Economics - Error Checklist

Index Numbers (2 marks)

A figure showing the % change in a variable relative to a base year (always 100).

Price Level (2 marks)

The average of current prices across the entire economy (e.g., measured by CPI).

Spare Capacity:

When an economy is operating below its potential (YFE), meaning there are unemployed factors of production (negative output gap).

ILO Unemployment:

Those without a job, want a job, have actively sought work in the last 4 weeks and are available to start in 2 weeks.

Hot Money Flow Transmission (Interest Rate $\rightarrow$ Exchange Rate)

Real-Wage Unemployment (Classical)

Net vs. Gross Investment (LRAS Evaluation)

If Investment (I) only equals Capital Depreciation (replacing worn-out machines), it is "Gross" but not "Net." Result: No shift in LRAS; productive potential stays the same.

Income Tax vs. Ad Valorem Tax

• Income Tax = Progressive/Direct tax on earnings (Reduces Inequality). Ad Valorem = Indirect tax as a % of price (VAT/Sugar tax). Never use them interchangeably.

Effectiveness of Demand-Side Policies (The Big 3)

1. Magnitude: Is 0.25% enough? 2. Confidence: If Animal Spirits are low, decreased Interest Rates won't stimulate borrowing. 3. Time Lags: 18–24 months for Monetary; "Recognition/Implementation" lags for Fiscal.