46

What is expansionary fiscal policy?

Answer 46

where the government tries to expand the economy, they do this by increasing government spending or by reducing taxation which increases AD

Question 47

What is the interventionist policies?

Answer 47

Interventionist is where the government has an active role within the economy, by correcting any failures

Question 48

What is the market-based policies?

Answer 48

Where there is little government intervention, aiming to use free markets to incease efficiency, productivity and aggregate supply

Question 49

What conditions affect aggregate supply?

Answer 49

Promote competition
reform labour market
quality of workforce
infrastructure
quality of production process

Question 50

Strengths of shifting aggregate supply?

Answer 50

shifting outward will not cause inflation as it creates downward pressure on prices
increases production
job creation
reduces costs of production

Question 51

weakenesses of shifting aggregate supply

Answer 51

long time lags
costly
government does not have complete control on aggregate supply
data collection is slow and longwinded