Mon 20th Mini-test

Question 1

What is the multiplier equation

Answer 1

K= 1/mpw
OR
K= 1/(1-mpc)

Question 2

What is mpw (and what does it equal)

Answer 2

Marginal propensity to withdraw
It equals: mps+mpt + mpm
(To save, to tax, to import)

Question 3

Define the multiplier

Answer 3

The no. Of times a change in income within the economy exceeds the change in net injections which causes a shift in AD

Question 4

Which (3) factors affect the SRAS curve

Answer 4

Changes in costs of raw materials
Changes in exchange rates (expensive materials)
Changes in tax rates

Question 5

Factors affecting LRAS (6)

Answer 5

Technological advances 
Changes in education and skill
Changes in relative productivity
Changes in government regulations 
Demographic changes and migration
Competition policy

Question 6

Define actual vs potential economic growth

Answer 6

Actual = an increase in real GDP
Potential = an increase in the productive capacity of the economy

Question 7

What is inflation, deflated and disinflation

Answer 7

Inflation = a sustained rise in the general price level. 
Deflation = a fall in the general price level
Disinflation = prices are increased, but at a slower rate than before

Question 8

How is CPI calculated?

Answer 8

Living cost and food survey - 7,000 household and their most bought food
Price survey - prices monitored (120,000 prices)

Question 9

What is the UK’s targeted inflation?

Answer 9

2% +/- 1%

Question 10

Causes of inflation (3)

Answer 10

Demand-pull inflation - demand pressure in the economy pulling the prices up
Cost-push inflation - increased cost of production, pushing prices up
Increase in the money supply - more money = more inflation