Practise national income, circular flow, aggregate demand and supply, growth, unemployment and inflation through calculations, data interpretation, diagrams and policy analysis.
What is not included in the measurement of national income?
dividends paid to shareholders
overtime payments
rents from government-owned houses
welfare benefit payments
With the help of a diagram, explain what is meant by the circular flow of income in an open economy and consider the extent to which it can explain economic growth in such an economy.
What is a correct description of an aggregate demand (AD) curve?
It is a curve obtained by adding the market demand curves of all consumer goods traded in an economy.
It is a curve determined by the horizontal summation of all individual consumer demand curves for a product.
It is a curve that shows the total amount of goods and services firms are willing to buy at a given price in an economy.
It is a curve that shows the total demand of all goods and services produced at all price levels in an economy.
The COVID-19 pandemic had a very significant impact on the global economy in 2020. Negative economic growth rates were recorded for all major economies. The speed, unexpected and unprecedented nature of the downturns has been devastating for businesses, governments and populations. Individual economies reacted to the pandemic differently. Fig. 1.1 shows quarterly economic growth rates in 2020 for four selected countries compared to the OECD (Organisation for Economic Co-operation and Development) average.
Fig. 1.1 Annual change to quarterly gross domestic product (GDP) in selected countries in 2020 compared to the OECD average.
China's economic performance in 2020 was the exception. China was the first country to experience the pandemic. It has also been the first economy to recover from recession, a period of two consecutive quarters of negative economic growth. The Chinese government was quick to enforce lockdowns to limit the pandemic and there was rapidly increasing demand for exports of PPE (personal protection equipment) and other Chinese-made products.
The case of neighbouring South Korea was different. Like China, the impact of the pandemic was more effectively contained than in other economies and growth in South Korea's economy was less affected. There was, however, little evidence in the data that by the end of 2020, South Korea's economy would recover to its pre-2019 position of strong economic growth.
The economies of the US and the UK had negative quarterly economic growth throughout 2020. Economists in these countries have disagreed about how best to increase the rate of economic growth after the pandemic. The governments of both countries introduced very high government spending programmes to encourage the return to economic growth in 2021. However, monetary policies have been widely promoted by many economists as an alternative to more traditional fiscal measures.
Explain the meaning of 'negative economic growth'.
Which country shown in Fig. 1.1 experienced the most severe recession in 2020? Justify your answer.
State two likely economic reasons why China experienced strong economic growth starting in the second quarter of 2020 and consider which of these is likely to have generated the greater rate of growth.
Assess how economic recovery is likely to have affected employment and price stability in China.