Economics Exam 19th of May 2025

Question 1

Globalization

Answer 1

Globalization is the process where people, businesses, and countries around the world become more connected and interact more with each other.

Question 2

Specialization

Answer 2

Specialization is when a person, business, or country focuses on doing one specific task or producing one kind of product really well.

It means concentrating on what you’re best at, which often leads to better efficiency and higher quality.

Question 3

Free Trade

Answer 3

Free trade is when countries buy and sell goods and services with each other without extra taxes (called tariffs) or strict rules. It means businesses can trade across borders easily and openly, like how people shop in different stores without being blocked.

Question 4

Benefits of Free Trade

Answer 4

1. Allows countries to benefit from specialization.
2. Increases Consumer Choice
3. Increases Competition and Efficiency

Question 5

Negatives of Free Trade

Answer 5

1. Threatening jobs because of increased competition
2. Reducing opporturnities in some developing economies.
   3.Contributes to the rapid resource depletion and climate change.

Question 6

Methods of Protection

Answer 6

1. Tarrifs
2. Subsidies
3. Quotas
4. Embargo(BAN)
5. Excessive quality standards and bureaucracy

Question 7

Dumping

Answer 7

Dumping is when a country or company sells a product in another country at a much lower price than it normally would—often even below the cost of making it.

This is usually done to gain market share, hurt competitors, or get rid of extra products. It can be unfair and harmful to businesses in the country where the cheap goods are being sold.

Question 8

What is the 2-sector model?

Answer 8

Households → Firms (no government/foreign trade)

Question 9

What is added in the 4-sector model?

Answer 9

Government + Foreign Sector (exports/imports)

Question 10

Income method formula?

Answer 10

Wages + Rent + Interest + Profit

Question 11

Expenditure method formula?

Answer 11

C (Consumption) + I (Investment) + G (Government Spending) + (X-M) (Net Exports)

Question 12

Output method rule?

Answer 12

Adding up only all final goods/services

Question 13

What are injections?

Answer 13

I (Investment), G (Government spending), X (Exports)

Question 14

What are leakages?

Answer 14

S (Savings), T (Taxes), M (Imports)

Question 15

GDP triple equality?

Answer 15

Output = Income = Expenditure

Question 16

Nominal GDP?

Answer 16

GDP at current prices including inflation

Question 17

Real GDP?

Answer 17

GDP at constant prices (inflation removed)

Question 18

What is economic growth and how is it measured?

Answer 18

Economic growth is the increase in a country’s real GDP over time. It is measured by the percentage change in real GDP from one year to the next.

Question 19

How do economies grow and what is the PPF?

Answer 19

Economies grow by increasing resources, improving productivity, and advancing technology. The PPF (Production Possibility Frontier) shows the maximum possible output combinations of two goods when all resources are fully and efficiently used.

Question 20

What are policies to stimulate economic growth (short-term and long-term)?

Answer 20

Short-term: fiscal (gov spending/taxes) and monetary (interest rates) to boost demand. Long-term: supply-side policies like education, infrastructure, and innovation to improve productivity.

Question 21

What is the business cycle?

Answer 21

The business cycle is the pattern of economic expansion and contraction that occurs over time in an economy.

Question 22

What are the phases of the business cycle?

Answer 22

Boom: high growth, low unemployment, high inflation. Recession: negative growth, rising unemployment. Trough: lowest point. Recovery: growth resumes.

Question 23

What are policies to control the business cycle in recessions and booms?

Answer 23

Recession: expansionary policies (↑ spending, ↓ taxes, ↓ interest rates). Boom: contractionary policies (↓ spending, ↑ taxes, ↑ interest rates).

Question 24

How is economic growth evaluated?

Answer 24

Growth is evaluated based on its impact on living standards, income inequality, sustainability, inflation, and long-term stability.

Question 25

Balance of Payments

Answer 25

The Balance of Payments is a record of all the money a country earns from and spends on trade, services, and financial transactions with the rest of the world. It shows whether more money is coming into the country or going out.

Question 26

Current Account

Answer 26

The Current Account is the part of a country's Balance of Payments that records its trade in goods and services, income from abroad, and money sent to or received from other countries. It only looks at Trade, Income, Transfers.

Question 27

Balance of Trades Formulas

Answer 27

Surplus: If the amount of Credits exceed the amount of Debits Deficit: If the amount of Debits exceed the amount of Credits Credits - Debits = Balance of Trade

Question 28

Primary Income

Answer 28

Primary Income is the part of the Current Account that records money a country earns or pays from work or investments abroad, such as wages, interest, dividends, and profits. It is a credit when money comes into the country (e.g. a resident earns interest from a foreign bank or works abroad). It is a debit when money goes out of the country (e.g. a foreign investor earns profits from a company in your country).

Question 29

Secondary Income

Answer 29

Secondary Income is the part of the Current Account that records money given or received without getting anything in return, like gifts, foreign aid, or remittances. It is a credit when money comes into the country (e.g. someone living abroad sends money home). It is a debit when money is sent out (e.g. the government gives foreign aid or people send money to family in another country).

Question 30

Exchange Rate

Answer 30

The exchange rate is the value of one currency compared to another. It is determined by: Interest Rate, Inflation, Economic Stability and Growth, etc