The UK Economy Quiz
Test your knowledge of The UK Economy with these A-Level Economics questions.
This quiz consists of 15 questions. Scroll down to start the quiz!
Questions
Define Gross Domestic Product (GDP) and explain one limitation of using GDP as a measure of economic performance.
GDP is the total market value of all final goods and services produced within a country over a specific period, usually one year.
A limitation is that GDP does not account for the informal economy or income inequality, which can distort comparisons of living standards.
Identify and explain two components of Aggregate Demand (AD).
Consumption (C): Household spending on goods and services.
Investment (I): Spending by firms on capital goods.
Both contribute to AD, which is calculated as AD = C + I + G + (X - M).
Explain the difference between real and nominal GDP.
Nominal GDP is measured at current market prices, not adjusted for inflation.
Real GDP is adjusted for inflation, reflecting the actual volume of production.
What is the output gap and what are the implications of a negative output gap in the UK economy?
The output gap is the difference between actual output and potential output in an economy.
A negative output gap implies underused resources, higher unemployment, and downward pressure on inflation.
Explain how a rise in interest rates could affect aggregate demand in the UK.
Higher interest rates increase the cost of borrowing and reward for saving, reducing consumption and investment, leading to a decrease in AD.
Outline one factor that could cause a shift in the Long-Run Aggregate Supply (LRAS) curve.
Improvement in productivity, such as through better education or technological advancements, can shift LRAS to the right.
Using the AD/AS model, explain the likely impact of an increase in government spending on the UK economy.
An increase in government spending increases AD, shifting the AD curve rightwards. This can lead to higher output and employment, and possibly higher inflation.
What is the multiplier effect and how does it relate to economic growth?
The multiplier effect occurs when an initial injection into the economy leads to a greater final increase in national income. It stimulates economic growth as increased income leads to more spending.
Define supply-side policies and give one example relevant to the UK.
Supply-side policies aim to increase the productive capacity of the economy.
Example: Reducing corporation tax to encourage business investment.
Describe two macroeconomic objectives of the UK government.
Low and stable inflation: Target around 2% CPI inflation.
Sustainable economic growth: Consistent increases in GDP without causing major inflation or environmental damage.
Explain one benefit and one drawback of economic growth for the UK.
Benefit: Higher GDP can lead to improved living standards.
Drawback: Rapid growth can lead to environmental degradation or inflation.
What is meant by the balance of payments, and why is it important for the UK economy?
The balance of payments records all financial transactions between the UK and the rest of the world.
It is important because persistent deficits may lead to a loss of confidence and downward pressure on the currency.
Explain how fiscal policy could be used to reduce unemployment.
Expansionary fiscal policy, such as increased government spending or tax cuts, can boost AD and create more jobs, reducing unemployment.
How might inflation affect income distribution in the UK?
Inflation tends to hurt those on fixed incomes or savings more, potentially increasing income inequality as purchasing power erodes.
Evaluate the potential conflict between reducing inflation and reducing unemployment in the UK.
Reducing inflation often requires higher interest rates or lower government spending, which can reduce AD and increase unemployment.
There is a trade-off in the short run, as illustrated by the Phillips Curve, though in the long run, this relationship may not hold.
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