Economic Activity

Question 1

What are the 4 objectives of macroeconomic policy?

Answer 1

SALL…
S - Sustainable economic growth
A - A satisfactory balance of payments
L - Low and stable inflation
L - Low unemployment

Question 2

What are the injections into the circular flow of income?

Answer 2

I, G, X…
- Investment
- Government expenditure
- Exports

Question 3

What are the leakages in the circular flow of income?

Answer 3

S, T, M…
- Savings
- Taxation
- Imports

Question 4

What is macroeconomic equilibrium?

Answer 4

It’s when the rate of injections = the rate of withdrawals.

Question 5

What happens when I + G + X > S + T +M?

Answer 5

The GDP increases hence there is an expansion of the economy.

Question 6

What happens when I + G + X < S + T +M?

Answer 6

The GDP decreases hence causing a contraction in the economy and potentially a recession.

Question 7

What happens when exports > imports?

Answer 7

The country is running a trade surplus.

Question 8

What happens when exports < imports?

Answer 8

The country is running a trade deficit.

Question 9

How do you calculate GDP?

Answer 9

National income = National output = National expenditure

Question 10

What is national income?

Answer 10

• Wages
• Profits
• Rental income

Question 11

What is national output?

Answer 11

Value added from the main economic sectors:
- Primary = Farming, fishing, mining
- Secondary = Construction/Manufacturing
- Tertiary = Tourism

Question 12

What is national expenditure?

Answer 12

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

Question 13

What are manufacturing industries?

Answer 13

• It’s the process of producing goods in factories
• In 2018, manufacturing contributed 10% of UK GDP and 8% of all jobs
• Manufacturing in the UK has been declining (de-industrialisation)

Question 14

What are services?

Answer 14

• They include accountancy, health care and education
• In 2018, the service sector accounted for 80% of the Uk output and for 83% of jobs

Question 15

Data for the UK construction industry

Answer 15

• In 2017, construction contributed £113bn to the economy
• There were 2.4m construction jobs in 2018
• There is 37% self employment in 2018 in construction in comparison to the avg of 13%

Question 16

What is real GDP?

Answer 16

It’s a measure of the value of economic output adjusted for price changes (inflation and deflation).

Question 17

What is nominal GDP?

Answer 17

It’s the monetary value of all goods and services produced in a given time period measured at current prices.