Economic performance

Question 1

What is short run economic growth?

Answer 1

SREG is growth caused by an increase in AD.

Question 2

What is long run economic growth?

Answer 2

LREG is growth caused by an increase in AS - when the productive capacity of the economy is increasing.

Question 3

What is potential output?

Answer 3

The output that could be produced with full anmd efficient use of resources.

Question 4

What is an output gap?

Answer 4

An output gap occurs when there is a differnce between trend rate of growth and actual rate of growth. This can be negative or positive.

Question 5

What are the differnces between a positive and a negative output gap?

Answer 5

A positive output gap means resources are being used beyond normal capacity, while a negative output gap has spare capacity.
A positive output gap puts upwards pressure on inflation, a negative output gap puts downwards pressure on inflation.

Question 6

What characterises an economic boom?

Answer 6

High economic growth, low unemployment, demand-pull inflation, positive output gaps, high consumer and business confidence, and an improved government budget.

Question 7

What characterises a recession?

Answer 7

Negative economic growth over 2 consecutive quarters, negative output gaps, cyclical unemployment, low inflation, worsening of government budget, lower consumer and business confidence.

Question 8

What is structural unemployment?

Answer 8

Unemployment due to the decline of an industry, or where capital replaces labour.

Question 9

What is cyclical unemployment?

Answer 9

Unemployment due to a lack of aggregate demand.

Question 10

What is seasonal unemployment?

Answer 10

Unemployment due to changes in the season of the year.

Question 11

What is frictional unemployment?

Answer 11

Unemployment due to movement between jobs.

Question 12

What is inflation?

Answer 12

A sustained rise in the price level over a period of time.

Question 13

What is deflation?

Answer 13

A sustained fall in the price level over a period of time.

Question 14

What is disinflation?

Answer 14

A fall in the rate of inflation.

Question 15

What is demand-pull inflation?

Answer 15

Increases in AD lead to an increase in price levels, and so inflation occurs.

Question 16

What is cost-push inflation?

Answer 16

Increases in the costs of production for firms lead to a fall in SRAS, and so price levels rise, meaning inflation occurs.

Question 17

What makes up the current account?

Answer 17

Exports (inflow of money) and imports (outflow of money).

Question 18

How are economies interconnected through international trade?

Answer 18

Countries are interdependent. Decline in the economy of one country, could cause decline in other countries, as this country will import less. This means any countries that export many goods to the country would see a fall in exports, perhaps leading to economic decline.