Macroeconomic performance

Question 1

the economic cycle

Answer 1

Short-run fluctuations of national output (real GDP) around its long-term trend

Question 2

what are the different phases of the economic cycle?

Answer 2

• Recovery/Growth: rising GDP, rising inflation, falling u/e
• Boom: high GDP, high inflation, low u/e, high BoP deficit
• Downturn: falling GDP, falling inflation, rising u/e, falling BoP deficit
• Slump/trough: low GDP, low inflation, high u/e, low BoP deficit

Question 3

positive output gap

Answer 3

GDP is above the long term trend which might be a sign of rising inflationary pressure.

Question 4

negative output gap

Answer 4

Downward inflationary pressure. Working below the LRAS. Output is lower than full capacity.

Question 5

spare capacity

Answer 5

Spare capacity occurs when a business is not making full use of its available capacity – there are spare factors of production including land, labour and capital. When an economy has plenty of spare capacity, short run aggregate supply (SRAS) is elastic, and the output gap is negative.

Question 6

monetary policy

Answer 6

Monetary policy involves changes in interest rates, the supply of money & credit and exchange rates to influence the economy.

Question 7

fiscal policy

Answer 7

The use of taxation and government expenditure to influence the economy.

Question 8

economic growth

Answer 8

An increase in the capacity of an economy to produce goods and services measured by comparing GDP in different periods of time.

Question 9

What do governments want regarding the rate o economic growth?

Answer 9

Want it to be increasing, don’t want it to be as high as possible as this would prevent room for additional growth. raises standard of living and tax revenue yet results in long-term inflation.

Question 10

How can a PPF demonstrate economic growth?

Answer 10

Curve shifting outwatds from PPF to PPF2.

Question 11

What has to change about FOP’s in order to bring about economic growth?

Answer 11

Increase in quality or quantity.

Question 12

How can technological progress increase the rate of economic growth?

Answer 12

Inventions and innovation.

Question 13

Short run economic growth

Answer 13

The short run is a concept that states that, within a certain period in the future, at least one input is fixed while others are variable. In economics, it expresses the idea that an economy behaves differently depending on the length of time it has to react to certain stimuli. The short run does not refer to a specific duration of time but rather is unique to the firm, industry or economic variable being studied.

Question 14

Long run economic growth

Answer 14

The long run is a period of time in which all factors of production and costs are variable. In the long run, firms are able to adjust all costs, whereas in the short run firms are only able to influence prices through adjustments made to production levels. Additionally, while a firm may be a monopoly in the short term, they may expect competition in the long run.

Question 15

what are the two main measures of unemployment?

Answer 15

Claimant count and labour force survey.

Question 16

underemployment

Answer 16

A situation where people are working fewer hours than they wish; may also reflect the fact that workers accept jobs that don’t utilise their skills.

Question 17

Cyclical unemployment

Answer 17

• Unemployment caused by a persistent lack of aggregate demand for goods and services, where national output < potential output leading to a negative output gap.
• Lack of AD
• Expansionary monetary policy and Expansionary fiscal policy.

Question 18

Seasonal unemployment

Answer 18

• Seasonal workers without jobs due to the time of year where there are seasonal changes in employment.
• Demand for goods and therefore workers fluctuates at different times of year.
• Supply-side policies

Question 19

Frictional unemployment

Answer 19

• The number of people who are classed as unemployed while they are moving between jobs.
• supply-side policies.

Question 20

Structural unemployment

Answer 20

• Long term decline in an industry and a mismatch between existing skills and those needed in new growth industries.
• Supply- side policies (long term)

Question 21

Negative multiplier

Answer 21

Occurs when an initial withdrawal or leakage of spending from the circular flow of income leads to knock-on effects and a bigger final drop in real GDP.

Question 22

Hysteresis

Answer 22

A type of long term unemployment that results form the persistence of high unemployment rates over an extended period of time. Occurs when the economy experiences a period of prolonged weakness.

Question 23

Inflation

Answer 23

A persistent rise in the price level within an economy over a period of time. Measured using a basket of goods where items we spend the most on are given the most importance, CPI is one measure. Decrease in the purchasing power of money.

Question 24

Deflation

Answer 24

Deflation is a sustained period when the general price level for goods and services is falling. This means that a weighted basket of goods and services is becoming less expensive over time. It is normally associated with falling level of AD leading to a negative output gap where actual GDP is well below potential GDP. With price deflation, the real purchasing power of cash increases, but the real value of outstanding debts also rises.

Question 25

Disinflation

Answer 25

Disinflation refers to a slowdown or a fall in the annual rate of price inflation. Consumer prices are still increasing, but more slowly. This drop in the inflation rate may be temporary in nature. Disinflation might occur when the annual rate of inflation falls from 7% to 3%. Inflation is still positive but the general price level is not rising as quickly.

Question 26

Demand pull inflation

Answer 26

Demand-pull inflation is a phase of accelerating inflation which arises from a rapid growth in aggregate demand. It occurs when economic growth is too fast. Businesses can take advantage of high demand by raising their profits to widen (increase) profit margins. Typically, demand-pull inflation is associated with an economic boom.

Question 27

Cost push inflation

Answer 27

Cost-push inflation is a type of inflation that occurs when the cost of production increases, leading to higher prices for goods and services. This type of inflation can be caused by a variety of factors, such as an increase in the cost of raw materials, a rise in labour costs, or an increase in taxes. As the cost of production goes up, companies may pass the increased costs on to consumers in the form of higher prices, which leads to overall price level increases and inflation. Cost-push inflation can be contrasted with demand-pull inflation, which occurs when there is increased demand for goods and services, leading to higher prices.

Question 28

How is inflation calculated?

Answer 28

Weighted average. CPI = Geometric mean, RPI = arithmetic mean.

Question 29

What is CPI a measure of?

Answer 29

Average cost of living

Question 30

Mass unemployment

Answer 30

Mass unemployment exists when officially one person in ten in the labour force is counted as being out of work. In practice, the true level of unemployment might be significantly higher than this.

Question 31

economic inactivity

Answer 31

Those who are of working age but are neither in work nor actively seeking work.

Question 32

Long-term unemployment

Answer 32

Long term unemployment accounts for people who have been out of work for at least one year. This is a structural supply-side problem in the labour market. The longer someone is without a job, the harder it is for them to find their way back into paid employment.

Question 33

under-employment

Answer 33

Workers are under-employed when they are willing to supply more hours of work than their employers are prepared to offer.

Question 34

Hidden unemployment

Answer 34

Hidden unemployment is also known as disguised unemployment. The number of people who do not have work but who are not counted in government reports, for example, people who have stopped looking for a job and people who work less than they want to.