2.1

Question 1

What are real prices (constant prices)?

Answer 1

They are adjusted for inflation.

Question 2

What are nominal prices (current prices)?

Answer 2

They are unadjusted for inflation.

Question 3

What is the base period?

Answer 3

The point from where the inflation is adjusted from.

Question 4

Why are index numbers used?

Answer 4

• Used with inflation to adjust figures to real/constant values.
• Quickly identify trends in data e.g. house prices, employment.

Question 5

What does per capita mean?

Answer 5

Means GDP per person.

Question 6

What does GDP per capita equal?

Answer 6

Total GDP divided by the total population.

Question 7

What does GDP per capita provide?

Answer 7

Provides a better indication of how the economy is performing for everyone.

Question 8

What is real GDP?

Answer 8

The level of GDP is adjusted to account for inflation (rising prices).

Question 9

What is nominal GDP?

Answer 9

Is the level of GDP at current prices.

Question 10

How is the volume of output calculated and multiplied?

Answer 10

By using the previous years prices - this is the real value of GDP.

Question 11

What do low income (developing) countries tend to have higher of than high income countries?

Answer 11

Tend to have higher average rates of growth.

Question 12

What do both GNI and GDP reflect? And what is the main difference?

Answer 12

They both reflect the national output and income of an economy. The main difference is that GNI takes into account net income receipts from abroad.

Question 13

What is GDP (Gross Domestic Product)?

Answer 13

Is a measure of national income produced in a particular country.
(National income equals national output which equals national expenditure).

Question 14

What is GNI (Gross National Income)?

Answer 14

Equals GDP + net income from abroad. This net income from abroad includes dividends, interest and profit.

Question 15

What is GNP?

Answer 15

Is similar to GNI, its the total output of the citizens of a country, whether or not they’re a resident in that country.

Question 16

What is the definition of PPP (Purchasing Power Parity)?

Answer 16

An economic theory that estimates the amount of adjustment needed on the exchange rate between countries in order for the exchange to be equivalent to each currency’s purchasing power.

Question 17

What is Economic Growth?

Answer 17

A measure of the value of output of goods and services within a time period.

Question 18

What is Economic Development?

Answer 18

A measure of the welfare of humans in a society.

Question 19

What is an advantage of GDP per capita?

Answer 19

Gives better ideas of development as it shows how wealth is distributed.

Question 20

What are some limitations of using GDP to compare living standards between countries overtime?

Answer 20

• Does not show the distribution of income.
• Does not show how hard people have to work for the increased output :Quality of life.
• Does not show the environmental costs.
• Does not include hidden economy ‘black market’.
• Exchange rate may distort the value.

Question 21

What is the ‘black market’?

Answer 21

Underground economic activities, illegal things e.g. prostitution, tobacco and alcohol.

Question 22

What is the common link to national happiness and real incomes?

Answer 22

Generally, the higher the national income, the higher the level of happiness is regarded as logical thinking. As higher national income is linked to higher output, more jobs, better wages, that can then be spent on things that make people happy. However, happiness is subjective.

Question 23

What is the definition of inflation?

Answer 23

• Inflation is a rise in the general level of prices of goods and services in an economy over a period of time.
  OR
• Inflation is the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.

Question 24

What is deflation?

Answer 24

Deflation is a decrease in general price levels of throughout an economy.

Question 25

What is disinflation?

Answer 25

Disinflation, shows the rate of change of inflation over time. The inflation rate is declining over time, but it remains positive. For example, if the inflation rate in the United States was 5% in January but decreases to 4% in March, it is said to be experiencing disinflation in the first quarter of the year.

Question 26

What is some key information about inflation?

Answer 26

- Is a sustained general rise in prices across an economy - Weighted price index - Calculated by a survey - A representative range of goods and services called a Basket of goods - Consumer Price index and Retail price index - Weights given to goods represent the proportion of income spent on these goods

Question 27

What is CPI and RPI?

Answer 27

The CPI and RPI are both consumer price indices and the calculation of each uses much of the same basic price data.

Question 28

What are some major differences between CPI and RPI?

Answer 28

- The RPI includes mortgage interest payments which is a big expense and is one reason for the differences in the RPI and CPI. - The CPI includes some costs that are not in the RPI, such as charges for financial services, foreign exchange commission for tourists changing their own currency into sterling, foreign students’ university tuition fees, and university accommodation fees. - The CPI covers a broader population than the RPI, which excludes high-income households and low-income pensioners.

Question 29

What is the consumer price index (CPI)?

Answer 29

The consumer price index (CPI) is a weighted price index which measures the monthly change in the prices of goods and services.  The spending patterns on which the index is weighted are revised each year, mainly using information from the Family Expenditure Survey.

Question 30

Why is the consumer price index weighted?

Answer 30

Because households spend much more money on things like food than on say, paint. Therefore a rise in food has a much more significant economic impact on households which the increased weighting reflects.

Question 31

How are both RPI and CPI measured?

Answer 31

The RPI and CPI are both measured using a 'shopping basket' of approximately 750 goods and services. The indices are weighted to reflect the importance of the various items. The weights for the RPI are mainly derived from the ONS's Living Costs and Food Survey. Both the contents of the baskets and the weights are updated annually.

Question 32

When does Demand-pull inflation occur?

Answer 32

Demand-pull inflation occurs when consumer demand for goods and services exceeds the available supply, causing prices to rise, and is primarily driven by factors like: rapid economic growth, increased government spending, higher consumer confidence leading to increased spending, a growing money supply, expansionary fiscal policies, and a surge in export demand

Question 33

When does Cost-push inflation occur?

