kei

Question 1

4 macroeconomic goals

Answer 1

economic growth
price stability
full employment
favourable balance of trade position

Question 2

economic growth definition

Answer 2

an increase in the real GDP
a raise in consumption levels to improve the living standards of society

Question 3

definition of GDP

Answer 3

the value of all final goods and services produced within the geographical boundary of a country over a given period of time (sum PQ)

Question 4

economic growth rate

Answer 4

= rate of change of GDP
=(real gdp/current year - real gdp/previous year)/real gdp/previous year x 100%

Question 5

definition of real GDP

Answer 5

the value of final goods and services produced in a given year expressed in terms of the prices in a base year
= nominal GDP x price level of base year)/price level of current year

Question 6

use of real GDP

Answer 6

eliminates the effects of inflation on GDP -> holds prices constant -> allows the quantities of production to be compared across time

Question 7

emerging economies have lower real GDP values but higher growth rates

Answer 7

many of their resources are still underemployed and actual production levels are low, allowing them to increase production quickly when they experience rising aggregate demand

Question 8

definition of GNI

Answer 8

it measures the value of all final output of goods and services produced by nationally owned factors of production during a given period of time
= GDP + NFIA

Question 9

definition of NFIA

Answer 9

the difference between the income that locally owned residents and firms have received from abroad and the income claimed by non-residents based locally

Question 10

use of NFIA

Answer 10

compares the GDP and GNI to indicate the extent to which a country’s national income is derived from abroad

Question 11

GNI vs GDP

Answer 11

GNI gives a more accurate reflection of consumption levels within a country as incomes earned by local factors are more likely to be spent in the domestic economy

GDP better reflects the economic environment of a country and the quantity and quality of resources available in the country

Question 12

limitations of using GDP and GNI

Answer 12

presence of non-market activities
presence of the underground economy
-> the production of such goods/services is hidden from government record keepers and excluded in the GDP

Question 13

definition of sustainable growth

Answer 13

a rate of economic growth that can be maintained without creating other significant economic problems (depleted resources), enabling a consistently improving quality of life, maintaining intergenerational welfare over time

Question 14

measurement of sustainable growth

Answer 14

green GDP: an index of economic growth that factors in environmental consequences associated to the growth

Question 15

limitations of sustainable growth

Answer 15

normative as it considers ecological, sociological and moral aspects of economic growth -> no objective indicator

Question 16

definition of inclusive growth

Answer 16

a rate of growth that is sustained over a period of time, is broad-based across economic sectors, and creates productive employment for the majority of the country’s population
- sunset/sunrise industries – those who do not have relevant skills are left behind

Question 17

measurements of inclusive growth

Answer 17

Gini coefficient to account for income distribution
productivity (output/resource unit) growth across sectors of the economy

Question 18

definition of price stability

Answer 18

a low and stable rate of inflation

prices increase gradually and do not fluctuate in wild and unpredictable manners

Question 19

benefits of price stability

Answer 19

ensures that consumers will continue to be able to afford goods and services and increases investor confidence in the country

Question 20

inflation rate

Answer 20

measures the change in price level from year to year

= (CPI/current year - CPI/previous year)/CPI/previous year x 100%

Question 21

definition of consumer price index

Answer 21

a weighted price index which measures the price of a fixed basket of g&s commonly purchased by a typical household

weights are measured by its share in total consumption expenditure of a typical household and fixed at a base year

Question 22

limitations of cpi

Answer 22

substitution bias: consumers switch to consuming less expensive alternatives as prices of a good rise, which CPI does not account for
quality adjustment bias:
-> CPI rise does not necessarily reflect a rise in the cost of living -> regular revisions to the composition of CPI are needed

Question 23

definition of full employment

Answer 23

a non-zero, low rate of unemployment, when all who are willing and able to work have gained employment
- NAIRU: cyclical unemployment is zero, only structural and frictional unemployment prevails

