Macro

Question 1

What are the Macro objectives

Answer 1

1-Economic Growth
2-Stable prices
3-Low Unemployment
4-Balanced balance of payments
5- Equality in the distribution of income and wealth
6-Balanced budget
7-Protection of the environment

Question 2

What is the circular flow of income

Answer 2

The circular flow of income shows the flow of goods and services, Money and factors of production between firms and households

Question 3

Define injections

Answer 3

Money going into the circular flow of income

Question 4

Define Leakages

Answer 4

Money flowing out of the circular flow of income.

Question 5

Aggregate Demand

Answer 5

Total demand for goods and services in an economy.

Question 6

Which External demand factors is made up in an economy

Answer 6

Consumption 65%
Investment 10-15%
Government Spending
Net Exports

Question 7

What are the elements which affect Consumption in the economy

Answer 7

Real disposable income (RDI)
Wealth
Consumer confidence
Interest Rates
Age structure of the population
Inflation

Question 8

Explain how RDI may affect consumption in the economy and why your explanation may not hold

Answer 8

RDI increases=consumption increases
Consumption increases=Aggregate demand Increases

Some income is saved
During periods of high inflation luxuries will see a fall in demand

Question 9

Explain how wealth may affect consumption in the economy and why your explanation may not hold

Answer 9

Assets—> House, saving, gold

Wealth effect- As asset prices increase people feel richer and they spend more =consumption Increases

People may prefer investing
Some people may not be psychologically affected by the wealth effect

Question 10

Explain how consumer confidednce may affect consumption in the economy and why your explanation may not hold

Answer 10

Confidence increases = Consumption increases = Aggregate demand increases
\
Some may not be confident
If interest rates are going up people may choose to save instead of spend
Household salaries may fall making people reluctant to spend

Question 11

What are interest rates

Answer 11

The reward of saving
The cost of borrowing

Question 12

Explain how interest rates may affect consumption in the economy and why your explanation may not hold

Answer 12

If the base rates increase = Commercial banks increase Interest rates = Pass it onto consumers Who will save more money / borrow less, decreasing consumption.

Commercial banks may not pass on the interest rates
Not all households will eb affected especially the rich household

Question 13

Explain how Age structure may affect consumption in the economy and why your explanation may not hold

Answer 13

Middle age people save
Young people spend
Old people spend

Old people may save money to pass onto their children

Question 14

Explain how inflation may affect consumption in the economy and why your explanation may not hold

Answer 14

-Average increase in price level across the economy
-People will cut back on luxuries but spend the same on necessities

Hyperinflation may lead to people spending more

Question 15

Define Marginal propensity to Consume (MPC)

Answer 15

The change in Consumption from a change in income

Question 16

What is the formula for Marginal propensity to consume (MPC)

Answer 16

Question 17

Define Marginal propensity to save (MPS)

Answer 17

The change in savings from a change in income

Question 18

What are the factors which affect the Volume of saving in the economy

Answer 18

RDI
Interest rates
Confidence
Government policies
Age structure
Access to banks

Question 19

How does RDI affect saving in the economy and why might your explanation not hold

Answer 19

Higher disposable income means savings increase therefore consumption and aggregate demand decreases

Some may choose to spend the wealth affect
You can spend and save at the same time

Question 20

How does Interest rates affect saving in the economy and why might your explanation not hold

Answer 20

High interest rates = Greater saving

Some people may choose to spend especially the rich

Question 21

How does Confidence affect saving in the economy and why might your explanation not hold

Answer 21

Higher confidence levels = less saving and more spending therefore consumption increases

The rich won’t be affected
This will only have an affect on some people, some may save as they are optimistic about the future

Question 22

How does Government policies affect saving in the economy and why might your explanation not hold

Answer 22

Some countries such as the UK will provide incentives for people to save e.g. pensions and benefits fog the old

Some may choose not to save instead they do leisure activities

Question 23

How does age structure affect saving in the economy and why might your explanation not hold

Answer 23

Middle age people save
Young people spend
Old people spend

Old people may save in order to pass down money to their children in the future

Question 24

How does Access to Banks affect saving in the economy and why might your explanation not hold

Answer 24

If access to banks increases = savings will increase = Consumption decreases

If you have access some may spend especially the rich
Some people may save money in their homes

Question 25

Which factors affect investment in the Economy

Answer 25

-Economic growth/Income
-Business confidence
-Profit levels
-Corporation tax
-Interest rates
-Capacity utilisation
-Demand for exports

Question 26

How can Economic Growth/Income affect Investment in an economy and why might your explanation not hold

Answer 26

Economic growth increases=Consumption increases=Aggregate Demand increases=Supply demand increases

Businesses may choose to pay dividends instead of investing
There may not be enough capital
Some may choose to save instead of purchase goods

Question 27

How can Business confidence affect Investment in an economy and why might your explanation not hold

Answer 27

Business confidence increases = Consumer confidence Increases = Investment increases

Businesses may have the wrong information about the future
Confidence Levels are volatile

Question 28

How can Profit Levels affect Investment in an economy and why might your explanation not hold

Answer 28

Profit Levels increases=Investment Increases

Investment opportunity may not be there
Businesses may pay off dividends
Some businesses may not have the main goal to make profit

Question 29

How can Corporation tax affect Investment in an economy and why might your explanation not hold

Answer 29

Tax increases = investment decreases
UK corporation tax=25%

if confidence is high businesses may still choose to invest

Question 30

How can Capacity Utilisation affect Investment in an economy and why might your explanation not hold

Answer 30

Capacity Utilisation means how much of a factories production is currently being Utilised
If the Capacity Utilisation is full=Investment on capital goods increases

Some companies might be confident about future demand and may choose to invest in capital goods beforehand

Question 31

How can Demand for Exports affect Investment in an economy and why might your explanation not hold

Answer 31

Demand for exports increases=Investment Increases

Some governments wont be able to handle the demand therefore there is no reason to invest
Political relations may be poor

Question 32

What factors influence Government Spending

Answer 32

-Level of economic activity
-Economic Objectives
-Political situations

Question 33

How can The Level of Economic Activity affect Government Spending and why might your explanation not hold?

Answer 33

A greater Level of Economic activity means more tax therefore the Government is more likely to spend more money
/
Corruption may affect Government Spending
Some Governments don’t collect taxes

Question 34

How can Economic Objectives affect Government Spending and why might your explanation not hold?

Answer 34

The Government would increase their Spending if Economic Objectives aren’t being met
/
Corruption

Question 35

How can the Political Situation of a country affect Government Spending and why might your explanation not hold?

Answer 35

If there is a war the government would spend more on defense
/
Even in times of war, governments may face resource constraints that limit their ability to significantly increase defense spending.

Question 36

What factors influence how much money the government spends on healthcare

Answer 36

Access to Finance
Health crisis
Ageing population