6.1

Question 1

Macroeconomics

Answer 1

involves the study of the whole economy at the aggregate level

Question 2

Definition of economics

Answer 2

a social science directed at the satisfaction of needs and wants through the allocation of scarce resources which have alternative uses

Question 3

Government’s 4 main objectives post WW2 (signs of a healthy economy)

Answer 3

• achieve economic growth & improve living standards & levels of economic welfare
• Create and maintain full employment or falling unemployment
• Limit or control inflation, or to achieve some measure of price stability
• Attain a satisfactory balance of payments, usually defined as the avoidance of an external deficit which might create an exchange rate crisis

Question 4

Short-run economic growth

Answer 4

• Increase in country’s GDP
• Growth of real output resulting from using idle resources, including labour, thereby taking up the slack in the economy

Question 5

Long-run economic growth

Answer 5

• increase in a country’s productive capacity
• An increase in the economy’s potential level of real output, and an outward shift of the economy’s PPF

Question 6

GDP

Answer 6

• the sum of all goods and services, or level of output, produced in an economy over a period of time

Question 7

real GDP

Answer 7

• A measure of all the goods and services produced in an economy, adjusted for price changes or inflation.
• The rate of inflation has been taken off
• Reflects changes in the total output of the economy

Question 8

Nominal GDP

Answer 8

• GDP measured at the current market prices, without removing the effects of inflation
• real GDP multiplied by the average current price level for the year
• also called money GDP

Question 9

Economic agents

Answer 9

• organisations or individuals that impact the economy by their actions
• households, firms, & governments

Question 10

Function of banks

Answer 10

A place for households and firms to
- Store money safely
- Borrow money safely
Provides a link between saver and borrower, allowing for better distribution of money, leading to more economic activity

Question 11

Gross value added (GVA)

Answer 11

• term used in the UK’s national accounts
• measures the contribution to the economy of each individual producer, industry, or sector
• used in the estimation of GDP

Question 12

Define nominal

Answer 12

expressed in terms of current prices or figures, without making allowance for changes over time.

Question 13

Recession

Answer 13

a fall in real GDP for 6 months or more (UK)

Question 14

Interest rates

Answer 14

• The cost of borrowing and the reward for saving

Question 15

Opportunity cost

Answer 15

• the cost of giving up the next best alternative
• the alternate forgone

Question 16

How banks make money

Answer 16

• Collecting interest on loans
• Buy and sell shares
• Buy and sell bonds (government debt)
• Can save money with the BoE and get paid interest

Question 17

Define tax

Answer 17

A compulsory contribution to state revenue, levied by the government on workers’ income and business profits, or added to the cost of some goods, services, and transactions.

Question 18

Indirect taxes

Answer 18

• collected by firms on behalf of the government
• VAT, excise duties, import levies

Question 19

Direct taxes

Answer 19

• levied on income, wealth, and profit

Question 20

Personal Allowance

Answer 20

• Up to £12,570
• Tax rate: 0%
• Your Personal Allowance goes down by £1 for every £2 that your adjusted net income is above £100,000. This means your allowance is zero if your income is £125,140 or above.

Question 21

Basic tax rate

Answer 21

• £12,571 - £50,270
• Tax rate: 20%

Question 22

Higher tax rate

Answer 22

• £50,271 - £125,140
• Tax rate: 40%

Question 23

Additional tax rate

Answer 23

• over £125,140
• Tax rate: 45%

Question 24

Full employment

Answer 24

• No. of workers whom employers wish to hire equals No. of workers wanting to work
• 3% or less of the labour force is unemployed (Beveridge)

Question 25

Unemployment

Answer 25

• No. of people who are willing and able but do not have a job
• Measured through claimant count and Labour Force Survey

Question 26

Define economic growth

Answer 26

• An increase in the size of an economy in terms of the value of economic transactions

Question 27

Price stability

Answer 27

Average consumer prices for goods and services are constant over time, or when they are rising at a low and predictable rate

Question 28

Inflation

Answer 28

• General rise in the average price level
• fall in the purchasing value of money
• Measured mainly through CPI & RPI + Consumer Price Index Housing

Question 29

Government is not set up to succeed

Answer 29

Government, by its very nature, is not set up to succeed. It faces no competition, it will not go out of business, and all it needs for financing is to tax any and every action of its citizens. Therefore, it lacks the proper incentives to be effective, much less efficient.

Question 30

What are the long-term consequences of banking sector hysteresis?

Answer 30

Persistent cautious lending practices can lead to a prolonged credit squeeze, making it difficult for consumers and businesses to obtain loans, thus hindering economic recovery.

Question 31

Historical points of GfK’s Consumer Confidence Index

Answer 31

• The highest value was in January 1978, when it reached +21
• It reached +16 twice in 1979
• The lowest score recorded was -49 in September 2022
• Other lows include -39 in July 2008, & -35 in March 1990