Econs - 4.5

Question 1

economic growth - definition

Answer 1

annual increase in the level of national output

Question 2

GDP - definition

Answer 2

measures the monetary value of goods & services produced within a country for a given period of time, usually one year

Question 3

nominal GDP - definition

Answer 3

measures the monetary value of goods & services produced within a country

Question 4

consumption - definition

Answer 4

value of all private household concumption within a country

Question 5

investment expenditure - definition

Answer 5

sum of capital spending by all businesses within a country

Question 6

government spending - definition

Answer 6

total consumption and investment expenditure of the government

Question 7

export earnings - definition

Answer 7

measures the monetary value of all exports sold to foreign buyers

Question 8

import expenditure - definition

Answer 8

measures the monetary value of all payments for imports

Question 9

net exports - definition

Answer 9

refers to the monetary value of the difference between a nations export earnings & its import expenditure

Question 10

real GDP - definition

Answer 10

refers to the value of national income adjusted for inflation to reflect the true value of goods and services produced in a given year

Question 11

GDP per head / per capita

Answer 11

measures the average value of annual GDP per capita (person)

Question 12

GDP - formula

Answer 12

consumption + investment expenditure + government spending + (export earning - import expenditure)

Question 13

business cycle - definition

Answer 13

describes the fluctuations in the economic activity of a country over time, creating a long-term trend of economic growth in an economy

Question 14

recession - definition

Answer 14

occurs in the business cycle when there is a fall in GDP for two consecutive quarters

Question 15

reasons for recession

Answer 15

• higher level of unemployment
• higher interest rates (discourages investment but raises demand for savings)
• greater uncertainty in the economy
• lower rate of disposable income, causing a fall in consumer spending
  -lower levels of government expenditure
• decline in the demand for exports
• lower levels of concumer and business confidence

Question 16

causes of economic growth

Answer 16

1. factor endowments
2. labour force
3. labour productivity
4. investment expenditure

Question 17

factor endowments

Answer 17

refers to the quantity and quality of the country’s factors of production

Question 18

labour force

Answer 18

total number of people who can and want to work in a country

Question 19

labour productivity

Answer 19

how much each worker produces in a certain time

Question 20

investment expenditure

Answer 20

money that businesses spend on buying capital & building to help produce more goods & services in the future

Question 21

positive consequences of economic growth

Answer 21

• improved living standards
• employment
• tax revenues

Question 22

negative consequences of economic growth

Answer 22

• environmental consequences
• risk of inflation
• inequalities in income & wealth
• resource depletion

Question 23

policies to promote economic growth

Answer 23

• fiscal policy : to stimulate economic growth by cutting / increases taxes
• monetary : central bank changing interest rates
• supply side policies : increase economy’s productive capacity