2.6.4.a

Question 1

Explain economic growth vs protection of enviro

Answer 1

• As the economy grows, we expect more resources to be used.
• As we use resources and produce goods, we produce
  pollution and noise and destroy habitats.
• Economic growth can be achieved without damaging the
  environment, but the growth is likely to be slower and have higher costs

Question 2

Economic growth vs balance of payments

Answer 2

• The country is so large that its industry is largely producing goods for its own people and the wealth of the people has led to increased demand for imported goods.
  -China has seen massive
  growth but that has been largely been by producing goods for exports and therefore their
  balance of payments is in a surplus

Question 3

Inflation vs econ growth

Answer 3

• the rate of inflation is too high.
• reduce the rate of inflation by reducing aggregate demand (for example by cutting consumer spending or government)
  spending.
• However, reducing aggregate demand is likely to lead to a recession and cyclical unemployment. A recession means that the rate of economic growth will become negative

Question 4

What does rising economic growth cause

Answer 4

• lower unemployment
• increase demand pull inflation
• rise in imports as incomes rise so current account deficit

Question 5

High unemployment

Answer 5

• combat this by raising AD
• but this causes inflationary pressure and current account deficit
• supply side reforms used to solve it leads to more jobs and therefore more inequality/enviro damage

Question 6

High curretn account deficit - trying to cut it

Answer 6

• Cutting imports by reducing domestic consumption and investment will lead to higher unemployment.
• This is because a fall in aggregate demand will also hit demand for domestically produced good

Question 7

High fiscal deficit

Answer 7

• austerity measures (ccuting spending and raising taxes to fix FD) will raise unemployment and, certainly in the short term, lower the rate ofeconomic growth

Question 7

High fiscal deficit

Answer 7

• austerity measures (ccuting spending and raising taxes to fix FD) will raise unemployment and, certainly in the short term, lower the rate ofeconomic growth

Question 8

define phillips curve

Answer 8

The Phillips Curve shows a trade-off between inflation and unemployment. A demand-side policy to reduce unemployment could conflict with price stability

Question 9

Define policy assymetry

Answer 9

When a given change in interest rates affects different groups or different countries to a lesser or greater degree

Question 10

How does unemployment affect inflation

Answer 10

• reduced unemployment and economy reaching full capacity means there are fewer spare workers so demadn for workers increases - especially for skilled one so there is a rise in wage and producers pass on theses costs to consumers: cost push inflation
• In other words, low unemployment or reduced spare capacity leads to higher inflation.
• Also low unemployment increases consumer confidence regarding job prospects, spend more, demand pull inflation

Question 11

REF TO PAGES 166,167,168,169,170 cgP

Question 12

What is the idea behind the phillips curve

Answer 12

-if government wants to reduce unemployment, it has to increase AD and therefore accept higher inflation
- people disagree on the curve
- once inflation goes up, people think it remains high and change behaviours accordingly

Question 13

Why is phillips curve short run?

Answer 13

many economists believe that if you put any pressure on the trade-off relationship (e.g. trying to engineer lower
unemployment by allowing a little more inflation), the trade-off breaks down

Question 14

Why is phillips curve short run?

Answer 14

many economists believe that if you put any pressure on the trade-off relationship (e.g. trying to engineer lower
unemployment by allowing a little more inflation), the trade-off breaks down