Topic 2

Question 1

If £5 is circulated around the economy 4 times, what is the value of the economy?

Answer 1

£20

Question 2

Is national - income,output and expenditure equal.

Answer 2

Yes

Question 3

Which two ‘parties’ are the reason for the circular flow of income?

Answer 3

House holds and firms

Question 4

Is the value of the economy always 100%?

Answer 4

No

Question 5

Why isnt the value of the economy not always 100%

Answer 5

Withdrawals and injections

Question 6

What are some examples of withdrawals (3)

Answer 6

Tax
Imports
Savings

Question 7

Give 3 examples of injections?

Answer 7

Gov Expenditure
Exports
Investment

Question 8

What is the equation for AD?

Answer 8

C + I + G+(X-M)

Question 9

What are the factors affecting consumption?(6)

Answer 9

Real Disposeable Income 
Interest Rates 
Tax rates 
Wealth
Consumer Confidence 
Credit availability

Question 10

Give an example of tax on consumers

Answer 10

Income

Question 11

What is meant by interest rates ?

Answer 11

The cost of borrowing and the reward on saving

Question 12

What comes under wealth? (4)

Answer 12

Property
Bonds
Shares
Savings

Question 13

What is investment?

Answer 13

Money spent by firms

Question 14

What is investment done on (5)

Answer 14

Equipment
Machinery 
Buildings 
Infrastructure  
Capital Goods

Question 15

Why do firms invest

Answer 15

To be efficient, causing more output, lowering costs

Question 16

What influences investment?(6)

Answer 16

Rate of technical progress
Interest rates 
Business Expectation 
Tax
Reate of change in income 
Cost of labour

Question 17

What kind of tax is issued on firms

Answer 17

VAT

Coorpiration

Question 18

Does investmeant help control inflation?

Answer 18

Yes

Question 19

Why does investment help control inflation

Answer 19

As it allows firms to be more efficient, allowing them to have a lower cost of production, meaning they can charge lower prices.

Question 20

What do goverments spend money on(3)

Answer 20

Infrastructure
Day to day services
Pensions, etc

Question 21

What is gov spending influenced by? (3)

Answer 21

Amount coming in (income tax)
Size of the budget deficit
Amount of debt

Question 22

How can exports increase (3)

Answer 22

The UK being more competitive
Higher level of growth in trading economies
Lower value of currency

Question 23

How can imports decrease ? (3)

Answer 23

UK being more competitive
Lower value of currency
Inflation in other countries

Question 24

What does savings affect

Answer 24

Investment and consumption

Question 25

What influences savings (6)

Answer 25

Interest rates
Credit availability 
Price expectation 
Unemployment 
Consumer confidence 
Tax on savings

Question 26

What is AS?

Answer 26

The total value of supply in an economy

Question 27

What is SRAS?

Answer 27

The supply available for current times, and the near future.

Question 28

what affects sras

Answer 28

teh costs of production in teh economy

Question 29

What affects SRAS (6)

Answer 29

Wages 
Interest Rates 
Prices of imported materials 
Labpour productivity 
Energy prices 
Technical progress

Question 30

What is LRAS? (2)

Answer 30

teh level of output teh economy will producein the logn run using all factors of production at sustainable levels

Question 31

in the short run what are wages

Answer 31

fixed

Question 32

in the long run what are resource prices

Answer 32

variable

Question 33

What types of graph are there for LRAS ?

Answer 33

Classical and Keynesian

Question 34

What are the factors that affect LRAS? (5)

Answer 34

Available land and raw materials
Quantity and quality of labour and capital
Tech improvements 
Level of entrepreneurship
Labour supply
Mobility of labour 
Capital stock 
Business efficiency 
Innovation and invention

Question 35

What is an economic shock?

Answer 35

Something unexpected that hits the economy, affecting supply or demand or both

Question 36

What is the multiplier effect

Answer 36

Where the increase in an economy’s value is greater than the inital injection.

Question 37

How do you calculate the multiplier effect?

Answer 37

1/(savings + tax + imports )

Question 38

What is the accelerator affect?

Answer 38

Where demand rises, causing a firm to work close to full capcity (or at it), causing them to invest to increase capacity.

Question 39

What is the negative accelerator effect?

Answer 39

Where demand is falling , causing a firms net investment to decrease

Question 40

What is the Marginal propensity to consume?

Answer 40

A measure of the proportion of extra income spent.

Question 41

What affects Marginal prosperity to consume ? (4)

Answer 41

Temporary or Permanent disposable income
Income
Interest rates
Consumer confidence

Question 42

What are the 3 factors that limit marginal prosperity to consume

Answer 42

Savings

Tax

Question 43

How do you calculate Marginal propensity to save

Answer 43

Change in savings/Change in income

Question 44

summary of what causes shifts in lras

Answer 44

qualit and quantitiy of factors of production

Question 45

proepr def of what sras shows

Answer 45

hwo much an economy can produce at a given price level using teh available factors and some resources fixed

Question 46

what si constant for sras

Answer 46

leves of productivity
costs of rpoduction
technology advancements

Question 47

another def of lras

Answer 47

hwo much an eco can produce using all factors at their optimum sustainabe capcity

all factors are vairable and full employment, and the amoutn outputted doesnt depend on price leevl

Question 48

another def of sras

Answer 48

the total amoutn fo goods and services supplied at given pracie levels