MACRO DEFINITIONS

Question 1

macroeconomy

Answer 1

The economy in aggregate – the sum of all of the individual markets that make up the economy.

Question 2

macroeconomic objectives

Answer 2

The four aims of government when managing the macroeconomy are usually:

• Strong and sustained economic growth (higher GDP)
• low unemployment,
• low and stable inflation,
• satisfactory trade position.

Question 3

GDP

Answer 3

The value of all of the output (= income) generated in the domestic economy over a given time period.

Question 4

GNP

Answer 4

The income flowing to the residents of an economy over a given period. GDP + net property income from abroad.

Question 5

economic growth

Answer 5

The increase in GDP over a given time period.

Question 6

inflation

Answer 6

The sustained increase in the general price level of an economy. The reduction in the purchasing power of money.

Question 7

unemployment

Answer 7

Unemployment consists of all those of a working age who are actively seeking work at going wage rates but do not have a job.

Question 8

current account of Balance of payment

Answer 8

A record of the international income and expenditure for economic agents in an economy over a given period of time.

Question 9

visibles

Answer 9

Entries into the current account relating to trade in goods.

Question 10

primary income

Answer 10

Interest, profit and dividends generated by investments abroad.

Question 11

secondary income

Answer 11

International transfers, such as remittances made by migrant workers.

Question 12

invisibles/

Answer 12

Entries into the current account relating to trade in services and primary and secondary income.

Question 13

Real GDP

Answer 13

The value of GDP adjusted to remove the effects of inflation. Real GDP is measured ‘at constant prices.’ An increase in real GDP represents an increase in the volume of output generated in the economy.

Question 14

nominal GDP

Answer 14

The value of GDP without adjustment for inflation. Nominal GDP is measured ‘at current prices.’ An increase in nominal GDP could be cause either by an increase in the volume of output or by inflation.

Question 15

real GDP/capita

Answer 15

Real GDP divided by population.

Question 16

index

Answer 16

An index represents all values relative to a base, which is given the value 100. Index numbers have no units. Index number = (Value/base value) x 100.

Question 17

weighted index

Answer 17

A composite index adjusted to take account of the relative importance of its components. For example, a price index such as the RPI may be constructed from the prices of many products and weights attached to each product to reflect the proportion of consumer expenditure accounted for by the product.§

Question 18

CPI?

Answer 18

The Consumer Price Index is a weighted price index and is used to calculate the official inflation rate.

Question 19

RPI?

Answer 19

The Retail Price Index is an alternative weighted price index that differs from the Consumer Price Index mainly in the goods and services that are used to calculate it and the mathematical method for calculating the index. The RPI tends to rise less quickly than the CPI

Question 20

claimant count

Answer 20

The claimant count is a measure of unemployment based on all those claiming Job Seeker’s Allowance, the main benefit received by those who are unemployed.

Question 21

ILO measure?

Answer 21

The International Labour Organisation’s measure of unemployment, which is based on survey data. It is designed to give a more accurate measure of unemployment than the claimant count.

Question 22

living standards

Answer 22

Living standards are usually measured using real GDP/capita. More accurately this may be said to be a measure of material standards of living, while living standards are also affected by a range of non-material factors, such as the value of human relationships and political freedoms.

Question 23

the circular flow of income

Answer 23

A model of the economy in which households supply factors of production to firms in return for factor incomes (wages, interest, rent and profits), while firms provide goods and services to households in return for consumer expenditure (c). Consumer expenditure is returned to households as factor income, setting up a circular flow.

Question 24

injections

Answer 24

Injections into the circular flow are sources of expenditure from outside of the flow, namely investment (I), government expenditure (G) and exports (X).

Question 25

injections

Answer 25

Injections into the circular flow are sources of expenditure from outside of the flow, namely investment (I), government expenditure (G) and exports (X).

Question 26

withdrawels?

Answer 26

Withdrawals from the circular flow occur when income received by households is not returned to firms as consumer expenditure. Withdrawals are caused by saving (S), taxes (T) and import (M).

Question 27

the natonal income identity

Answer 27

Income is identical to output is identical to expenditure. This is because income, output and expenditure are the same flow measured at three different points.

Question 28

aggregate demand

Answer 28

The total demand for the goods and services produced in an economy over a given period of time. AD = C + I + G + X – M.

Question 29

consumption (c)

Answer 29

Expenditure by households on goods and services. That part of disposable income that is not saved.

Question 30

disposable income

Answer 30

Income after tax and benefits.

Question 31

discretionary income?

Answer 31

Income left after providing for basic needs and meeting ongoing commitments such as mortgage and utility payments.

Question 32

discretionary income?

Answer 32

Income left after providing for basic needs and meeting ongoing commitments such as mortgage and utility payments.

Question 33

discretionary income?

Answer 33

Income left after providing for basic needs and meeting ongoing commitments such as mortgage and utility payments.

Question 34

discretionary income?

Answer 34

Income left after providing for basic needs and meeting ongoing commitments such as mortgage and utility payments.

Question 35

determinants of consumption

Answer 35

These include: disposable income, discretionary income, the interest rate (lower interest rates discourage saving and encourage borrowing to finance consumption – the interest rate is the opportunity cost of consumption), consumer confidence, house prices.

Question 36

wealth effect

Answer 36

The effect on consumption as wealth increases. For example, when house prices increase, home owners may engage in mortgage equity withdrawal to finance consumption.

Question 37

saving (s)

Answer 37

That part of disposable income that is not consumed.

Question 38

saving (s)

Answer 38

That part of disposable income that is not consumed.

Question 38

saving (s)

Answer 38

That part of disposable income that is not consumed.

Question 39

saving ratio

Answer 39

The proportion of national income that is saved: (S/Y) x 100

Question 40

determinants of saving

Answer 40

These include: Interest rates, income, income distribution (those with low incomes have a lower propensity to save), age distribution (see life-cycle hypothesis), inflation (high levels of inflation may discourage saving), confidence (the precautionary motive for saving is stronger when confidence in future economic prospects is low).

Question 41

investment (i)

Answer 41

Expenditure by firms on additional to the capital stock. This consists of fixed capital such as buildings and machinery and circulating capital such as unfinished products.

Question 42

determinants of investment

Answer 42

These include: levels of retained profits, the interest rate (as investment is often funded by borrowing), the growth of output (see accelerator) and business confidence.