Edexcel Economics Theme 2 Review Questions and Answers

Edexcel Economics Theme 2 Review Questions and Answers GDP ✅Gross domestic product measures the value of goods and services produced in an economy, it also measures national income/national expenditure Nominal GDP ✅Measures the monetary value of GDP (this may include the effects of inflation) Real GDP ✅Measures GDP adjusted for the effects of inflation, it measures the actual purchasing power of consumers in an economy GDP per capita ✅Is the level of GDP divided by population The volume of goods and services ✅Is the quantity produced The value of goods and services ✅Is the quantity x price Economic growth ✅An increase in real GDP, referring to an increase in the total value of goods and services produced in an economy The rate of economic growth ✅Measures the annual percentage change in real GDP GNP ✅Gross national product is equal to GDP + net property income from abroad GNI ✅Gross national income measures the value of the services and products a country produces in an economy, it also includes interest payments and dividends from citizens living in other countries Purchasing power parity ✅PPP exchange rates can be used to measure the relative cost of a typical basket of goods and services in different countries and thus the relative spending power of people in different countries give their incomes Inflation ✅A sustained increase in general price level Deflation ✅A decrease in the general price level of goods and services in an economy Disinflation ✅There is a falling inflation rate, prices are increasing at a slower rate Demand -pull inflation ✅Inflation due to excess demand in the economy Cost- push inflation ✅Inflation due to increases in costs of production Money supply ✅Stock of notes and coins plus bank deposits Velocity of circulation ✅Number of times money changes hands Unemployment ✅People who are willing and able to work but who do not have a job Underemployment ✅Workers that are highly skilled but working in low paying jobs, workers that are highly skilled but work in low skill jobs and part -time workers that would prefer to be full time Economic inactivity ✅This occurs when people are not in the labour force, they are neither in work nor looking for work Claimant count ✅Unemployment statistics which are produced based on the number of people claiming benefits Frictional unemployment ✅Unemployment which reflects job turnover in the labour market, caused by people moving between jobs Structural unemployment ✅This is unemployment due to a mismatch of skills in the labour market, it can be caused by occupational and geographical immobilities Classical/ Real wage unemployment ✅This occurs when wages in a competitive labour market are pushed above the equilibrium Demand deficient/ Cyclical unemployment ✅This occurs when there is insufficient demand in an economy for all workers who wish to work at current wage rates to obtain a job Voluntary unemployment ✅Generous unemployment benefits may encourage people to stay on benefits rather than get work Seasonal unemployment ✅Jobs which are seasonal in nature Full employment ✅When there is no cyclical unemployment, some workers will be fractionally or structurally unemployed even at the full employment level of GDP Balance of payments ✅Records all financial transactions between the UK and the rest of the world, it shows receipts from trade and is equal to the current account added to the capital account