ECONOMICS A PAPER 2 THE UK ECONOMY:
PERFORMANCE AND POLICIES 2026 FULL
REVISION PACK QUESTIONS AND SOLUTIONS
◉ Gross national income (GNI). Answer: The value of goods and
services produced by an economy over a period of time (GDP) plus
net overseas interest payments and dividends (factor incomes).
◉ Gross national product (GNP). Answer: The market value of goods
and services produced over a period of time through the labour or
property supplied by citizens of a country both domestically (GDP)
and overseas.
◉ Hidden, black or informal economy. Answer: Economic activity
where trade and exchange take place but which goes unreported to
the tax authorities and those collecting national income statistics.
◉ Net national income. Answer: A measure of national income
which includes both net income from investments abroad and an
allowance for depreciation of the nation's capital stock.
◉ Per person or per head or per capita. Answer: Per individual in
the population
,◉ Purchasing power parities. Answer: An exchange rate of one
currency for another which compares how much a typical basket of
goods in one country costs compared to that of another country.
◉ Standard of living. Answer: How well off is an individual,
household or economy, measured by a complex mix of variables such
as income, health, the environment, participation in society and
political freedoms.
◉ Transfer payments. Answer: Income for which there is no
corresponding output, such as unemployment benefits or pension
payments.
◉ Value and volume of national income. Answer: The value of
national income is its monetary value at the prices of the day; the
volume is the national income adjusted for inflation and is expressed
either as an index number or in money terms at the prices in a
selected base year.
◉ Actual growth. Answer: Economic growth as measured by
recorded changes in real GDP over time.
◉ Boom or peak. Answer: Period of time when the economy is
growing strongly and is operating above its productive potential.
,◉ Demand-side shock. Answer: A sudden and large impact on
aggregate demand.
◉ Depression or slump. Answer: A period of the trade cycle when
there is a particularly deep and long fall in output.
◉ Downturn. Answer: A period of the trade cycle when either
economic growth or GDP itself is falling.
◉ Economic growth. Answer: The rise in output in an economy
which can be either actual growth or potential growth.
◉ Economic recovery. Answer: The movement back from where the
economy is operating below its productive potential to a point
where it is at is productive potential.
◉ Export-led growth. Answer: A rise in aggregate demand caused by
a rise in exports.
◉ Hysteresis. Answer: The process whereby a variable does not
return to its former value when changed. In terms of the trade cycle,
it is used to describe the phenomenon of an economy failing to
return to its former long term trend rate of growth after a severe
recession.
, ◉ Output gap. Answer: The difference between the actual level of
GDP and the productive potential of the economy.
◉ Positive output gap. Answer: When actual GDP is above the
productive potential of the economy and it is in boom.
◉ Negative output gap. Answer: When actual GDP is below the
productive potential of the economy.
◉ Potential growth. Answer: Economic growth as measured by the
changes in the productive potential of the economy over time.
◉ Recession. Answer: A period of the trade cycle when output or
growth in output falls. The technical definition now used by the UK
government is that a recession occurs when growth in output is
negative for two consecutive quarters (i.e. two periods of three
months).
◉ Spare capacity. Answer: For a whole economy, this exists when
long run aggregate supply is greater than aggregate demand and so
there is a negative output gap.
◉ Supply-side shock. Answer: A sudden and large impact on
aggregate supply.
PERFORMANCE AND POLICIES 2026 FULL
REVISION PACK QUESTIONS AND SOLUTIONS
◉ Gross national income (GNI). Answer: The value of goods and
services produced by an economy over a period of time (GDP) plus
net overseas interest payments and dividends (factor incomes).
◉ Gross national product (GNP). Answer: The market value of goods
and services produced over a period of time through the labour or
property supplied by citizens of a country both domestically (GDP)
and overseas.
◉ Hidden, black or informal economy. Answer: Economic activity
where trade and exchange take place but which goes unreported to
the tax authorities and those collecting national income statistics.
◉ Net national income. Answer: A measure of national income
which includes both net income from investments abroad and an
allowance for depreciation of the nation's capital stock.
◉ Per person or per head or per capita. Answer: Per individual in
the population
,◉ Purchasing power parities. Answer: An exchange rate of one
currency for another which compares how much a typical basket of
goods in one country costs compared to that of another country.
◉ Standard of living. Answer: How well off is an individual,
household or economy, measured by a complex mix of variables such
as income, health, the environment, participation in society and
political freedoms.
◉ Transfer payments. Answer: Income for which there is no
corresponding output, such as unemployment benefits or pension
payments.
◉ Value and volume of national income. Answer: The value of
national income is its monetary value at the prices of the day; the
volume is the national income adjusted for inflation and is expressed
either as an index number or in money terms at the prices in a
selected base year.
◉ Actual growth. Answer: Economic growth as measured by
recorded changes in real GDP over time.
◉ Boom or peak. Answer: Period of time when the economy is
growing strongly and is operating above its productive potential.
,◉ Demand-side shock. Answer: A sudden and large impact on
aggregate demand.
◉ Depression or slump. Answer: A period of the trade cycle when
there is a particularly deep and long fall in output.
◉ Downturn. Answer: A period of the trade cycle when either
economic growth or GDP itself is falling.
◉ Economic growth. Answer: The rise in output in an economy
which can be either actual growth or potential growth.
◉ Economic recovery. Answer: The movement back from where the
economy is operating below its productive potential to a point
where it is at is productive potential.
◉ Export-led growth. Answer: A rise in aggregate demand caused by
a rise in exports.
◉ Hysteresis. Answer: The process whereby a variable does not
return to its former value when changed. In terms of the trade cycle,
it is used to describe the phenomenon of an economy failing to
return to its former long term trend rate of growth after a severe
recession.
, ◉ Output gap. Answer: The difference between the actual level of
GDP and the productive potential of the economy.
◉ Positive output gap. Answer: When actual GDP is above the
productive potential of the economy and it is in boom.
◉ Negative output gap. Answer: When actual GDP is below the
productive potential of the economy.
◉ Potential growth. Answer: Economic growth as measured by the
changes in the productive potential of the economy over time.
◉ Recession. Answer: A period of the trade cycle when output or
growth in output falls. The technical definition now used by the UK
government is that a recession occurs when growth in output is
negative for two consecutive quarters (i.e. two periods of three
months).
◉ Spare capacity. Answer: For a whole economy, this exists when
long run aggregate supply is greater than aggregate demand and so
there is a negative output gap.
◉ Supply-side shock. Answer: A sudden and large impact on
aggregate supply.
