2 - Macro

Question 1

main causes of market failure

Answer 1

freely functioning markets fail to deliver optimum allocation of market resources - need for gov intervention

externalities - not accounting for social and environmental impact (gov can intervene with pollution taxes e.g.)
public goods -those that will benefit all not just rick - government can intervene with provision e.g. law enforcement
merit goods - those that add social benefit - gov can subsidise - eg school/housing
monopoly - lack of control over dominant entities - gov intervenes through regulation
inequality - wealth disparity - gov intervenes through tax and benefits

Question 2

aims of gov econ policy

Answer 2

sustainable real growth in NI per capita
control inflation
full employment - frictional unemployment remains
trade balance - imports and exports in equilibirum

Question 3

economy in equilibrium

Answer 3

G + X + I = t +M + S
gov spending + exports + investment = taxes + imports + savings

Question 4

business/economic cycles

Answer 4

usually 7-10 years

boom - hgih consumer demand, high output and profits, demand outstrips supply

slump - output slows, demand reduces, confidence falls

recession - falling GDP, increasing unemployment, saving>spending

recovery - investment picks up, rising consumer spend, profits rising

Question 5

leading economic indicators

Answer 5

change before economy as a whole - predictors
stock market (falls and bottoms out 3-6 months before GDP in recession/ rises @ same time before)
index of consumer expectations (1-2 months)
building permits
money supply

Question 6

coincident economic indicators

Answer 6

change at same time as economy as a whole
GDP, retail sales, industrial production

Question 7

lagging economic indicators

Answer 7

unemployment - doesnt change for 1-6 months post coincident indicators

Question 8

economy in equilibrium

Answer 8

G + X + I = t + M + S

gov spending + exports + investment = taxes + imports + savings
inflows = outflows

Question 9

GDP

Answer 9

The market value of all goods and services produced within a country

GDP = C + I + G + (X - M)

C is consumer spending, I is business investment, G is government spending, and (X-M) is net exports.

Question 10

GNP

Answer 10

GNP (Gross National Product) = GDP + net property income from abroad

GNP is the market value of goods and services produced by a country

Question 11

NI

Answer 11

Sum of all incomes of residents in the UK arising from economic activity
‒ Measuring the cost of living
‒ Comparing wealth of different countries
‒ Measuring change over time

GNP - cap consumption = NI

Question 12

Fisher eq

Answer 12

MV = PT

money supply x velocity of circulation = price levels x output