Theme 2

Question 1

What are the seven government objectives

Answer 1

Debt, sustainability, inflation, inequality, economic growth (gdp), balance of payments and unemployment

Question 2

What are some supply side economic interventionist policies

Answer 2

Spending on healthcare
Building business parks
Increased education and training
Improving transport and infrastructure
Invest in council housing

Question 3

What are some supply side market policies

Answer 3

Reducing power of trade unions
Privatisation of the state industry
Lower tariff barriers
Remove unnecessary red tape
Reduce corporation tax
Reduce state welfare benefits
Deregulation
Provide better info about jobs

Question 4

How would reducing the power of trade unions help

Answer 4

Makes it much easier for firms to hire and fire employees

Question 5

How would privatisation of state industry help the supply side

Answer 5

It makes them more profit oriented which can lead to a more efficient allocation of resources

Question 6

How would lowering tariff barriers help supply side

Answer 6

helps firms become more efficient and be more innovative

Question 7

How does removing unnecessary red tape help supply side

Answer 7

Makes trade quicker and easier as they don’t have to go through all of the quality checks when they’re trusted

Question 8

How does reducing corporation tax help supply side

Answer 8

firms can keep more of their profits and don’t have to increase the prices of their goods or services to the consumer

Question 9

How does reducing state welfare benefits help supply side

Answer 9

It makes people more likely to get a job as they’ll get more money so reducing unemployment leading to a reduction on government spending and increase in economic growth

Question 10

How does deregulation help supply side

Answer 10

opening up of state monopoly this market is now open to competition

Question 11

Free market economy pros

Answer 11

Efficiency- best value in demand only - incentive to be better
Entrepreneurship- rewards for innovation
Choice- increased consumer choice due to innovation

Question 12

Free market economy cons

Answer 12

Inequalities - huge income differences
Non profitable goods - drugs
Monopolies - market dominance

Question 13

Pros of a command economy

Answer 13

Maximise welfare - prevent inequality and distribute income fairly
Low unemployment - economic growth
Prevent monopolies - market dominance is prevented by the government

Question 14

Command economy cons

Answer 14

Poor decision making - lack of information means poor decisions
Restricted choice - consumers have a limited choice
Lack of risk taking and efficiency - no incentive to increase efficiency, take risks or innovate

Question 15

In a mixed economy what’s the government known as

Answer 15

Public sector

Question 16

What makes up the private sector

Answer 16

Privately owned businesses

Question 17

What are the four main macroeconomic indicators

Answer 17

rate of economic growth, rate of inflation, level of unemployment and the state of the balance of payments

Question 18

Why might comparing the gdp of two countries not be accurate

Answer 18

A high gdp suggests a strong economic performance but high gdp per capita suggests a high standard of living

Question 19

What’s inflation

Answer 19

The sustained rise in the average price of goods and services over a period of time

Question 20

Define disinflation, hyperinflation and negative inflation

Answer 20

1. When the rate of inflation slows down
2. When the prices rise extremely quickly
3. When the average price falls

Question 21

What’s the claimant count

Answer 21

The number of people claiming benefits

Question 22

What are the two main measures of unemployment

Answer 22

The claimant count and the labour force survey

Question 23

What’s the labour force survey

Answer 23

The number of people in a survey who aren’t working but are seeking employment

Question 24

What’s the circular flow of income

Answer 24

a model of the economy in which the major exchanges are represented as flows of money, goods and services, etc. between economic agents.

Question 25

When would the circular flow of income be in equilibrium

Answer 25

When the injections and withdrawals are equal

Question 26

What happens when an injection is made into the circular flow of income

Answer 26

The actual change in the national income is greater than the initial injection due to the multiplier effect

Question 27

What’s aggregate demand

Answer 27

The total spending on goods and services

Question 28

What’s the formula for aggregate demand

Answer 28

AD = C + I + G + X - M
Consumption + investment + gov spending + exports - imports

Question 29

What factors affect consumption and saving

Answer 29

Income, interest rates, consumer confidence, wealth effects, taxes and unemployment

Question 30

What factors affect investments made by firms (aggregate demand)

Answer 30

Risk, government incentives and regulations, interest rates and access to credit, technical advances and business confidence (animal spirits)

Question 31

What causes budget deficit/ surplus

Answer 31

If the government is spending greater/ less than its revenue

Question 32

What does it mean if aggregate demand is low

Answer 32

Economic growth is slow so the government may overspend to increase ad and boost economic growth