Economic Performance

• What is short run growth measured by?

  Percentage increase in real GDP
• What causes short run growth?

  Increases in aggregate demand (AD)

  
• What does long run economic growth refer to?

  Trend rate of growth of real national output
• What causes long run economic growth?

  Increases in aggregate supply (AS)
• What is usually difficult to measure accurately?

  Unemployment
• What is potential output?

  Output if resources were fully employed
• What is an output gap?

  Difference between actual and potential output

  
• What indicates a negative output gap?

  Actual output less than potential output

  
• Why might some unemployed individuals not reveal their status in surveys?

  They might claim unemployment benefits
• What is the effect of a negative output gap on inflation?

  It puts downward pressure on inflation
• What are the two main measures of unemployment in the UK?

  The Claimant Count and ILO
• What is inflation?

  Sustained rise in general price level
• What does a positive output gap indicate?

  Actual output greater than potential output

  
• What happens to purchasing power during inflation?

  It decreases
• What does the Claimant Count measure?

  People claiming unemployment-related benefits
• What can cause a positive output gap?

  Resources used beyond normal capacity
• What is deflation?

  Average price level falls
• What must individuals prove to claim Job Seeker’s Allowance (JSA)?

  They are actively looking for work
• What is the relationship between positive output gaps and inflation?

  It puts upward pressure on inflation

  
• What is disinflation?

  Falling rate of inflation
• What is a limitation of the Claimant Count measure?

  It underestimates the level of unemployment
• Which countries are associated with positive output gaps?

  China and India
• What do classical economists believe about markets in the long run?

  • Markets clear in the long run
  • Full employment is achieved
  • Output gaps exist in the short run
• What criteria does the ILO Labour Force Survey (LFS) use to measure unemployment?

  Out of work for 4 weeks, able to work
• What does the business cycle refer to?

  Stages of economic growth in the economy
• What does a change from 4% to 2% represent?

  Disinflation
• What happens during the recovery stage of the business cycle?

  Real output increases
• How does the LFS compare to the Claimant Count in measuring unemployment?

  It gives a higher unemployment figure
• What does a -3% change in price level indicate?

  Deflation
• What characterizes a boom in the economy?

  Fast economic growth and potential inflation
• What occurs during a recession?

  Real output falls and negative growth occurs
• What is voluntary unemployment?

  Choosing not to work at current wage
• What do deflationary government policies aim to do?

  Reduce aggregate demand (AD)
• What are the main causes of inflation?

  • Demand pull
  • Cost push
• What can encourage voluntary unemployment?

  Generous welfare payments relative to wages
• How might governments respond during recessions?

  Increase spending to stimulate the economy
• What happens to government budgets during economic growth?

  They may receive more tax revenue
• What triggers demand pull inflation?

  Growing aggregate demand
• What are the characteristics of a boom?

  • High rates of economic growth
  • Near full capacity or positive output gaps
  • Near full employment
  • Demand-pull inflation
  • High consumer and firm confidence
  • Improved government budgets
• What happens when resources are fully employed?

  Pressure on resources increases prices