1.0 Intro to Macroeconomics

Question 1

What are the 3 main economic questions?

Answer 1

• What to produce?
• How to produce?
• How to allocate what has been produced?
• centrally planned, market economies or mixed

Question 2

What is the 4th main economic question for macro and what does it mean?

Answer 2

• How do we produce more and how do we do it stably? ( e.g because of a growing population)
• This basically means we need to consider how to keep growing in the long run and how to minimise short run economic fluctuations

Question 3

What is the definition of GDP? (+ real and capita)

Answer 3

**the measure of total value of final goods and services produced in an economy in a given period of time **
- GDP per capita is the gdp per head to allow comparison between nations
- real gdp is gdp adjusted for inflation to allow comparison between times

Question 4

What are the 4 macroeconomic indicators?

Answer 4

1. Real GDP (per capita) and the growth rate of real GDP
2. inflation rate (should be low and stable)
3. unemployment rate (should be low, cannot be 0 due to frictional unemployment)
4. current account balance (trade deficit or surplus)

Question 5

What is the inflation rate and why is it an important indicator?

Answer 5

1. measures the rate of change in the average price level in the economy
   
   2. measured by the CPIH - tracks prices of basket of typical goods and services
   3. inflation is important as it reduces the real value of savings and creates uncertainty, and indicates how well the productive capacity of the economy is keeping up with AD

Question 6

What is the unemployment rate?

Answer 6

1. measures percentage of labour force out of work but still willing and able to work and actively seeking employment
   
   2. measured by Labour Force Survey and Claimant Count (benefits)
   3. important indicator as it shows the unused labour resources of an economy and the spare capacity

Question 7

What is the current account balance?

Answer 7

1. measures the net flows of goods and services as well as investment income and transfer payments into a country
2. shows international competitiveness of countries

Question 8

What are the 4 main macro policy objectives?

Answer 8

1. GDP Positive, stable and sustainable economic growth
2. PRICE STABILITY Low and stable inflation rate
3. UNEMPLOYMENT Low and stable unemployment
4. CA BALANCE Long term stability of current account