Econ th2(pt1)

• What is economic growth?

  Increase in a country’s real GDP over time
• How is economic growth measured?

  By percentage change in real GDP over time
• What is the formula for the growth rate?

  Growth Rate = [(GDP at Time 2 - GDP at Time 1) / GDP at Time 1] × 100
• What is the difference between real and nominal GDP?

  Real GDP adjusts for inflation; nominal GDP does not
• What is the difference between total and per capita values?

  Total values are aggregate sums; per capita values are averages
• What is the difference between value and volume in economic terms?

  Value is monetary worth; volume is physical quantity
• What is Gross National Income (GNI)?

  Total income earned by residents and businesses
• Why is comparing growth rates between countries important?

  It assesses relative economic performance and disparities
• What can long-term growth trends reveal?

  Patterns of economic expansion, recession, or stagnation
• What are Purchasing Power Parities (PPPs)?

  Exchange rates equalizing purchasing power of currencies
• Why are PPPs useful in international comparisons?

  They adjust for cost-of-living differences between countries
• Why does GDP per capita not fully reflect living standards?

  It does not account for income inequality or quality of life
• How does the UK measure national wellbeing?

  By considering life satisfaction, mental health, and social connections
• What is the relationship between real incomes and happiness?

  Higher incomes increase happiness up to a point
• What is inflation?

  Sustained increase in general price level of goods
• What is deflation?

  Sustained decrease in the general price level
• What is disinflation?

  Slowdown in the rate of inflation
• What is the Consumer Prices Index (CPI)?

  Measures inflation by tracking price changes of goods
• What is the formula for CPI inflation?

  CPI Inflation Rate = [(Current CPI - Previous CPI) / Previous CPI] × 100
• What is substitution bias in CPI?

  CPI assumes constant consumption patterns, overstating inflation
• How does CPI handle quality changes?

  CPI may not fully account for quality improvements
• How does the Retail Prices Index (RPI) differ from CPI?

  RPI includes housing costs and uses a different formula
• What causes demand-pull inflation?

  Aggregate demand exceeds supply due to increased spending
• What causes cost-push inflation?

  Rising production costs force firms to raise prices
• How does an increase in the money supply cause inflation?

  Excess demand drives prices up if money supply grows faster
• How does inflation affect consumers?

  It reduces purchasing power and lowers real savings value
• How does inflation impact firms?

  It increases production costs, potentially reducing profit margins
• How does inflation affect the government?

  It raises debt servicing costs and may increase tax burdens
• How does inflation affect workers?

  Real wages may decline unless wage increases keep pace
• What is Aggregate Demand (AD)?

  Total spending in an economy at different price levels
• What are the four components of Aggregate Demand (AD)?

  Consumption (C), Investment (I), Government Spending (G), Net Exports (X - M)
• What factors influence consumption (C)?

  Income, interest rates, and consumer confidence
• How do lower interest rates affect investment (I)?

  They encourage businesses to invest and expand production
• What does a positive net export (X - M) value indicate?

  A trade surplus, meaning exports exceed imports
• Which component of AD is usually the largest and most stable?

  Consumption (C)
• Why is investment (I) considered volatile?

  Businesses may delay capital spending during downturns
• How does government spending (G) stabilize the economy?

  It boosts AD during recessions as a policy tool
• How do trade surpluses and deficits affect AD?

  A trade surplus boosts AD; a trade deficit reduces it
• What does the AD curve show?

  Relationship between price level and quantity of Real GDP demanded
• Why does the AD curve slope downward?

  As price levels rise, quantity of Real GDP demanded falls