Answer 33

Cost-push inflation occurs when the cost of production rises, leading to higher prices for goods and services, primarily driven by factors like increased raw material costs, higher labor wages, increased taxes on production, currency depreciation, natural disasters disrupting supply chains, and supply shocks from geopolitical events; essentially, any factor that significantly increases the cost of producing goods without a corresponding increase in demand.

Question 34

What is the definition of Quantitative Easing?

Answer 34

An unconventional monetary policy in which a central bank purchases government securities or gilts from the market in order to lower interest rates and increase the money supply. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity. Quantitative easing is considered when short-term interest rates are at or approaching zero. In the media it is often referred to as printing money but this is not the case.

Question 35

What is the definition of employment?

Answer 35

People who are working for a business or government organisation and those working for themselves classified as self employed.

Question 36

What is the definition of unemployment?

Answer 36

People who are registered as able, available and willing to work at the going wage rate but who cannot find work despite an active search for work.

Question 37

What must be evident to classify someone as unemployed?

Answer 37

One must show evidence of being active in the labour market.

Question 38

Who are economically inactive people?

Answer 38

Are those aged between 16 and 64 who are not available for work, or not looking for work. This includes full-time students, homemakers, those who are too sick or disabled to work long term, those who have taken early retirement and 'discouraged' workers.

Question 39

What labour falls under the underemployment classification?

Answer 39

It includes those workers that are highly skilled but working in low paying jobs, workers that are highly skilled but work in low skilled jobs and part-time workers that would prefer to be full-time.

Question 40

How is underemployment and unemployment different?

Answer 40

Underemployment is different to unemployment as the individual is working but isn't working at their full capacity.

Question 41

How is unemployment measured?

Answer 41

The Claimant Count measure of unemployment counts only those people who are eligible to claim the Jobseekers allowance. It records those claiming unemployment benefit and can prove they are actively looking for work. it excludes housewives and those on training schemes.

Question 42

What is the criteria for getting job seekers allowance?

Answer 42

- your partner (if have one) must work less than 24 hours a week on average - you and your partner must have less than £16,000 in savings.

Question 43

What is a possible issue within the claimant count?

Answer 43

A problem is that it misses out many people who are interested in finding work and who might have searched for work in the recent period - but they don't meet all of the criteria for claiming and therefore are not included in the monthly unemployment count.

Question 44

What survey can also measure unemployment?

Answer 44

The Labour Force Survey (ILO) which is an internationally agreed standard measure of unemployment. - You must have actively sought work in the previous four weeks and be available to start work immediately. - Higher figure than the claimant count. - Based on quarterly survey of approximately 60,000 households, and 120,000 individuals. - Higher because there are limits on who can claim unemployment benefit: so the true level of unemployment is higher than the official figure suggests. *ILO = International Labour Organisation

Question 45

What is the labour force survey undertaken by?

Answer 45

By the International Labour Organisation and is more direct assessment of unemployment rather than those who claim benefit.

Question 46

What must individuals be to be considered unemployed?

Answer 46

- Have been out of work for 4 weeks - Be able to start work in the next 2 weeks, so they must be readily available for work - Workers only need to be available for work one hour per week, so part-time unemployment is included in this measurement.

Question 47

What is unemployment used as?

Answer 47

Used as an economic indicator which is presented as a percentage as it is easy to make comparisons with population changes etc.

Question 48

What are the costs of unemployment?

Answer 48

- Loss of income: Unemployment normally results in a loss of income. The majority of the unemployed experience a decline in their living standards and are worse off out of work. - Loss of national output: Unemployment involves a loss of potential national output and represents an inefficient use of scarce resources. Could slow economic growth. - Fiscal costs: The government loses out because of a fall in tax revenues and higher spending on welfare payments. - Social costs: Rising unemployment is linked to social deprivation. There is a relationship with crime, and social dislocation (increased divorce rates, worsening health and lower life expectancy).

Question 49

How will changes in unemployment and activity levels affect the economy?

Answer 49

Government: CIU - have to pay more unemployment benefits. CITLOI - more ineffiency, spend less on unemployment benefits, less income and consumption tax. Workers: CIU - social deprivation, lower wage rate. CITLOI - more jobs available, lower wage rates. Firms: CIU - less costs needed to be spent on employees, less workforce available, more workers, more customers making less sales due to less employees. CITLOI - profit decreases, lower costs/wage rates, increased employee pool. Society in general: CIU - possible crime increase, less money can be spent due to less disposable income. CITLOI - increase substance use, increase crime rates.

Question 50

What are the six types of unemployment?

Answer 50

Frictional Unemployment - where people become unemployed between jobs. Demand Deficient Unemployment (cyclical) - where AD is less than AS. Technological Unemployment - caused where people are put out of work by changes in technology. Seasonal Unemployment - caused by the seasonal nature of some types of employment e.g. holiday resorts. Real Wage or Classical Unemployment - caused by wage rates being held above market clearing levels. Structural Unemployment - caused by changes to the structure of industry in the economy - e.g. the decline of the coal, iron and steel industries.

Question 51

What is migration?

Answer 51

The movement of people.

Question 52

What are the benefits of migration in the economy?

Answer 52

- Larger labour market - Potential growth in GDP - Can fill skill gaps - Bigger workforce - Possibly create more jobs due to increase in demand - Do jobs that no one wants to do - Increased consumer spending - Hard-working

Question 53

What are the drawbacks of migration in the economy?

Answer 53

- Transfer of money sent home - Downward pressure on wages - Causes cultural tension in the workforce - Competition in the labour market for jobs

Question 54

Why do many economies require inward migration?

Answer 54

Because many economies have skill deficits and therefore require inward migration to fill these skill gaps.