Economic performance

Question 1

Long run economic growth

Answer 1

increase in productive potential

Question 2

Short run economic growth

Answer 2

uses spare capacity and closes output gap

Question 3

Benefits of economic growth

Answer 3

Job creation

Increased incomes

Wealth creation

Greater investment

Confidence rises

Multiplier

Question 4

Cons of economic growth

Answer 4

Greater income inequality

Inflation

Debt

Greater borrowing

More risks taken

Pollution

Question 5

Economic cycle

Answer 5

shows level of output over period of time

Question 6

Causes of changes to output

Answer 6

Cyclical instability

global shocks

Demand side shocks

Supply side shocks

Question 7

Output gap

Answer 7

difference between actual (AD) and potential (LRAS) output

Question 8

Positive output gap

Answer 8

growth is above trend rate

inflationary

full employment

Question 9

Negative output gap

Answer 9

economic downturn

unemployment

high spare capacity

Government will use fiscal policy

Question 10

Evaluation for output gap

Answer 10

Depends on the size of the output gap

Question 11

Characteristics of a boom

Answer 11

High growth

Low unemployment

Low spare capacity

Demand pull inflation

Question 12

Recession

Answer 12

2 consecutive quarters of negative economic growth

Question 13

Characteristics of recession

Answer 13

negative growth

high unemployment

high spare capacity

low inflation

Question 14

Trend rate of economic growth

Answer 14

average sustainable rate of growth over period of time

Question 15

Factors affecting trend rate

Answer 15

capital investment

tech development

labour productivity

elasticitiy of supply

public sector

Question 16

Demand side shocks

Answer 16

where shock affects AD

Question 17

Supply side shocks

Answer 17

caused by unexpected changes in costs (SRAS)

Question 18

Unemployment

Answer 18

those willing and able to work at market wage but cant find a job to match their skills

Question 19

Underemployment

Answer 19

people working fewer hours than they wish (zero hour contracts)

people not utilising their skills

Question 20

Employment

Answer 20

everyone will and able to work at market wage finds a job

Question 21

Friction Unemployment

Answer 21

between jobs

Question 22

Structural unemployment

Answer 22

downturn in industry

Question 23

Cyclical unemployment

Answer 23

due to boom and bust

Question 24

Technological unemployment

Answer 24

replaced by machines

Question 25

Regional Unemployment

Answer 25

certain areas depend on one industry

Question 26

Voluntary unemployment

Answer 26

by choice

Question 27

Costs of unemployment

Answer 27

loss of income negative multiplier loss of output waste of resources budget deficit benefits rise crime etc

Question 28

Claimant count

Answer 28

measure number of people on job seekers allowance

Question 29

Pros and cons of claimant count

Answer 29

Pros—keeps track on JSA —easy and cheap Cons—many claim JSA and work —inaccurate and not suitable for international comparison

Question 30

Labour force survey

Answer 30

uses international definitions of employment related topics

Question 31

Pros and cons of labour force survey

Answer 31

Pros—accurate —useful for international comparison Cons—expensive and time consuming

Question 32

Natural rate of unemployment is made up of ….

Answer 32

Frictional unemployment Structural unemployment Voluntary unemployment

Question 33

In order to reduce NRU

Answer 33

Structural—supply side policies Frictional—information Voluntary—lower tax rates as incentive to work

Question 34

Real wage unemployment

Answer 34

Wage rises leads to unemployment

Question 35

Demand deficient unemployment

Answer 35

Caused by fall in AD Less demand for G+S so less demand for labour

Question 36

Inflation

Answer 36

Sustained rise in prices over a period of time

Question 37

Effects of inflation

Answer 37

cost of living rises Poorer in real terms less competitive IR may have to rise

Question 38

Deflation

Answer 38

fall in general price level

Question 39

Effects of deflation

Answer 39

Value of debt rises people delay spending workers resist wage cuts

Question 40

Disinflation

Answer 40

fall in rate of inflation Prices go up at slower rate

Question 41

Consumer price index

Answer 41

focus on cost of goods and services excludes housing costs Includes all uk residents

Question 42

Retail price index

Answer 42

focus on cost of housing excludes income tax and national insurance excludes top 4% of earners more volatile

Question 43

Changes in interest rates effect on cpi and rpi

Answer 43

impact CPI but not RPI

Question 44

Demand pull inflation

Answer 44

inflation due to increase in demand for goods and services pushes pressure on existing factors of production Ad>As

Question 45

Cost push inflartion

Answer 45

Cause by rise in costs of production As

Question 46

Quantity theory of money

Answer 46

MV=PQ

Question 47

Wage price spiral

Answer 47

rising wages put pressure on prices inflation puts pressure on wages(workers ask for pay rise)

Question 48

Costs of inflation

Answer 48

inflationary noise Menu costs (changing labels) Shoe leather costs fixed incomes—real income falls decreases debt making banks worse off fiscal drag

Question 49

Benefits of inflation

Answer 49

2% supports sustainable growth when low easier for prices to adjust when moderate easier for wages to adjust 2% helps steady erosion of value of debt

Question 50

Evaluate effects of inflation

Answer 50

Depends on the rate of inflation

Question 51

Solutions for inflation

Answer 51

Demand pull—fiscal and monetary policy Cost push—supply side policies Quantity theory of money—monetary policy(Quantitative easing, inflation targeting, lender of last resort)

Question 52

Evaluate solutions for inflation

Answer 52

depends on the cause of inflation