Economics Theme 2

Question 1

Economic Growth

Answer 1

An increase in an economy’s productive potential. Usually measured as the rate of change of the Gross Domestic Product (GDP) or GDP per capita.

Question 2

Purchasing Power Parity (PPP)

Answer 2

An adjustment of an exchange rate to reflect the real purchasing power of two currencies.

Question 3

Gross Domestic Product (GDP)

Answer 3

The total value of all the goods and servies produced in a country in a year.

Question 4

Gross National Product (GNP)

Answer 4

GDP + Net Income from abroad

Question 5

Inflation

Answer 5

A sustained increase in the average price level of an economy.

Question 6

Disinflation

Answer 6

A fall in the rate of inflation (prices are rising more slowly).

Question 7

Deflation

Answer 7

A fall in the average price level of an economy.

Question 8

What is the Retail Price Index (RPI)

Answer 8

An index used to measure inflation that includes housing costs such as mortgage repayments.

Question 9

Demand-pull inflation

Answer 9

An increase in the average price level caused by increases in AD.

Question 10

Cost-push inflation

Answer 10

An increase in the average price level as a result of increased production costs such as a rise in wages or a fall in the exchange rate (imports more expensive).

Question 11

What is the claimant count?

Answer 11

A measure of unemployment using the number of claimants of Job Seekers Allowance (JSA).

Question 12

What is the ILO measure of unemployment?

Answer 12

A measure of those out of work in the last 4 weeks and ready to start in the next 2 weeks.

Question 13

Unemployment

Answer 13

When a person who is willing and available to work but is not currently employed.

Question 14

Underemployment

Answer 14

A situation in which a worker is employed, but wants to work more hours.

Question 15

Real wage unemployment

Answer 15

A measure of people unwilling to work at the going wage rate.

Question 16

Structural unemployment

Answer 16

A measure of workers who lose jobs in a declining industry and do not have the skills to join other industries.

Question 17

Frictional unemployment

Answer 17

A measure of people between jobs.

Question 18

Seasonal unemployment

Answer 18

A measure of people who have jobs only at certain times of the year.

Question 19

What are the 4 components that make up the Balance of Payments current account?

Answer 19

• Trade in goods
• Trade in services
• Investment income
• Transfers

Question 20

Aggregate Demand (AD)

Answer 20

The total planned expenditure on goods and services produced in an economy. ( C+I+G+(x-m) )

Question 21

Aggregate Supply (AS)

Answer 21

The total planned output of goods and services in an economy.

Question 22

Consumer Spending (C)

Answer 22

The spending by households on goods and services. (Makes up around 60% of AD).

Question 23

Investment Spending (I)

Answer 23

An increase in the capital stock (creating assets that will generate income in the future). Forms around 10-15% of AD.

Question 24

Fiscal Policy

Answer 24

The deliberate manipulation of government spending and taxation in order to influence the level of AD in an economy.

Question 25

Wealth Effect

Answer 25

The effect on incomes or spending when asset values change

Question 26

What are the 3 injections in the circular flow?

Answer 26

• Investment
• Government spending
• Exports

Question 27

What are the 3 withdrawals from the circular flow?

Answer 27

• Savings
• Taxation
• Imports

Question 28

The mulitplier

Answer 28

1/(1-MPC)

Question 29

Marginal Propensity to Withdraw (MPW)

Answer 29

A measure of how much of any extra pound earned is saved, taxed or spent on imports.

Question 30

Marginal Propensity to Consume

Answer 30

A measure of how much of each extra pound earned is spent within the economy.

Question 31

Actual economic growth

Answer 31

An increase in real GDP.

Question 32

Potential economic growth

Answer 32

An increase in the productive potential of an economy.

Question 33

Output Gap

Answer 33

The difference between actual and potential GDP or growth in GDP.

Question 34

What are the Macroeconomic Objectives?

Answer 34

Economic Growth (Strong and Sustained)
Inflation (2%)
Low Unemployment
Balance of Payments equilibrium
Balanced government budget
More equal distribution of income

Question 35

Fiscal Deficit

Answer 35

The amount by which government spending exceeds revenues.

Question 36

Deregulation

Answer 36

The process of reducing government rules and restrictions on businesses.

Question 37

Monetary Policy

Answer 37

Government policy that involves controlling the total amount of ‘money’ in an economy (the money supply). It involves the manipulation of interest rates, exchange rates and restrictions on the supply of money.

Question 38

Supply-side policy

Answer 38

Government policy that aims to increase AS in an economy. e.g spending on education.