Theme 2 Economics

Question 1

Circular Flow of Income.
Withdrawals
Injections

Answer 1

Withdrawals - Savings, Imports, Taxes.

Injections - Investment, Government spending, Exports.

Question 2

Macro Economics Objectives.

Answer 2

Controlling Inflation
Unemployment Rate
Economic Growth 
Balance of Payments
Sustainability
Reduce Inequality
Government Debt.

Question 3

Inflation Definition

Answer 3

General rise in prices

Question 4

What is a negative externality

Answer 4

A negative externality is a cost that is suffered by a third party as a consequence of an economic transaction.

Question 5

What is a positive externality

Answer 5

This occurs when the consumption or production of a good causes a benefit to a third party. For example: When you consume education you get a private benefit. But there are also benefits to the rest of society.

Question 6

Aggregate Demand Equation.

Answer 6

AD = Consumption + Investment + Government + (Exports - Imports)

Question 7

Factors that influence consumption

Answer 7

Gross Income,
Disposable Income
Discressionary Income
Inflation
Interest
Rate of Unemployment
Wealth effect.

Question 8

MPC meaning

Answer 8

Marginal Propensity to Consume - How much of an additional income you are likely to spend.

Question 9

MPS meaning

Answer 9

Marginal Propensity to Save - How much of an additional income you are too save.

Question 10

Level of Saving

Answer 10

The average propensity to save also known as the saving ratio. Proportion of income that is saved

Question 11

Factors that Influence saving

Answer 11

Income
Interest Rates
Wealth
Confidence
Inflation
Composition of households

Question 12

Carbon Trading.

Answer 12

A system of limiting carbon emissions through granting firms permits to emit a carbon safe area.

Question 13

Factors that effect Aggregate Demand

Answer 13

Factors :
Inflation
Interest Rates
Income
Wealth affect
Confidence.

Question 14

Capital Investment.

Answer 14

This is spending on capital goods such as plant and equipment and new buildings to produce more consumer goods

Question 15

Accelerator Theory

Answer 15

The accelerator theory is an economic postulation whereby investment expenditure increases when either demand or income increases.

Question 16

Factors that influence the production method.

Answer 16

Nature of Products
Cost of Machinery
Workforce
Finance
Competition.
Stakeholders

Question 17

Economic Growth.

Answer 17

This measures the rate of GDP of a country over a year.
It can be measured in 3 ways:
- Total Output of a business
- Total income of a country
- Total Spending.

Question 18

CPI

Answer 18

Consumer Price Index

Question 19

Types of Inflation.

Answer 19

Demand Pull - Customers have too much money, spend too much and prices start to rise.
Cost Push - Suppliers see increase in costs and increase prices.

Question 20

Balance of Payment and the accounts

Answer 20

Balance of Payments - Measures all international economic transactions between the UK and its trading partner.
Current account - Net exports/imports, Net Income, Net Transfers
Capital Account - Purchase of fixed assets such as real estate
Financial account - Foreign direct investment, other financial items.

Question 21

Types of Unemployment.

Answer 21

Frictional - Out of work due to unemployment.
Structural - Skills are no longer needed
Cyclical - Economic Reasons
Seasonal - Parts of the year when work isn’t needed

Question 22

The Claimant Count

Answer 22

The Claimant Count measure includes people who are eligible to claim the Job Seekers Allowance.
What's Required : 
Out of work
Available for Work
Seeking employment
aged 18-66
Less than 16,000 in savings

Question 23

ILO Survey.

Answer 23

The labour force survey is a survey of 60k people all over society.
Aged - 16-70

Question 24

Universal Credit

Answer 24

Universal Credit is a payment to help with your living costs

Question 25

Supply Side Economics.

Answer 25

Industrial Relations - Between management and workers in the industry Collective Bargaining - Negotiation of wages and other conditions of employment Holding a Ballot - A system of voting on particular issues

Question 26

3 Types Of Government Spending.

Answer 26

Welfare Spending --> Benefits to the public Current Spending --> Paying wages on public sector Financial Spending --> Building new infrastructure HS2

Question 27

What's an Import and Export?

Answer 27

Export is a good that the country sells to other countries | Import is a good that the country buys into their country.

Question 28

Exchange Rate and Types

Answer 28

- Value of 1 currency to the value of another - Floating. - Fixed. - Managed Floating.

Question 29

Multiplier Effect

Answer 29

An initial change in aggregate demand can have a much greater final impact on the level of GDP

Question 30

What is an Economic Shock

Answer 30

An unexpected event that causes change in the level of supply, demand, output and employment.

Question 31

What is a Public Good.

Answer 31

Provides an example of market failure resulting from missing markets.

Question 32

Non Excludability.

Answer 32

Non-rivalrous means that the goods do not dwindle in supply as more people consume them; non-excludability means that the good is available to all citizens. An important issue that is related to public goods is referred to as the free-rider problem.

Question 33

What's the Output Gap.

Answer 33

The difference between the actual GDP and Potential GDP

Question 34

Short Run Aggregate Supply. | Long Run Aggregate Supply.

Answer 34

Short Run Shows total planned output. Prices can change but the prices and productivity of factor inputs. Long Run Shows total planned output when both prices and average wage rates can change.

Question 35

Fiscal Policy

Answer 35

Demand management through Tax and Government spending.

Question 36

Types of Taxation Progressive Proportional Regressive

Answer 36

Progressive - The marginal rate of tax increases as incomes rise for example income tax. Proportional - The marginal rate of tax is constant average rate of tax Regressive - The rate of tax falls if incomes rise, lower tax for example and tobacco and duties.

Question 37

Direct Tax Indirect Tax.

Answer 37

Direct Tax - Is imposed upon a person or property eg income tax. Indirect Tax - Is a tax that is added upon goods and services before they reach the customer.

Question 38

What is Tight Fiscal Policy and Lose Fiscal Policy

Answer 38

Tight Fiscal Policy - Increase Tax decrease Government spending to reduce inflation Lose Fiscal Policy - Increase Government spending and lower Tax.

Question 39

What's an automatic stabiliser

Answer 39

Changes in tax revenues and state spending arising automatically as the economy moves through the trade cycle.

Question 40

Discretionary Fiscal Changes

Answer 40

Deliberate changes in tax and government spending for example an increase in spending on roads.

Question 41

Fiscal Stimulus.

Answer 41

Increase in Government and Lower Tax in order to increase AD

Question 42

Fiscal Policy Evaluation.

Answer 42

``` Time Lag Imperfect Info Time Lag Magnitude Confidence ```

Question 43

Monetary Policy

Answer 43

Trying to increase the amount of money going around the circular flow of income. Interest Rates And Quantitative easing

Question 44

Monetary Stimulus.

Answer 44

Changes in Monetary Policy designed to increase aggregate demand including lower policy interest rates and measures to increase the supply of credit

Question 45

Pros and Cons of QE

Answer 45

Benefits - Stimulate Demand, Increase in the wealth effect and cuts interest rates. Drawbacks - Banks still aren't 100% confident. Surge in house prices

Question 46

Liquidity Trap.

Answer 46

A liquidity trap is when monetary policy becomes ineffective due to very low interest rates combined with consumers who prefer to save rather than invest in higher-yielding bonds or other investments.