Theme 2 - The UK economy - performance and policies

Question 1

what are the MEPOs

Answer 1

1. growth
2. inflation
3. unemployment
4. current account balance
5. budget balance

Question 2

what are the benefits of economic growth

Answer 2

• increased standard of living
• increased job opportunities
• reduced poverty
• increased government revenue
• increased investment opportunities

Question 3

what are the costs of economic growth

Answer 3

• inflation
• resource depletion
• income inequality
• financial instability

Question 4

define GDP

Answer 4

the total value of output of goods and services produced by an economy

Question 5

what is the difference between standard of living and quality of life

Answer 5

quality of life includes not only wealth and employment but also the build environment, physical and mental health, education, recreation and leisure tie, social belonging, and political freedoms.

Question 6

what are the limitations of using GDP per capita as a measure of quality of life

Answer 6

the measure takes no account of:
- differences in price levels (so some measures use purchasing power parity to account for this)
- unofficial work not measured by the statisticians e.g. house work
- quality of goods and services
- other impacts on living standards e.g. environmental considerations, crime rates (USA), housing space acquired per $, traffic congestion etc.
- income inequality e.g. Qatar vs Sweden

Question 7

what is real GDP growth

Answer 7

Real GDP Growth = Nominal GDP Growth - Inflation
» takes inflation into account

Question 8

define PPP (purchasing power parity)

Answer 8

the idea that items should cost the same in different countries, based on the exchange rate at the time.

Question 9

what are the 3 injections of the circular flow of income

Answer 9

• investments
• government spending
• exports

Question 10

what are the 3 withdrawals of the circular flow of income

Answer 10

• savings
• taxation
• imports

Question 11

what is the equation for aggregate demand

Answer 11

Aggregate Demand (AD) = Consumption (C) + Investment (I) + Government spending (G) + Exports (X) - Imports (M)

Question 12

what is the equation for disposable income

Answer 12

Disposable income (Yd) = Consumption (C) + Savings (S)

Question 13

what is the equation for the savings ratio

Answer 13

Savings ratio = savings ÷ disposable income

Question 14

define the multiplier effect

Answer 14

when an injection or withdrawal causes a more than proportionate change in national income

Question 15

what is the equation for the multiplier

Answer 15

1/1-MPC
1/MPS
1/MPW
1/MPS+MRM+MRT

Question 16

define investment

Answer 16

firms spending on capital goods to create future increase of production of goods and services

Question 17

define aggregate demand

Answer 17

the planned real expenditure on a country’s goods and services produced within an economy in a time period.

Question 18

what causes a movement in the AD curve

Answer 18

changes in the general price level

Question 19

what causes a shift of the AD curve

Answer 19

changes in the factors in the AD equation

Question 20

define macroequilibrium

Answer 20

when aggregate supply is equal to aggregate demand.