section 1

Question 1

what is an economy

Answer 1

an inter-related system of production and consumption activities, conducted by economic agents

Question 2

what are economic agents and what do each of them do

Answer 2

households (consumption, create demand, supply labour), firms (production, demand labour, supply of goods and services), governments (set laws, demand taxes, supply public services)

Question 3

command economies

Answer 3

the means of production are publicly, or socially owned, via the state
the government determines what, how and for whom

Question 4

free market economies

Answer 4

the means of production are privately owned by individuals in a system of private enterprise
the free market (the price mechanism) determines what, how and for whom- without government intervention

Question 5

what was the first country to industrialise

Answer 5

England in the 18th century

Question 6

what position is the uk in world largest economies

Answer 6

6th

Question 7

what is the uk economy/market based on

Answer 7

services rather than goods (especially financial services)

Question 8

macroeconomic performance

Answer 8

how well an economy meets its macroeconomic objectives

Question 9

what are the main macroeconomic objectives

Answer 9

strong,sustainable, balanced economic growth
full employment/low unemployment
price stability (low, stable inflation)
satisfactory balance of payments current account

Question 10

macroeconomic indicator

Answer 10

a statistic that tells us something about the macroeconomic performance of an economy
has an objective been met?
how is the economy performing over time?
how is the economy performing compared to other countries?
does the government need to implement policies to address any concerns

Question 11

macroeconomic indicator for economic growth

Answer 11

% change in real gdp and real gdp per capita

Question 12

macroeconomic indicator for price stability

Answer 12

% change in the cpi

Question 13

full employment

Answer 13

the labour force survey (%)

Question 14

macroeconomic indicator for balance of payments

Answer 14

exports - imports as a % of gdp

Question 15

what is a lag indicator

Answer 15

data about the past
e.g. economic growth, unemployment, inflation, trade

Question 16

what is a lead indicator

Answer 16

expectations about the future
e.g. consumer and business confidence surveys

Question 17

other macroeconomic objectives

Answer 17

improving government finances (reducing borrowing)
reducing inequality
dealing with economic shocks
improving productivity
improving public services
environmental objectives

Question 18

fiscal surplus

Answer 18

tax revenue > government spending

Question 19

fiscal deficit

Answer 19

tax revenue < government spending

Question 20

fiscal deficit can be reduced by…

Answer 20

increasing taxes
reducing spending

Question 21

economic shocks

Answer 21

global financial crisis, brexit, covid, ukraine war

Question 22

production

Answer 22

the total amount of output

Question 23

productivity

Answer 23

the rate of output/measure of efficiency

Question 24

uk productivity

Answer 24

The UK is less productive than our main competitors
we have a ‘productivity gap’ where productivity has failed to increase in line with the trend

Question 25

what has been the macroeconomic priorities since 1990s onwards

Answer 25

controlling inflation (at the expense of unemployment)
since 1992 the uk has started ‘inflation targeting’ as its main macro objective

Question 26

macroeconomic conflicts

Answer 26

when it is not possible to achieve two objectives at the same time- this can occur especially in the short run

Question 27

trade off

Answer 27

the achievement of one objective may be at the expense of another objective

Question 28

example of macroeconomic conflict

Answer 28

high economic growth vs high inflation
dealing with a crisis vs increase in the fiscal deficit
reducing the fiscal deficit vs impact upon public services

Question 29

index numbers

Answer 29

a way of simplifying data to compare relative but not absolute changes through percentage changes compared with the base value- index numbers have no unit

Question 30

index number formula

Answer 30

index number y2 = (figure in y2/figure in base year) x index number base year

Question 31

calculating actual figures from index numbers formula

Answer 31

figure in y2 = (figure in base year/index number in base year) x index number y2

Question 32

what is cpi and what does it measure

Answer 32

consumer price inflation / average cost of living (without housing costs)

Question 33

how is cpi constructed

Answer 33

the office of national statistic selects a basket of around 750 consumer goods and services and compares to the average increase in prices compared to 12 months before

Question 34

indexation

Answer 34

a technique to adjust payments by mean of a price index

Question 35

real gdp using index numbers formula

Answer 35

real gdp = (current year nominal gdp / current year price index) x price index in comparison year

Question 36

how to measure living standards

Answer 36

real gdp per capita

Question 37

limitations of using national income data to asses changes in living standards over time

Answer 37

data collection can be flawed
distribution of income
non-market activities (such as volunteering, and unpaid work) are not counted
informal/black economy is not accounted for
access to education and healthcare not accounted
quality of life
environmental factors (like pollution)
sustainability

Question 38

purchasing power parity (ppp) exchange rates

Answer 38

measures the value of a currency in terms of the goods and services it will buy in different countries (e.g. big mac index)