3.2-Introduction to macroeconomics

Question 1

What is the balance of payments (BOP)

Answer 1

The sum of the current, financial & capital accounts which account for all trade & financial transactions for a country

Question 2

What is the circular flow of income?

Answer 2

A model showing the flow of money, factors of production & goods/services in the economy

Question 3

What is the current account?

Answer 3

The account that records the visible & invisible trades of a country as well as government aid payments

Question 4

What is deflation?

Answer 4

A fall in the price level

Question 5

What is disinflation?

Answer 5

Where prices are still rising but at a slower rate

Question 6

What are exports?

Answer 6

Goods sent to another country in exchange for money

Question 7

What are factor payments?

Answer 7

Payments made by firms for factors being used, e.g. wages / salaries to employees.

Question 8

What is GDP per capita?

Answer 8

GDP divided by the population. Useful for comparing countries & reflects changes in population size.

Question 9

What is gross domestic product (GDP)

Answer 9

Total value of goods and service produced in a country. Also referred to as Economic Growth

Question 10

What are imports?

Answer 10

Goods brought into the country in exchange for money

Question 11

What is income inequality?

Answer 11

Differences in income that exist between the different groups of earners in society (the gap between the rich and poor)

Question 12

What is inflation?

Answer 12

A rise in the price level

Question 13

What are injections?

Answer 13

Cash flowing into the Circular Flow of Income

Question 14

What are leakages/withdrawals?

Answer 14

Cash flowing out of the Circular Flow of Income

Question 15

What is unemployment?

Answer 15

Members of the labour force that are willing and able to work and seeking employment

Question 16

What is wealth?

Answer 16

A Collection of assets (houses, land, shares in companies, money saved in bank accounts).

Question 17

What are the 6 main government objectives?

Answer 17

• Price Stability (CPI inflation of 2% ± 1%)
• Growth of Real GDP
• Falling Unemployment/Raising Employment
• Higher Average Living Standards (national income per capita)
• Stable Balance of Payments on the Current Account
• An Equitable Distribution of Income and Wealth

Question 18

What are the 6 additional government objectives?

Answer 18

• Balancing the budget and reducing the national debt
• Improving economic well-being
• Better regional balance in the UK economy
• Improved access to public services
• Improved competitiveness
• Environmental sustainability

Question 19

What are examples of withdrawals/leakages from the circular flow of income?

Answer 19

• Net saving (S)
• Net taxes (T)
• Import expenditure (M)

Question 20

What are examples of injections into the circular flow of income?

Answer 20

Investment (I)
Government expenditure (G)
Export expenditure (X)