Government Objectives

Question 1

What are the four government objectives?

Answer 1

Economic growth, unemployment low, inflation low and balance of payments.

Question 2

What is G.D.P per capital?

Answer 2

Measure of average income per individual in an economy

Question 3

What would be the case if the economy is expanding?

Answer 3

GDP would be increasing e.g. more jobs

Question 4

What would happen to the economy if GDP was decreasing?

Answer 4

Economy would be shrinking e.g. Job cuts

Question 5

What does the G stand for?

Answer 5

Gross

Question 6

What does gross mean?

Answer 6

Excluding depreciation of machinery

Question 7

What does the D mean?

Answer 7

Domestic

Question 8

What does P stand for?

Answer 8

Product

Question 9

What is GDP good at showing and bad at?

Answer 9

Good at showing what happened an dbad at forecasting.

Question 10

What are the factor that make economic growth occur?

Answer 10

Technology, Human Capital, Discovery of raw materials, immigration and increase in population

Question 11

What is a recession?

Answer 11

2 or more quarters of negative economic growth

Question 12

What is a negative output gap?

Answer 12

Difference between recession and trend growth

Question 13

What is a positive output gap?

Answer 13

Difference between boom and trend

Question 14

Define aggregate demand

Answer 14

All demand curve in an economy added together

Question 15

What is the equation for aggregate demand

Answer 15

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

Question 16

What does the C stand for in aggregate demand equation?

Answer 16

Consumption

Question 17

What is consumption influenced by?

Answer 17

Income, interest rates, new technology and confidence

Question 18

What does the I stand for in aggregate demand equation?

Answer 18

Investment

Question 19

What is investment influenced by?

Answer 19

Technology advances, profit levels and corporation tax

Question 20

What does the G stand for in aggregate demand equation?

Answer 20

Government Spending

Question 21

What is government spending influenced by?

Answer 21

Demographic changes and tax revenue

Question 22

What does the X stand for in aggregate demand equation?

Answer 22

Exports

Question 23

What influences exports?

Answer 23

Quality of goods

Question 24

What does the M stand for in aggregate demand equation?

Answer 24

Imports

Question 25

What are imports influenced by?

Answer 25

Income

Question 26

What are the two types of Aggregate Supply?

Answer 26

SRAS and LRAS

Question 27

What is short run supply affected by?

Answer 27

Productivity, cost of production, taxes, subsides and wages.

Question 28

What are the two types of LRAS?

Answer 28

Keynesian and Classical

Question 29

What is Keynesian?

Answer 29

Maximum government intervention

Question 30

What is Classical supply?

Answer 30

Minimum government intervention

Question 31

Describe the Accelerator effect

Answer 31

Increase in GDP means a large increase in investment

Question 32

Give an example of the accelerator

Answer 32

Investment in 4G networking goes up to meet rising household and business demand

Question 33

What is the capital-output ratio?

Answer 33

Ratio between output and stock of fixed assets

Question 34

What is another term for GDP?

Answer 34

National income

Question 35

Describe the multiplier effect

Answer 35

A small change in aggregate demand can lead to large change of GDP - ripple effect

Question 36

Example of multiples effect

Answer 36

New house building project inject £200m of extra demand and output into economy, many businesses effected directly and other benefit from an increased new flow of money

Question 37

Define unemployment

Answer 37

Number of people of working age who aren't in job

Question 38

What are the two methods of measuring unemployment?

Answer 38

Claimant court and labour force survey

Question 39

What are the different type of employment?

Answer 39

Structural, frictional, seasonal, technological, regional and cyclical.

Question 40

Define structural unemployment.

Answer 40

Industries have collapsed

Question 41

Define frictional unemployment

Answer 41

Temporarily where people move between jobs

Question 42

Define seasonal unemployment

Answer 42

Work opportunities vary throughout year

Question 43

Define technological unemployment

Answer 43

Automation reduces need for work force

Question 44

Define regional unemployment

Answer 44

Some areas have more unemployment than others

Question 45

Define cyclical unemployment

Answer 45

High and low levels of aggregate demand produces recessions and booms effecting employment

Question 46

What is inflation?

Answer 46

Rate of change of average price level over time, measured by changes in prices in average basket

Question 47

What are the two methods of measuring inflation?

Answer 47

CPI and RPI

Question 48

Which one CPI or RPI takes into account house prices?

Answer 48

RPI

Question 49

Define demand pull inflation

Answer 49

Too much money chasing too few goods cause prices to rise

Question 50

Define Cost push inflation

Answer 50

Increase in raw materials or capital prices drives over price up

Question 51

Define deflation

Answer 51

General fall in average prices

Question 52

What is disinflation?

Answer 52

Inflation rising at a slower rate

Question 53

When is disinflation likely to occur?

Answer 53

During periods of stagnant growth

Question 54

What is the equation for the monetarist theory of inflation?

Answer 54

MV = PT

Question 55

What does the M stand for in MV = PT?

Answer 55

Money

Question 56

What does the V stand for in MV = PT?

Answer 56

Velocity

Question 57

What does the P stand for in MV = PT?

Answer 57

Prices

Question 58

What does the T stand for in MV = PT?

Answer 58

Transactions

Question 59

Define balance of payment

Answer 59

Difference between imports and export

Question 60

What are the 3 accounts that measure balance of payment?

Answer 60

Current account, capital account and financial account

Question 61

What does the current account record?

Answer 61

Trade in goods and services as well as investment income and transfers

Question 62

What does the capital account record?

Answer 62

International flows of capital

Question 63

What does the financial account record?

Answer 63

Foreign direct investment

Question 64

What causes a deficit in BOP?

Answer 64

Exporting less than importing

Question 65

What cause surplus in BOP?

Answer 65

Exporting more than importing

Question 66

What is BOP influenced by?

Answer 66

Productivity, inflation, exchange rates and worldwide economics

Question 67

What are the structural causes of problems with BOP?

Answer 67

Underinvestment, relatively low productivity, persistently high inflation and emergence of lower cost competition

Question 68

What are cyclical causes of issues with BOP?

Answer 68

Overvalued exchange rate, boom in domestic demand and slump in global prices

Question 69

What is regressive tax?

Answer 69

Applied to everyone, affects poor most.

Question 70

How is national income measured?

Answer 70

Amount we spend, produce and earn

Question 71

What is a leakage in circular flow of income?

Answer 71

Saving, taxes and imports

Question 72

What is a injection in circular flow of income?

Answer 72

Government expenditure, investment and exports

Question 73

Demand side shocks

Answer 73

Capital investment booms and global credit crunch

Question 74

Supply side shocks

Answer 74

Rise in the world price of crude oil or natural gas and unexpected and sizeable change in world prices of foodstuffs used both for direct consumption

Question 75

Define saving

Answer 75

Saving involves income that is not consumed by individual

Question 76

Define investment

Answer 76

Investment is defined as an addition to the capital stock by firms

Question 77

Define progressive tax

Answer 77

More you earn, more you pay