TABLE OF CONTENTS
ECONOMIC GROWTH AND THE ECONOMIC CYCLE .................................................................................. 3
What does the term “GDP at constant prices” mean? ........................................................................................................................3
Is there a difference between production and productivity?................................................................................................................3
What is the difference between a recession and a slowdown?...........................................................................................................3
What is the output gap? ......................................................................................................................................................................4
CONSUMER SPENDING, SAVING AND BORROWING ............................................................................... 5
Has the recent consumer boom been bigger than in the late 1980s?.................................................................................................5
Why has there been a borrowing boom in the UK? ............................................................................................................................5
How do rising house prices lead to higher spending?.........................................................................................................................6
Why is the savings ratio important? ....................................................................................................................................................7
Is there a link between consumer spending and the UK trade deficit? ...............................................................................................7
DEVELOPMENTS IN UK INDUSTRY................................................................................................. 8
Why has the rate of investment slowed down since the start of the new decade? .............................................................................8
Have high oil prices damaged British industry? ..................................................................................................................................8
LABOUR MARKET .................................................................................................................10
Is there a floor to unemployment?.....................................................................................................................................................10
Why is long term unemployment seen as such a problem?..............................................................................................................11
What is the relationship between national output and unemployment? ............................................................................................11
Why is unemployment in the UK so much lower than in the Euro Zone countries?..........................................................................11
What is full employment? ..................................................................................................................................................................11
Why has part-time employment grown in recent years? ...................................................................................................................12
Why are millions of people inactive in the labour market? ................................................................................................................13
What are some of the problems with a very low rate of unemployment?..........................................................................................13
INFLATION AND MONETARY POLICY ..............................................................................................15
Why does the government have an inflation target?.........................................................................................................................15
What are the problems associated with trying to forecast what will happen to inflation?..................................................................15
What is deflation?..............................................................................................................................................................................16
FISCAL POLICY ....................................................................................................................17
What are the main principles behind the government’s fiscal policy?...............................................................................................17
How much does the Government spend on social security? ............................................................................................................17
What is the difference between a direct and an indirect tax?............................................................................................................18
We often hear that government borrowing can cause “crowding-out” – what does this mean? .......................................................18
What are Gordon Brown’s “golden rules” for government borrowing?..............................................................................................18
Is Britain a high-tax economy?..........................................................................................................................................................19
What is the Private Finance Initiative? ..............................................................................................................................................20
SUPPLY SIDE PERFORMANCE .....................................................................................................21
What is meant by a “golden scenario for the UK economy”?............................................................................................................21
What has happened to the UK’s share of global trade in goods during the last twenty years? ........................................................22
BALANCE OF PAYMENTS AND EXCHANGE RATE ..................................................................................23
What is the effect of a trade deficit on the circular flow of income? ..................................................................................................23
In the last few years, the dollar has been falling against the pound – what are some of the consequences of this? .......................23
Britain has a floating exchange rate – what does this mean?...........................................................................................................24
BRITAIN IN A GLOBAL CONTEXT ..................................................................................................26
Why have oil prices risen in the last couple of years? ......................................................................................................................26
How has the global oil shock affected the UK economy? .................................................................................................................27
What has been happening to economic growth in the United States in recent years? .....................................................................27
BRITAIN IN A EUROPEAN CONTEXT ...............................................................................................29
What is the European Union? ...........................................................................................................................................................29
What are the main stages of economic integration within the EU?...................................................................................................29
Briefly, what are the key roles of the European Central Bank?.........................................................................................................29
We often hear about economic convergence- basically- what does it mean? ..................................................................................29
What are the 5 economic tests that the Labour Government needs to see passed before the UK will consider joining the Euro?..30