Theme 2

Question 1

What is nominal GDP

Answer 1

The total value of all goods and services produced in a given time period

Question 2

What is real GDP

Answer 2

Nominal GDP adjusted for inflation

Question 3

What is purchasing power parity

Answer 3

The rate of what one currency in one country would have to be converted to buy the same basket of goods in a country with a different currency

Question 4

3 limitations of using GDP to compare living standards

Answer 4

• Black markets
• Doesn’t take levels of health and environment into account
• Currency conversion

Question 5

What is gross national income

Answer 5

The total amount earned by a nations people and businesses

Question 6

Definition for inflation

Answer 6

A general rise in the level of prices over a given time period

Question 7

What is demand pull inflation

Answer 7

The demand for goods and service exceeds the availability of supply, causing the firm to increase prices

Question 8

What is cost push inflation

Answer 8

When production costs increase leading to firms having to increase prices to cover the costs

Question 9

What are the 2 measures of unemployment

Answer 9

Claimant count = records the total number of people claiming benefits

ILO = international labour organisation measures people who are unemployed but are actively seeking for a job

Question 10

What is structural unemployment

Answer 10

Unemployment resulting from a firms reorganisation. Typically technological advances

Question 11

What is frictional unemployment

Answer 11

Unemployment due to movement from one job to another

Question 12

What is cyclical unemployment

Answer 12

Unemployment resulting from the stage of an economy’s business cycle. Typically during economics downturns

Question 13

What is demand deficiency

Answer 13

Where aggregated demand falls shorts of aggregate supply causing the reduction in production and employment

Question 14

What is a current account deficit

Answer 14

When a countries imports are greater than they receive in exports

Question 15

What is the balance of payments

Answer 15

A record of all economic transactions that take place in a country in a given time period

Question 16

Difference between gross and net

Answer 16

Gross is the whole of (income, investment) net is the total after taking away expenses

Question 17

Injections and withdrawals

Answer 17

Inject:
- Export
- Government spending
- Consumption

Withdraw:
- Imports
- Taxation
- Saving

Question 18

Definition of the multiplier

Answer 18

A further increase in demand from an initial investment

Question 19

Formula for the multiplier

Answer 19

1
_____

1- MPC

Question 20

Factors causing economic growth

Answer 20

• Technology
• Government spending
• Resources
• Confidence (Animal spirits)
• Employment

Question 21

Impacts of economic growth

Answer 21

+
More consumption
Improved technology and education
More employment
-
Bigger gap between rich and poor
Inflation
Environmental impacts

Question 22

Macroeconomics objectives

Answer 22

• economic growth
• low unemployment
• stable inflation
• balance current account

Question 23

What is a fiscal policy

Answer 23

Use of government spending or taxation to influence economy

Question 24

What is a monetary policy

Answer 24

Bank of England using interest rates and money supply to influence economy

Question 25

What are the demand side policies

Answer 25

Monetary and fiscal policies

Question 26

What are the supply side policies

Answer 26

Market based methods and interventionist methods

Question 27

What are the market based methods

Answer 27

Floating exchange rates - governments maintaining high exchange rates > reduces prices of imported goods but makes economy less competitive

Trade liberalisation - removing or reducing trade barriers with other countries. Less quality goods

Question 28

What are the interventionist policies

Answer 28

• Investment in human capital (more employment, better education)
• Providing affordable housing