Macro

Question 1

For an economy Total income =/>/< Total expenditure

Answer 1

=

Question 2

Leaks in GDP come from (S, T, M)

Answer 2

Income saved (S), Taxed income (T) and Imports (M)

Question 3

Injections in GDP come from (G, X, I)

Answer 3

Government purchases (G), exports (X) and businesses investing in new capital (I)

Question 4

Formula for GDP

Answer 4

Consumption (C) + Investment (I) + Government purchases (G) + Net exports (NX)

Question 5

What is GDP

Answer 5

Total market value of all final goods and services produced within a country within a given period

Question 6

Difference between Real GDP and Nominal GDP

Answer 6

Real GDP accounts for inflation using the GDP deflator

Question 7

GDP deflator formula

Answer 7

(Nominal GDP / Real GDP) x100

Question 8

Name a problem with using GDP as a measure

Answer 8

• Doesn’t tell the value of leisure, a clean environment and distribution of income
• Only includes monetary value that takes place in market

Question 9

What is the Consumer Price Index (CPI)

Answer 9

Measures overall cost of goods and services bought by a typical consumer

Question 10

Formula for CPI

Answer 10

(Cost basket current yr / Cost basket base yr) x100

Question 11

Formula for measuring inflation (in yr x) using CPI

Answer 11

(CPI in yr x - CPI in yr x-1) / CPI in yr x-1

Question 12

Name 2 problems with the CPI

Answer 12

• Can overstate as basket doesn’t change to reflect consumer reactions to change in relative prices (e.g. substitutes)
• Can overstate as introduction of new goods not accounted for
• Doesn’t measure quality changes where price doesn’t change

Question 13

What is the Producer Price Index (PPI)

Answer 13

Measure of the cost of a basket of goods and services bought by firms

Question 14

Difference between Nominal and Real interest rate

Answer 14

Real interest rate is corrected for inflation

Question 15

Formula for Real interest rate

Answer 15

Real interest rate = Nominal interest rate (%) - Inflation (%)