Intro and key terms

Question 1

What is the sophisticated definition of gross domestic product? and explain key components

Answer 1

The market value of all final goods & services produced within a country in a given period of time”

‘Market value’→ market prices

‘. . . Final . . . ’ → engines used in making a car is an intermediate good, the car is the final good

‘. . . Within a country. . . ‘ → production within the geographical confines of a country, so excludes production by UK companies in foreign countries, but will include production by foreign companies in the UK

‘. . . In a Given Period of Time. . . ‘ over one year (annual) or a quarter

Question 2

What is inflation?

Answer 2

Rate of change in the average price level

Question 3

What are interest rates?

Answer 3

Price of money set by the central bank

Question 4

What is government deficit?

Answer 4

Difference between government spending and tax receipts

Question 5

Why study macro for business?

Answer 5

UK & global economic growth impacts on investment & expansion decisions

Monetary policy the Bank of England affects the cost of borrowing & lending, i.e. interest rates

Fiscal policy government affects tax & spending decisions: impacts on overall demand & on profits through tax changes, e.g. corporation tax