Chapter 1 - Intro To Macro

Question 1

What are the 5 sectors of Macroeconomics?

Answer 1

Households
Firms
Financial 
Government 
Foreign

Question 2

What are the 3 major flows?

Answer 2

Income
Production
Spending

Question 3

How are production and income generated?

Answer 3

Through factors of production.

Rent (natural resources)
Interest (capital)
Profit (entrepreneurship)
Wages and salaries (labour)

Question 4

Households spending is called?

Answer 4

Consumption (C)

Question 5

Firms spend on _ and it constitutes an _ to flow of spending and income.

Answer 5

Capital - investment or capital formation (I)

Injection!

Question 6

3 Government flows are:

And they how do they impact spending and income?

Answer 6

Expenditure - (G) - injection
Tax - (T) - withdrawal or leakage
Transfer payments - n/a

Question 7

Foreign sector is also know as _.

And what are the 2 flows?

Answer 7

Balance of payments

Exports (X) and Imports (Z)

Question 8

How do we make up total spending or GDP?

Answer 8

C + I + G + X - Z = GDP

Question 9

What makes up GDE?

Answer 9

C + I + G

Question 10

What is the difference between nominal and real values?

Answer 10

Nominal values are the actual value. Real values account for purchasing power.

Question 11

What are the objectives of macroeconomic policy?

Answer 11

Economic growth
Full employment 
Stable prices
Balance of payments stability 
Equitable distribution of income

Question 12

What are important things to look out for in macroeconomics?

Answer 12

Fallacy of composition: the whole isn’t equal to the sum of its parts or a single case isn’t necessarily true for the whole

Correlation and causation

Levels vs rates of change

CPI is a level of prices - inflation is increasing prices (rate of change)