Additional Theme 2 Info

Question 1

3 ways to measure GDP

Answer 1

Expenditure method (all consumer expenditure), Income Method (all total income for firms), Output Method (value of output produced). All should be equal

Question 2

Relationship with the circular flow of income and the multiplier

Answer 2

The large the multiplier, the larger the size of the circular flow of income

Question 3

Ways the multiplier can be increased

Answer 3

Increased investment, increased income, decreased price of goods, increased quality

Question 4

Define sustainability

Answer 4

Fulfilling the needs of current generations without compromising the needs of future generations

Question 5

Inequality

Answer 5

Number of people below the required level of income

Question 6

Factors influencing consumption

Answer 6

Disposable income, Wealth, inflation and rate of interest

Question 7

What % of AD is consumption?

Answer 7

65%

Question 8

Accelerator theory

Answer 8

Where an investment increases when either demand or income increases (at a faster rate)

Question 9

AD calculation

Answer 9

Consumption + Investment(in machinery) + Government spending + (Exports- imports)

Question 10

Factors that influence investment

Answer 10

Rate of interest, retained profit, accelerator theory

Question 11

Discretionary income

Answer 11

Income after bills

Question 12

3 benefits the government provides

Answer 12

Pensions, childcare benefits, Jobseeker’s Allowance

Question 13

Where does the government announce its spending plans?

Answer 13

The Budget

Question 14

Interest rates

Answer 14

Cost of borrowing, reward for saving

Question 15

Output gap definition

Answer 15

The difference between potential GDP and actual GDP

Question 16

Hot money

Answer 16

Flow of funds from one country to another to earn short term profit on interest rates differences

Question 17

Liquidity Trap

Answer 17

When interest rates are very lower, a further decrease will have minimal or no effects on AD

Question 18

Negative Equity

Answer 18

When a house/belonging is worth less than the mortgage you took out on it

Question 19

3 limitations of QE

Answer 19

Lower value of the pound, causes inflation, hurts savers

Question 20

Automatic stabilisers definition

Answer 20

Automatic fiscal changes as the economy moves through the stages of the business cycle I.e fall in tax during a recession

Question 21

Monetary Policy definition

Answer 21

Changes in interest rates, the money supply and the exchange rates by the central bank to influence AD

Question 22

Costs of unemployment

Answer 22

Lost output, worsens deficit, social costs (crime etc), costs to other countries, rise in poverty, hysteresis

Question 23

Hysteresis unemployment argument

Answer 23

When unemployment become long-term, workers lose skills making it difficult to re-enter labour (constraints AD and LRAS)

Question 24

Benefits of unemployment

Answer 24

Greater supply of labour for firms, low inflation, Improved current account deficit

Question 25

Evaluation of unemployment

Answer 25

Rate of unemployment, duration/type of unemployment, distribution (regional/age)

Question 26

Tax evasion

Answer 26

Illegal practice of not paying taxes

Question 27

Tax avoidance

Answer 27

Legal methods used to minimise the amount of tax paid