march mock

Question 1

what is demand pull inflation

Answer 1

occurs when AD increases faster than AS and demand exceeds supply so firms push up the prices

Question 2

what is cost push inflation

Answer 2

increase in the cost of production makes firms increase prices

Question 3

what are the limitations of using CPI to measure inflation

Answer 3

not fully representative - inaccurate from non typical household
people dont have the same spending patterns

Question 4

what are the consequences of high inflation

Answer 4

firms less willing to invest and take risks
consumers reduce purchases
lower output and spending = lower growth
exports become less competitive
people on fixed incomes suffer

Question 5

what are the consequences of deflation

Answer 5

people put off their spending expecting price to fall further
business dont invest
confidence is low

Question 6

what is terms of trade

Answer 6

measures rate of exhcnage of one product for another when two countries trade
it is the ratio betwenn average ecport prices and average import prices

Question 7

how do you calculate terms of trade

Answer 7

index of export price/ index of import price X 100

Question 8

what factors affect the exchange rate

Answer 8

inflation
interest rates 
speculation 
competitiveness
government intervention 
recession

Question 9

what are the effects on appreciaition

Answer 9

cheaper imports and increase demand
worsens the balance of payments
however it could increase competitiveness due to cheaper raw material prices

Question 10

effects of a depreciation

Answer 10

export prices fall
increase domestic production
increase inflation - cost push inflation due to high import prices
J curve - initally the balance of payments get worse by then improves
marshall learner condition states there will be an improvement in trade balance if PED for exports and imports is above 1

Question 11

what is allocatively efficient

Answer 11

where resources are allocated to production of goods and services that people want to buy
MC=AR

Question 12

What is productively efficient

Answer 12

producing at minimum cost AC=MC

Question 13

what is x inefficiency

Answer 13

occurs when a business uses more inputs than necessary

Question 14

what are the characteristics of perfect competition

Answer 14

many firms 
no barriers to entry 
homegenous goods
interdependent 
perfect knowledge

Question 15

what are the characteristics of monopolitic competition

Answer 15

large number of buyers and sellers 
some barriers to entry 
differentiated goods
interdependence 
in SR they are profit maximises and can make abnormal profits
in LR cannot make abnormal profit

Question 16

arguments for nationalisation

Answer 16

lower costs
better management
control monopolies

Question 17

arguments against nationalisation

Answer 17

private sector are more likely to improce dynamic efficiency
could just reguate industries rather than change their whole market and management structure

Question 18

how can tax correct market failure

Answer 18

level of tax had to be equal to the social cost so negative externalities are eliminated

Question 19

what are the disadvantage to using tax to correct market failure

Answer 19

difficult to set - could be too low or too high

taxes are unpopular

Question 20

what is government failure

Answer 20

occurs when intervention leads to a loss of economic welfare

Question 21

what are the causes of government failure

Answer 21

lack of expertise 
short term solutions 
political self interest
enforcement costs 
regulatory failure

Question 22

what are the causes of wage differentials

Answer 22

workers are not homogeneous
non monetary considerations
labour is not immobile
trade unions

Question 23

what are the benefits of wage differentials

Answer 23

• incentive for worker to earn higher wage
• trickle down effect
• encourage enterprise

however

• increase inequality
• trickle down affect might not occur