Study guides, Class notes & Summaries

Accelerator Effect - Answer Capital investment is linked positively to expected growth of consumer demand. If National income rises then Investment is expected to rise. The relation between the change in new investment and the rate of change of national income. Aggregate Demand - Answer The total spending on goods and services in an economy AD=C+I+G+(X-M) Aggregate Supply - Answer The total value of goods and services supplied in the economy Aggregate Supply Shock - Answer Eit...

What are the 4 functions of prices? - Answer 1. The Signalling Function 2. The Incentive Function 3. The Rationing Function 4. The Allocative Function What is the signalling function of prices? - Answer Prices provide information to buyers and sellers, to help them plan and coordinate their economic activities. What is the incentive function of prices? - Answer Prices create incentives for people to alter their economic behaviour; a higher price creates an incentive for firms to s...

What are the main characteristics of globalisation? - Answer Free movement of capital and labour across International boundaries, free trade between countries and the availability of technology and intellectual capital to be used on an international scale In the last 50 years, why has the scale and pace of globalisation increased? - Answer Trade liberalisation - removal of tariffs etc. may negotiate these with WTO. WTO raised standards on global products - to increase consumer confidence...

positive statement - Answer An objective statement that can be tested against facts to be declared either true or false. normative statement - Answer A subjective opinion, or value judgement, that cannot be declared either true or false. Need - Answer something essential for survival such as food or medical care Want - Answer something that people desire but that is not necessary for human survival. Economic welfare - Answer The economic well-being of an individual, a group...

GDP - Answer Total value of goods and services produced within a country within a year GDP per capita - Answer Total value of goods and services produced within a country within a year divided by the population The Economic Cycle - Answer Fluctuations in economic activity as measured by changes in real GDP Positive Output Gap - Answer When actual GDP is above potential GDP Negative Output Gap - Answer When actual GDP is below potential GDP Inflation - Answer Sustained ...

Fiscal Policy - Answer the use of government spending and revenue collection to influence the economy what fiscal policy involves - Answer the government changing the levels of taxation and government spending in order to influence Aggregate Demand (AD) and the level of economic activity. Aggregate Demand - Answer the total level of planned expenditure in an economy (AD = C+ I + G + X - M) purposes of Fiscal Policy - Answer - Stimulate economic growth in a period of a recession....

Allocative efficiency - Answer This occurs when the available economic resources are used to produce the combination of goods and services that best matches peoples' tastes and preferences. Division of labour - Answer The specialisation of individuals through the separation of tasks in the production process and their allocation to different groups of workers. Factors of production - Answer Inputs into the production process namely land, labour, capital and enterprise. Normative ...

Accelerator Effect - Answer The relation between the change in new investment and the rate of change of national income. Actual Supply - Answer The amount that producers in fact produce. This may differ from planned supply for a variety of reasons such as breakdowns in production, staff absences, etc. Aggregate Demand - Answer Total planned expenditure in the economy. Known by the identity C + I + G + (X - M) Aggregate Supply - Answer The total value of goods and services suppli...

What is the difference between positive and normative statements? - Answer Positive statements can be tested to see if they are correct, whereas normative statements cannot. Machinery is an example of what factor of production? - Answer Capital Why are value judgements important? - Answer So you can choose between options in a way most people think is fair Why does the fundamental economic problem exist? - Answer People have unlimited wants but resources are scarce to make these...

How does government failure occur? - Answer Government failure occurs when government intervention in the economy leads to a misallocation of resources What does government failure lead to? - Answer It leads to a loss of both economic and social welfare. What may the policies cause? - Answer - The policies may have damaging long term consequences - The policies may be ineffective in meeting their aims - The policies may increase inequalities of income and wealth What are some ca...