(1) Chapter 6 - The measurement of macroeconomy performance

Question 1

What is MACROECONOMICS

Answer 1

The study of the whole economy at the aggregate level

Question 2

What is a POLICY OBJECTIVE

Answer 2

A target that policy-makers wish to achieve

Question 3

What are the main policy objectives

Answer 3

• Full employment/ low unemployment
• Economic growth and to improve standards of living
• Control inflation, price stability
• Satisfactory balance of payments

Question 4

Define SHORT-RUN ECONOMIC GROWTH

Answer 4

Growth of real output from using idle resources

Question 5

Define LONG-RUN ECONOMIC GROWTH

Answer 5

Increase in the economy’s potential level of output, outward shift of the economy’s PPF

Question 6

What is GROSS DOMESTIC PRODUCT

Answer 6

The sum of all goods and services produced in the economy over a period of time

Question 7

Define REAL GDP

Answer 7

The measure of all goods and services produced in an economy, adjusted for inflation

Question 8

Define NOMINAL GDP

Answer 8

GDP measured at the current market prices, without removing the effects of inflation

Question 9

What is the difference between REAL and NOMINAL GDP

Answer 9

Real GDP takes account of prices changes (inflation) whereas nominal does not

Question 10

Define RECESSION

Answer 10

A fall in real GDP for 6 months or more

Question 11

How much in % is FULL EMPLOYMENT

Answer 11

3% or less of the labour force

Question 12

What is the CLAIMANT COUNT

Answer 12

A method of measuring unemployment from the people claiming unemployment benefits

Question 13

What is the LABOUR FORCE SURVEY

Answer 13

A quarterly sample of households in the UK

Question 14

Define INFLATION

Answer 14

Continuing rise in the average price level

Question 15

Define DEFLATION

Answer 15

Continuing fall in the average price level

Question 16

Define DISINFLATION

Answer 16

The rate of inflation is falling but still positive

Question 17

What is the PRICE INDEX

Answer 17

An index number showing the extent to which a price (basket of prices) have changed over a period of time

Question 18

What is the CONSUMER PRICES INDEX (CPI)

Answer 18

A measure of inflation. The average price increase of a basket of 700 different goods and services

Question 19

What is the RETAIL PRICES INDEX (RPI)

Answer 19

Older way of measure inflation

Question 20

Define INDEXATION

Answer 20

The automatic adjustment of items such as pensions to changes in price level through the use of a price index

Question 21

Define BALANCE OF PAYMENTS

Answer 21

A record of all the currency flows into and out of a country

Question 22

Define EXPORTS

Answer 22

Goods/services sold to other countries

Question 23

Define IMPORTS

Answer 23

Goods/services bought from other countries

Question 24

Define BALANCE OF TRADE

Answer 24

The difference between the money value of a country’s imports and its exports

Question 25

What is a BALANCE OF TRADE DEFICIT

Answer 25

Imports > Exports

Question 26

What is a BALANCE OF TRADE SURPLUS

Answer 26

Imports < Exports

Question 27

What is a BALANCED BUDGET

Answer 27

When government spending equals government revenue (tax)

Question 28

What is a BUDGET DEFICIT

Answer 28

When government spending is greater than the revenue

Question 29

What is a POLICY CONFLICT

Answer 29

When two policy objectives cannot both be met at the same time

Question 30

What are examples of POLICY CONFLICTS

Answer 30

Full employment and economic growth vs satisfactory of balance of payments Full E and EG vs control of inflation EG vs greater income equality Current living standards vs future living standards

Question 31

What is a PERFORMANCE INDICATOR

Answer 31

Provides information for judging the success/failure of a government policy

Question 32

What are the main beliefs of Keynesian economists

Answer 32

Governments should manage the economy, mainly through fiscal policies, encouraging investment

Question 33

What are the main beliefs of pro-free market economists

Answer 33

Dislike government intervention in the economy, believing free markets provide incentives to work harder

Question 34

What are INDEX NUMBERS

Answer 34

A number used to simplify the changes of price making it easier to see the proportion of the changes. The base year is typically 100