Quick Exam

Question 1

Short run economic growth? + draw diagram

Answer 1

Caused by an increase in AD

*draw diagram *

Question 2

Long run economic growth + draw diagram

Answer 2

Caused by an increase in productivity

Question 3

Causes of short run Economic growth

Answer 3

1) lower interest rates
- cheaper to borrow for consumers, cheaper for businesses to invest
2) lower income tax/ corporation tax
- more disposable income, more retained profit
3) high government spending
4) weaker exchange rate

Question 4

What causes an LRAS shift to the right?

Answer 4

1) Quantity of FOP
2) Quality of FOP
3) Increase in productivity capacity

Question 5

Causes of Long run economic growth

Answer 5

1) Increase in labour productivity
2) increase in workforce ( immigration)
3) infrastructure improvements
- transport = cheaper to transport goods
- easier to access goods
4) increase competition

Question 6

The policy objective of sustainable development?

Answer 6

To reduce the negative impact on the environment and future generations

Question 7

Sustainability?

Answer 7

It refer to meeting the needs of the present without compromising the future.

Question 8

Limitation of unsustainable growth

Answer 8

1) Resource depletion and resource degradation
2) deforestation
3) over use + burning of fossil fuels

Question 9

Causes of Unemployment?

Answer 9

1) structural
2) frictional
3) cyclical

Question 10

Consequences of unemployment ( Economy)

Answer 10

1) lost output
- labour as a resource is lost
2) deterioration of govt finances
- high levels of govt spending on unemployment benefits
- lower tax revenues
3) Hysteresis
- skills outdated and lost

Question 11

Cost of unemployment (individual)

Answer 11

1) loss of main source of income
2) loss of status

Question 12

Benefits of unemployment

Answer 12

1) firms benefit from greater pool of workers
2) workers have time to search for best job
- not pressured into taking any job

Question 13

Balance of payments

Answer 13

A record of economic transactions that take place between a country and the rest of the world

Question 14

What does the current account measure?

Answer 14

Trade

Question 15

Components of the current account

Answer 15

1) Trade in goods
2) trade in services
3) income
- measure of flows of income e.g. remittances
4) transfers
- payment of EU fees
- contribution of AID to developing countries

Question 16

The policy objective of sustainable balance of payments

Answer 16

The uk aim for the current account is to be satisfactory, so there is not a large deficit. This is usually near to equilibrium

Question 17

Fiscal policy?

Answer 17

The use of government spending and taxation to influence the economy economy

Question 18

Expansionary fiscal policy?

Answer 18

Increase AD

Question 19

Contractionary fiscal policy?

Answer 19

Decrease AD

Question 20

Why might we use expansionary fiscal policy?

Answer 20

1) Boost growth
2) reduce unemployment
3) increase demand pull inflation

Question 21

Why might we use contractionary fiscal policy?

Answer 21

1) reduce inflation
2) reduce budget deficit and national debt
3) redistribution of income
- higher tax on rich
4) reduce current account deficit
- less disposable income = less imports

Question 22

Types of government spending

Answer 22

1) current spending
- day to day spending
- payment of public sector wages
2) capital spending
- infrastructure spending
3) welfare spending
- benefits and pensions
4) debt interest payment

Question 23

Effect of an increase in interest rates on individual

Answer 23

• increased cost of borrowing
• higher mortgage payments
• improved return for savers
• increased cost of bank loans

Question 24

Effect of increase in interest rates on economy

Answer 24

1) currency will appreciate
- exports less competition; imports cheaper
2) inflation
- will be lower
3) economic growth
- tend to be slower
4) unemployment could rise

Question 25

Supply side policies

Answer 25

Designed to increase productive capacity of the economy

Question 26

2 types of SSP

Answer 26

1) interventionist SSP
2) Market based SSP

Question 27

Aim of interventionist SSP

Answer 27

Try to provide bigger role of government to boost LRAS

Question 28

Aim of market based SSP

Answer 28

Reduce the role of the government

Question 29

Interventionist SSP policies

Answer 29

1) govt spending on education
2) govt spending on infrastructure
3) subsidies to promote investmernt
- buying capital
- New r + d

Question 30

3 groups of market based SSP

Answer 30

1) tax reform
2) labour market reform
3) competition policy

Question 31

Policies of tax reform

Answer 31

1) lower income tax
- incentive those outside the labour force to join
- incentivise those to work harder
2) lower corporation tax
- firm retain more profit which they can invest

Question 32

Policies in labour market reform

Answer 32

1) reduce benefit and welfare payments
- strong incentive to work
2) reduce minimum wage
- reduce cost of production

Question 33

Policies in Competition policy

Answer 33

1) privatisation
2) deregulation
3) trade liberation

Question 34

Cons of SSP

Answer 34

1) no guarantee of success
2) cost
- some of these policies are very costly
3) time lags
- many years before completion( infrastructure)