Question 24

unemployment rate

Answer 24

= no. of unemployed people/labour force x 100%

inversely proportional to growth rate

Question 25

types of unemployment

Answer 25

structural: when workers are willing to work but do not possess the relevant skills in the economy
cyclical: related to the business cycle
frictional: movement between jobs, unrelated to economic performance
seasonal

Question 26

limitations of unemployment rate

Answer 26

changes in it could result from a changing size of the labour force and not any actual increase in labour resources
- when unemployed people leave the workforce, both nu and d falls, but nu falls by a greater proportion -> fall in unemployment rate, but doesn’t imply better utilisation of resources
- nu and d rises due to new entrants to the labour market who are still seeking jobs, but it is not a reflection of poorer use of resources

Question 27

definition of favourable balance of trade position

Answer 27

an avoidance of large and persistent BoT deficits or surpluses

Question 28

definition of balance of payments

Answer 28

a record of a country’s international transactions which involve flows of money

(Current Account, Capital and Financial Account, Reserve Assets Account)

Question 29

definition of balance of trade

Answer 29

the value of the difference between export revenue and import expenditure

Question 30

definition of material standard of living

Answer 30

the quantity of goods and services consumed by the average person in a country in a given time period

Question 31

measurement of material sol

Answer 31

real gdp per capita: value of goods/services consumed by an average resident, with the effects of inflation eliminated so it only reflects a change in volume of output produced/consumed

Question 32

limitations of using real gdp per capita

Answer 32

conveys no information about income distribution – economic growth is not necessarily inclusive (gini coefficient)

gdp also includes investment, gov spending and net exports -> increase may not be related to domestic consumption in the same period

Question 33

definition of non-material standard of living

Answer 33

the qualitative aspects of life: broad-based measure of welfare

Question 34

real gdp per capita’s relationship with non-material SoL

Answer 34

indirect proxy as consumers will be able to purchase more and better quality goods

but real gdp per capita increase can also compromise non-material sol if it comes at the expense of longer hours, more stress and increased pollution

Question 35

other measures of non-material sol

Answer 35

healthcare (average life expectancy, infant mortality rates), education (literacy rates, mean years of schooling), safety (crime rates), freedom, stress (hours worked per week, job satisfaction surveys), pollution (air quality index)

Question 36

limitations of welfare indicators

Answer 36

highly subjective as welfare cannot be quantified

need to constantly be reviewed and refined, multiple indicators need to be combined to create a better picture

Question 37

purpose of composite indicators

Answer 37

combine material and non-material measures to give a more complete picture of the level of human well-being

Question 38

composite indicators

Answer 38

HDI (life expectancy, mean number of years of schooling, PPP adjusted GNI)
Measure of Economic Welfare (adds value of leisure and transactions in the underground economy + deducts the cost of environmental damage)
Genuine Progress Indicator (balances GDP with costs related to income distribution, pollution and environmental damage)
OECD Your Better Life Index (measures 11 aspects of welfare, and can be adjusted to reflect changes in the relative importance of those aspects)

Question 39

limitations of composite indicators

Answer 39

the aspects measured by composite indicators are subjectively chosen and dependent on societal values, limiting their usefulness

Question 40

comparing sol between countries

Answer 40

differences in PPP-adjusted GDP
- growth rates can be considered, but only suggests rate of increase and not actual conditions

Question 41

definition of ppp

Answer 41

takes into account the nominal exchange rate and adjusts for differences in cost of living
- a unit of currency can buy the same good in all countries

Question 42

why use ppp?

Answer 42

it accounts for differences in cost of living, lessening the reflected differences in standard of living between developed and non-developed countries
- exchange rates can be volatile

Question 43

limitations of ppp adjusted real gdp/capita

Answer 43

basket of goods may be inaccurate as different countries have different consumption patterns -> almost impossible to adjust for these differences
differences in accounting procedures for measuring national income
omission of non-marketed transactions -> affects developing countries most

Question 44

singapore stats

Answer 44

high gdp ($475k million), low inflation rate (0.6%), unemployment rate (2.3%) in 2019

HDI: 0.935 in 2018, 9th in the world

long work hours (almost 45 hours a week)