2.1 The measurement of macroeconomic performance

Question 1

Macroeconomics

Answer 1

involves the study of the whole economy at the aggregate level

Question 2

Gross domestic product (GDP)

Answer 2

a measure of all the goods and services produced in a country over a period of time

Question 3

Inflation

Answer 3

a continuous and persistent rise in the price level and a fall in the value of money

Question 4

Unemployment

Answer 4

occurs when people who are actively searching for employment are unable to find work

Question 5

Balance of payments

Answer 5

a record of all the currency flows into and out of a country in a particular time period

Question 6

Real

Answer 6

a prefix used in economics to indicate that the value has been adjusted for inflation (changes in price over time)

Question 7

Nominal

Answer 7

a prefix used in economics to indicate the value has not been adjusted for inflation (changes in prices over time)

Question 8

Per capita

Answer 8

a suffix used in economics to indicate the figure has been divided by the size of the population to give an average per person

Question 9

What are the four main objectives of UK economic policy?

Answer 9

• positive economic growth
• low and predictable inflation
• low levels of unemployment
• satisfactory balance of payments

Question 10

Index number

Answer 10

a number used in an index, such as consumer prices index, to enable accurate comparisons over time to be made

Question 11

Consumption

Answer 11

total planned spending by households on consumer goods and services produced within the economy

Question 12

How do you calculate the index number for a given year?

Answer 12

(number in current year/ number in base year) x 100

Question 13

How do you calculate the percentage change between the index points of two given years?

Answer 13

(change in index points/index number for original year) x 100

Question 14

How do you calculate the real national income of a country in a particular year?

Answer 14

(current year nominal national income x base year price index)/current year price index

Question 15

Consumer price index (CPI)

Answer 15

the official measure of inflation in the UK

Question 16

What will happen to REAL national income if the percentage increase in price level is LESS than the percentage increase in NOMINAL national income?

Answer 16

it will increase

Question 17

What will happen to REAL national income if the percentage increase in price level is EQUAL to the percentage increase in nominal national income?

Answer 17

it will stay the same

Question 18

How do you calculate real national income per capita?

Answer 18

real national income/population

Question 19

Economic development

Answer 19

the improvement of total economic welfare and quality of life within a country

Question 20

Standard of living

Answer 20

the level of wealth, comfort, material goods, and necessities available in a country

Question 21

UN Human Development Index (HDI)

Answer 21

an index based on life expectancy, education, and per capita income indicators. A higher HDI indicates a better quality of life.

Question 22

Unpaid work

Answer 22

economic activity, such as domestic work of producing important goods and services such as meals and cleanliness of the home, of which the economic value is not included in national income statistics

Question 22

Purchasing Power Parity (PPP)

Answer 22

the exchange rate needed for a quantity of money to buy the same quantity of goods in each country

Question 23

Exchange rate (ER)

Answer 23

the external price of a currency, usually measured against another currency

Question 24

Undervalued

Answer 24

when a currency has an exchange rate lower than its purchasing power parity

Question 25

Overvalued

Answer 25

when a currency has an exchange rate higher than its purchasing power parity

Question 26

Basket of goods

Answer 26

a representative sample of goods and services in an economy

Question 27

The law of one price

Answer 27

in the absence of trade frictions (such as transport costs and tariffs), and under conditions of free competition and price flexibility (where no individual sellers or buyers have power to manipulate prices and prices can freely adjust), identical goods sold in different locations must sell for the same price when prices are expressed in a common currency