2.1 Government and the Economy: Unit 25 - 27

Question 1

1. What is budget deficit?

Answer 1

• amount by which government spending is greater than government revenue.

Question 2

2. What is macroeconomics?

Answer 2

study of large economics systems such as those of a whole country or area of the world.

Question 3

3. What is microeconomics?

Answer 3

study of small economic systems that are part of national or international systems.

Question 4

4. What is economic growth?

Answer 4

increase in the level of output by a nation.

Question 5

5. What is a national income?

Answer 5

value of income output or expenditure over a period of time.

Question 6

6. What is gross domestic product?

Answer 6

market value of all final goods and services produced in a period(a year), an internationally recognized measure of national income.

Question 7

7. What are the limitations of GDP as a measure of growth? (7)

Answer 7

• inflation
• population changes
• statistical errors
• the value of home-produced goods
• the hidden economy
• GDP and living standards.
• External costs

Question 8

8. What is the economic cycle?

Answer 8

the economic cycle shows the rate of growth of GDP at different stages/phases: boom, downturn, recession, and recovery.

Question 9

9. What is the boom in the economic cycle?

Answer 9

boom is a peak of the economic cycle where GDP is growing at its fastest.

Question 10

10. What is downturn in the economic cycle?

Answer 10

• a period in the economic cycle where GDP grows, but more slowly.

Question 11

11. What is recession/ depression in the economic cycle?

Answer 11

• period of temporary economic decline during which trade and industrial activity are reduced.

Question 12

12. What is a recovery in the economic cycle?

Answer 12

Recovery is where GDP starts to rise again, where economic activity increases.

Question 13

13. What are the 4 advantages of economic growth?

Answer 13

• Fall in unemployment
• Improve standards of living.
• Reduce poverty
• Raise productive potential

Question 14

14. What are the 2 disadvantage of economic growth?

Answer 14

• Inflation may increase as a result of overheating in the economy
• The environment will be damaged due to unsustainable growth in the economy.

Question 15

15. What is overheating?

Answer 15

it is when demand rises too fast, causing prices and imports to rise, a situation that governments may try to correct by raising taxes and interest rates.

Question 16

16. What is unsustainable growth?

Answer 16

economic growth that it is not possible to sustain without causing environmental problems.

Question 17

17. What is inflation?

Answer 17

the rate at which prices rise, a general and continuing rise in prices.

Question 18

18. What is aggregate demand?

Answer 18

• total demand in the economy including consumption, investment, government expenditure and exports minus imports

Question 19

19. What is deflation?

Answer 19

period where the level of aggregate demand is falling

Question 20

21. What is consumer index price? (CPI)

Answer 20

measure of the general price level (excluding housing costs).

Question 21

22. What is the retail price index? (RPI)

Answer 21

• measure of the general price level, which includes house prices and council tax.

Question 22

23. What are the two types of inflation?

Answer 22

• cost-push inflation
• demand-pull inflation

Question 23

24. What is demand-pull inflation?

Answer 23

inflation is caused by too much demand in the economy relative to supply.
.

Question 24

25. What is cost-push inflation?

Answer 24

inflation caused by rising business costs.

Question 25

26. What are interest rates?

Answer 25

prices paid to lenders for borrowed money: and rewards to savers. it is the price of money.

Question 26

27. What is monetarist?

Answer 26

economists who believe there is a strong link between growth in the money supply and inflation.

Question 27

28. What are the 4 possible reasons that cause demand-pull inflation?

Answer 27

- rising consumer spending encouraged by tax cuts or low-interest rates. - sharp increases in government spending - rising demand for resources by firms - booming demand for exports

Question 28

29. What are the 9 impacts of inflation?

Answer 28

- prices rising -wages need to be increased. - Export demand falls. - Lower levels of employment - Menu costs - Shoe leather costs - Uncertainty - business and consumer confidence - investment

Question 29

30. What is menu costs?

Answer 29

- costs to firms of having to make repeated price changes.

Question 30

31. What is shoe leather costs?

Answer 30

- costs to firms and consumers of searching for new suppliers when inflation is high.

Question 31

32. What is hyperinflation?

Answer 31

very high levels of inflation; rising prices get out of control

Question 32

33. What is unemployment?

Answer 32

When those actively seeking work are unable to find a job.

Question 33

34. How is unemployment measured? which organization?

Answer 33

- LFS(labour force survey) - ILO(international labor organisation)

Question 34

35. What are the 5 types of unemployment?

Answer 34

- cyclical/ demand deficit unemployment - structural unemployment - seasonal unemployment - voluntary unemployment - frictional unemployment

Question 35

36. What are the 3 types of structural unemployment?

Answer 35

- Sectorial unemployment - Technological unemployment - Regional unemployment.

Question 36

37. What is Cyclical/ demand deficient unemployment?

Answer 36

unemployment caused by falling demand as a result of a downturn in the economic cycle

Question 37

38. What is structural unemployment?

Answer 37

unemployment caused by changes in the structure of the economy.

Question 38

39. What is seasonal unemployment?

Answer 38

unemployment caused when seasonal workers, such as those in the holiday industry. are laid off because the season has ended.

Question 39

40. What is voluntary unemployment?

Answer 39

- unemployment resulting from people choosing not to work.

Question 40

41. What is frictional unemployment?

Answer 40

- when workers are unemployed for a short period of time as they move from one job to another.

Question 41

42. What is sectorial unemployment?

Answer 41

occurs when people are laid off because the industry they work in is in decline.

Question 42

43. What is technological unemployment?

Answer 42

- occurs when jobs that were previously done by people are now done by machines.

Question 43

44. What is regional unemployment?

Answer 43

unemployment in a particular country is not likely to be the same in all regions.

Question 44

45. What are the 9 impacts of unemployment?

Answer 44

- levels of output are lower - waste of resources which results in lower levels of income - Increase in poverty - government spending on benefits - tax revenue will fall - business confidence, no investment - consumer confidence - to a society.