Macro 1 - An Introduction to Macroeconomics

Question 1

What are the four main government macroeconomic objectives?

Answer 1

• Strong economic growth
• Reduce unemployment and keep it at a low level
• Keep inflation low and stable
• Maintain an equilibrium/surplus on the current account of the balance of payments

Question 2

What are the three non-main government macroeconomic objectives?

Answer 2

• Balance the government budget
• Protection of the environment
• Achieve greater income equality

Question 3

Define the term economic growth

Answer 3

Economic growth is the rate of change of real GDP

Question 4

What does GDP stand for?

Answer 4

Gross domestic product

Question 5

What is GDP?

Answer 5

Gross domestic product is a measure of a country’s economic activity - the value of all the final services and goods produced in a year

Question 6

What are the three ways of measuring GDP?

Answer 6

• By adding together the value of all incomes
• By adding together the value of all expenditure
• By adding together the value of all output

Question 7

What is inflation?

Answer 7

Inflation is a general and sustained rise in prices measured by a change in a weighted index of prices such as the CPI

Question 8

What is the UK target for inflation?

Answer 8

2%

Question 9

What is deflation?

Answer 9

Deflation is a decrease in the general level of prices

Question 10

What is disinflation?

Answer 10

Disinflation is a fall in the rate of inflation (prices are rising more slowly)

Question 11

What is the balance of payments?

Answer 11

The balance of payments is a record of the payments between one country and the rest of the world. It comprises the current, financial and capital accounts. The most significant element is the current account

Question 12

What is the current account?

Answer 12

The current account records trade in goods, trade in services, investment (primary) income and current transfers (secondary income) between a country and the rest of the world

Question 13

When is there a surplus on the balance of payments?

Answer 13

There is a surplus on the balance of payments if the money flowing into a country exceeds the money flowing out

Question 14

When is there a deficit on the balance of payments?

Answer 14

There is a deficit on the balance of payments if the money flowing out of a country exceeds the money flowing in

Question 15

What are all seven macroeconomic objectives?

Answer 15

1- Strong economic growth
2- Reduce unemployment and keep it at a low level
3- Keep inflation low and stable
4- Maintain an equilibrium/surplus on the current account of the balance of payments
5- Balance the government budget
6- Protection of the environment
7- Achieve greater income equality

Question 16

What is GDP based on?

Answer 16

GDP is based on a huge survey of businesses and government departments compiled by the Office for National Statistics

Question 17

When is there a current account surplus?

Answer 17

When exports are greater than imports

Question 18

When is there a current account deficit?

Answer 18

When imports are greater than exports