The total amount of goods and services firms are willing to sell in an economy at a given price level
100
Name two things that shift both AS and AD
Investment and taxes
100
Name the three injections and withdrawals
Injections: Government spending, exports, investment.
Withdrawals: Saving, taxes, imports
100
Explain how fiscal policy is used to smooth out the economic cycle.
During recession, the government increases spending and lowers taxes to generate growth. During a boom, the government increases taxes and lowers spending to dampen growth.
200
How can a budget deficit be decreased?
Increase taxes and cut government spending
200
Define aggregate demand
The total amount of goods and services consumers are willing to buy in an economy at a given price level
200
Name at least 2 types of capital
Human capital, working capital, physical capital, natural capital
200
Name two things firms pay to households in exchange for factors of production
Wages, rent, interest, profits, dividends
200
Explain how monetary policy reduces inflation
The central bank raises interest rates to increase saving and reduce consumption, which lowers AD and reduces inflation
300
The main thing that affects imports/exports as well as production costs
Prices (or wages)
300
Define the multiplier
Any spending in an economy leads to a greater increase in national income.
300
How can firms pay for investment?
Borrowing or using retained profits
300
Name two things the government can use GDP measures for
- Judge standard of living
- Compare the UK to other countries
- Plan spending/taxes in the future
300
Name 3 supply side policies
Deregulation, privatisation, taxation, minimum wages, education and training, etc
400
Explain how a low exchange rate affects AD
Low exchange rate increases exports and decreases imports, increasing AD
400
Explain the classical LRAS curve
An economy always produces at maximum potential output, regardless of price levels because wages are flexible
400
Two names for capital losing value over time.
Depreciation or capital consumption
400
Name two reasons why GDP measures may be inaccurate
Hidden economies
Inaccurate reports and data
Domestic and agricultural output not accounted for
May not be adjusted for inflation
400
Explain how a higher interest rate will affect the UK exchange rate
Higher interest rates attract more foreign savers and investors. They will demand more sterling for this, so the exchange rate will increase
500
This happening in a world economy increases demand for UK goods and services
A boom
500
Explain the Keynesian LRAS curve
Economies do not produce at maximum potential due to market failure and unemployment. Wages are sticky. During recession, output can increase without raising wages and prices.
500
Name two specific things that affect investment
- Cost of capital
- Better technology being available
- Government policies
- Expectations about costs/revenues
500
What is the big thing GDP doesn't include in its value? (and give two examples)
Transfer payments (gifts, pensions, benefits, charity payments)
500
When is a current account deficit okay, and what is the disadvantage of a surplus?
A deficit is okay if it is offset by high growth. A surplus is bad because a country isn't consuming or using the goods/services it is producing.