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Question 1

Economy

Answer 1

the production and consumption of goods and services and the supply of money

Question 2

Production

Answer 2

The creation of goods and services

Question 3

Consumption

Answer 3

The purchasing of goods and service to satisfy needs and wants

Question 4

Interdependence

Answer 4

joint dependence between participants in an economy

Question 5

Saving

Answer 5

Regularly putting aside some money for future use

Question 6

Investments

Answer 6

The action of funding to build wealth and save money

Question 7

Exports

Answer 7

Goods and service sold by local business to oversea consumers

Question 8

Imports

Answer 8

Goods and service bought by local business to oversea consumers

Question 9

Recession

Answer 9

mild contraction in the level of economic activity resulting in reduced spending, rising unemployment and a slow rate of economic growth

Question 10

Business cycle

Answer 10

Cyclical fluctuations in the general level of economic activity

Question 11

Depression

Answer 11

Severe contraction in the level of economic activity results in many business failures and high levels of unemployment

Question 12

Inflation

Answer 12

Rise in price across all of the economy, causing money to loose value

Question 13

Demand

Answer 13

The quantity of products that consumers will buy at a particular price

Question 14

Supply

Answer 14

The quantity of products that businesses will sell at a particular price

Question 15

Price mechanism

Answer 15

The interaction of supply and demand in the market to determine products

Question 16

Law of demand

Answer 16

When prices rise, demand falls and when prices fall, demand rises

Question 17

Law of supply

Answer 17

When prices rise, supply rise and when prices falls, so does supply

Question 18

Market Equilibrium

Answer 18

The point at which the demand and supply curves intersect

Question 19

Changes in demand for price mechanism

Answer 19

Increase in demand ?

• shift to the right
• increase in price + quantity

Decrease in demand ?

• shift to the left
• decrease in price + quantity

Question 20

Changes in supply price mechanism

Answer 20

Increase in supply !

• shift to the right
• decrease in price
• increase in quantity

Decrease in supply?

• increase in price
• decrease in supply

Question 21

Contraction (business cycle)

key features

Answer 21

• failing levels of production (output)
• decreasing consumer spending
• rate of inflation decreases
• wage rates generally falls
• interest rates eventually fall
• level of unemployment rises

Question 22

Expansion (business cycle)

key features

Answer 22

• rising levels of production (output)
• increasing consumer spending
• rate of inflation may rise
• wage rates generally rise
• interest rates eventually rises
• level of unemployment falls

Question 23

How does recession happen?

Answer 23

Caused by a lack of spending. Business may cut back on production, some employees might lose their jobs and incomes

Question 24

How does “booms” occur?

Answer 24

High production and consumption lead to business producing more. However they can’t keep producing forever as there is a limit. Additional spending pushes up prices. Inflation, rise in price. Major economic problem and will eventually bring an end to the continued growth.

Question 25

What are the phases of a business cycle?

Answer 25

Contraception and expansion

Question 26

Reasons for increase in demand

Answer 26

Reason for increase in demand

• rise in consumer income (more money, more food)
• changes in consumer tastes and preferences
• increase in the size of population
• prices are expected to rise in the future e.g if people think blueberries will be expensive in the future, they will buy more now

Question 27

Reasons for decreases in demand

Answer 27

• fall in consumer income
• changes in consumer taste/preferences
• decrease in the size of population
• substitute good becomes cheaper
• complementary good becomes more expensive e.g milk increases, people stop purchasing blueberry smoothies. The demand of blueberry will fall.
• prices are expected to fall in the future

Question 28

Factors that cause an increase in supply

Answer 28

• decrease efficiency (bug found in blueberry —> reduce crops)
• unfavourable climatic conditions (e.g drought—> decrease harvest)

Question 29

Factors that cause an decrease in supply