Unit 4- Economics

Question 1

Subsides

Answer 1

Financial support from the government to incentivise lower prices so people can afford them.

Question 2

Leakages (list 3)

Answer 2

1. Taxes
2. Savings
3. Import

Money that is not spent and not contributing to the economy.

Question 3

Injections (list 3)

Answer 3

1. Investment
2. Government spending
3. Export revenues that add spending to the circular flow of income.

Question 4

List the 4 factors of production

Answer 4

1. Land
2. Labor
3. Capital
4. Entrepreneurship

Question 5

What are the three types of economies?

Answer 5

Market Economy, Command Economy and Mixed Economy

Question 6

Market economy

Answer 6

Prices decided based on supply and demand

Question 7

Command economy

Answer 7

The government decides what goods and services will be produced, how they will be produced, how they will be distributed and prices

Question 8

Mixed economy

Answer 8

Mix of command and market to ensure regulation of prices while also meeting with supply and demand laws

Question 9

Laws of supply

Answer 9

Price up, Supply up
Price down, Supply down

Question 10

Laws of demand

Answer 10

Price up, Demand down
Price down, Demand Up

Question 11

Externalities (positive and negative)

Answer 11

Unpriced costs/damages and benefits that exist within a transaction between a buyer and seller
Positive (benefits) and negative (unpriced costs/damages) externalities.

Positive: Education (more community awareness, informed citizens)
Negative: Pollution

Question 12

Inflation

Answer 12

A general increase in prices and fall in the purchasing value of money

Question 13

Causes of inflation (3)

Answer 13

1. Demand-pull inflation: Products or services not keeping up with the demand
2. Cost-push inflation: Cost of products and service increase, forcing business to increase their price
3. Built-in inflation: Workers demanding more wages to sustain livelihood to keep up with high prices.

Question 14

Pros of Inflation

Answer 14

Higher resell values, encourage spending

Question 15

Cons of Inflation

Answer 15

Pay more for products and services, people may not be able to afford basic things after some time

Question 16

What might be the reason Inflation is high right now?

Answer 16

COVID-19 Pandemic, demand is increasing and supply cannot keep up

Question 17

Deflation

Question 18

Cause of Deflation (1)

Answer 18

More goods produced than demand

Question 19

Pros of Deflation

Answer 19

Reduct Debt burden, Increased profit for businesses because of low prices for raw goods.

Question 20

Cons of Deflation

Answer 20

Deflationary Spiral, Discourage investment

Question 21

Deflationary spiral

Answer 21

Reduced spending = reduced production = more unemployment = reduced spending = reduced production, etc

People keep waiting for prices to drop even further and prolong spending!

Question 22

Difference between depression and recession

Answer 22

Depression is decline in GDP has a global reach and a much greater impact

While recession means decline in employment and production which lowers level of income and spending, mostly in a single country

Question 23

Scarcity

Answer 23

Demand for goods and services is more than availability

Question 24

Circular Flow of income

Answer 24

TBC

Question 25

What do banks give businesses in the circular flow of income?

Answer 25

Loans

Question 26

What is the role of a central bank in an economy

Answer 26

Manage flow of money in a country

Question 27

How do central banks keep prices stable?

Answer 27

Changing interest rates.
High interest rate: Less spending: More purchasing power
Low interest rate: More spending, More growth: Less purchasing power

Question 28

5 ways governments intervene to keep economy stable?

Answer 28

1. Taxations
2. Changing interest rate
3. Price floors- MRP
4. Trade policies
5. Subsides

Question 29

Taxations

Answer 29

Low tax more spending, High tax less spending

Question 30

Trade policy

Answer 30

A government policy that directly influences the quantity of goods and services that a country imports or exports