Theme 2

Question 1

Define GDP

Answer 1

Gross Domestic Product, total value of all goods and services produced in an economy in one year

Question 2

Define GDP per capita

Answer 2

Total GDP divided by population

Question 3

What are PPPs?

Answer 3

Purchasing Power Parities, used to compare GDP by taking into account the cost of a basket of goods that could be bought in each of the countries being compared

Question 4

Define GNP

Answer 4

GDP + net property income from abroad

Question 5

Define GNI

Answer 5

GNP + net cross country income (e.g. remittances, dividends and interest payments)

Question 6

Define inflation

Answer 6

A sustained rise in the general price level

Question 7

Define deflation

Answer 7

A fall in the general level of prices

Question 8

Define disinflation

Answer 8

A fall in the rate of inflation

Question 9

How are price levels measured in the CPI?

Answer 9

7000 households are surveyed on 650 goods and services they bought, each item is assigned a weight to show the proportion of income spent on each item, prices of each food recorded and weight considered, compared to previous survey

Question 10

Why could CPI be considered as a bad measure of inflation?

Answer 10

It does not include housing costs such as rent payments and mortgage interest repayments

Question 11

What are the three causes of inflation?

Answer 11

Demand-Pull, cost-Push and growth in the money supply

Question 12

Give two examples of what causes demand-Pull inflation

Answer 12

Increase in population, increase in disposable incomes

Question 13

Give two examples of what causes cost-Push inflation

Answer 13

Shortages of key products, labour prices

Question 14

Define cyclical unemployment

Answer 14

Where a lack of spending in the economy causes unemployment (e.g. in a recession)

Question 15

Define structural unemployment

Answer 15

Where industries are in decline and workers skills are becoming obsolete

Question 16

Define frictional unemployment

Answer 16

Where people are between jobs

Question 17

Define seasonal unemployment

Answer 17

Where people are unemployed for some periods of the year

Question 18

Define classical unemployment

Answer 18

When real wages rise above the equilibrium wage (e.g. NMW) causing unemployment

Question 19

How does the Labour Force Survey measure unemployment?

Answer 19

Uses a survey to ask people whether they have been out of work for the last 4 weeks and are ready to work within 2 weeks

Question 20

How does the claimant count measure unemployment?

Answer 20

Records people who are successfully claiming job seekers allowance

Question 21

Define underemployment

Answer 21

The under use of a worker due to them not fully employing their skills in their job

Question 22

Define a recession

Answer 22

Two consecutive quarters of negative growth

Question 23

What are the four components of the current account?

Answer 23

Trading goods, trading services, primary income e.g. investments and secondary income e.g. transfers

Question 24

Define aggregate demand

Answer 24

Total expenditure on domestic goods and services

Question 25

What is the formula for marginal propensity to consume?

Answer 25

Change in consumption divided by change in income

Question 26

What is the formula for aggregate demand?

Answer 26

Consumption + Investment + Government spending + (X-M)

Question 27

Define aggregate supply

Answer 27

Total supply in UK economy

Question 28

Define income and wealth

Answer 28

Income is a flow of money and wealth is a stock of net assets

Question 29

What are the three injections into the circular flow of income?

Answer 29

Investment from banks, government expenditure and export expenditure

Question 30

What are the three withdrawals from the circular flow of income?

Answer 30

Bank savings, taxes and import expenditure

Question 31

What are three formulas for the multiplier?

Answer 31

1/(1-MPC) or 1/(MPW) or 1/(MPS + MPT + MPM)

Question 32

Give two downsides of economic growth

Answer 32

E.g. Inflation & damage to environment

Question 33

Give three UK macroeconomic objectives

Answer 33

Increase economic growth, low stable inflation (2%) and protect environment

Question 34

What curve shows the relationship between inflation and unemployment? Explain it

Answer 34

Phillips curve, firms attract workers by increasing wages meaning they must also increase prices

Question 35

Give two conflicts between macroeconomic objectives

Answer 35

Inflation and growth, growth and protecting the environment

Question 36

What are the two monetary policy instruments?

Answer 36

Interest rates and quantities easing

Question 37

Explain quantities easing

Answer 37

Central bank purchases government bonds from financial institutions in order to lower interest rates and increase the money supply to promote lending

Question 38

How would you conduct an expansionary fiscal policy?

Answer 38

Increase government spending above recurved taxation

Question 39

How would you conduct a contractionary fiscal policy?

Answer 39

Reduce government spending below received taxation

Question 40

Explain why data is expressed in PPPs US$ when comparing between countries?

Answer 40

It allows for comparisons between country’s currencies, by comparing how much of a country’s currency is needed to buy the same amount of goods you could buy in that country in the USA