Paper 2

Question 1

What is fiscal policy?

Answer 1

The use of government income and expenditure to achieve policy objectives

Question 2

What is inflation?

Answer 2

• Rise in the average price level

- Fall in the value of money

Question 3

What are supply side policies?

Answer 3

Policies that aim to make markets more competitive and efficient, and shift the LRAS curve to the right

Question 4

What is a budget deficit?

Answer 4

When spending exceeds revenue

Question 5

What is a budget surplus?

Answer 5

When revenue exceeds spending

Question 6

What are some injections into the circular flow?

Answer 6

• Investment by firms
• Government spending
• Overseas spending on our exports

Question 7

What are some withdrawals from the circular flow?

Answer 7

• Saved income
• Spending on imports
• Paying taxes

Question 8

What is cyclical unemployment?

Answer 8

Unemployment occurring during a downswing of the economic cycle

Question 9

What is the multiplier?

Answer 9

When the increase in national income is larger than the initial injection

Question 10

What is an output gap?

Answer 10

The difference between GDP and the potential output of of the economy

Question 11

What is short run economic growth?

Answer 11

When an increase in AD brings spare capacity into production

Question 12

What is frictional unemployment?

Answer 12

“between jobs” unemployment

Question 13

What is Structural unemployment?

Answer 13

Caused by declines in industry and long term changes in market conditions

Question 14

What is real wage unemployment?

Answer 14

Unemployment caused by real wage rates being higher than the equilibrium

Question 15

What does the philliphs curve show?

Answer 15

The trade off between inflation and unemployment

Question 16

What is the natural rate of unemployment?

Answer 16

When all unemployment is voluntary

Question 17

What is liquidity?

Answer 17

The ease with which an asset can be converted into cash

Question 18

What are bonds?

Answer 18

Financial securities which are a form of long term borrowing

Question 19

What is a central bank?

Answer 19

A national bank that provides financial services for it’s country’s banking system

Question 20

What is the main function of a central bank?

Answer 20

Help maintain macroeconomic and financial stability

Question 21

What is the bank rate?

Answer 21

The interest rate set by the bank of England which it uses as a benchmark for lending to financial institutions

Question 22

What is a bank’s liquidity ratio?

Answer 22

The ratio of a bank’s liquid assets to its deposits

Question 23

What is a capital ratio?

Answer 23

The amount of capital on a bank’s balance sheet as a proportion of loans

Question 24

What is a progressive tax?

Answer 24

When the proportion of tax rises as income rises

Question 25

What is a regressive tax?

Answer 25

When the proportion of tax falls as income rises

Question 26

What is a proportional tax?

Answer 26

When the proportion of a tax stays the same as income rises

Question 27

What are the canons of taxation?

Answer 27

- Economy (Cheaper than revenue) - Equity (Fair) - Efficiency (It should work) - Flexibility (Easy to change) - Convenient - Certainty

Question 28

What is the national debt?

Answer 28

Debt accumulated by previous government borrowing

Question 29

What is globalisation?

Answer 29

The growing integration of the world's economies

Question 30

What is absolute advantage?

Answer 30

If a country can produce more than another country from the same resources

Question 31

What is comparative advantage?

Answer 31

The country with the least opportunity cost when making a good

Question 32

What are primary income flows?

Answer 32

Income generated by UK owned assets overseas

Question 33

What are secondary income flows?

Answer 33

Current transfers (e.g. gifted money)

Question 34

What are some factors that influence a country's balance of trade?

Answer 34

- Productivity - Inflation - Exchange rate

Question 35

What are some indicators of development?

Answer 35

- GDP per capita - Distribution of income - Health statistics

Question 36

What are some supply side policy examples?

Answer 36

- Privatisation - Deregulation - Help for small businesses - Education and training - Low benefits

Question 37

What is crowding out?

Answer 37

Investments by firms and consumption by people is sucked up by government spending

Question 38

What is consumer surplus?

Answer 38

The difference between what consumers are willing and able to pay, and what they have to pay for a good/service

Question 39

What is net investment?

Answer 39

Gross investment - depreciation

Question 40

What are some benefits of supply side policies?

Answer 40

- Lower inflation - Lower unemployment - Improved economic growth - Improved trade/BOP