Macro economics

Question 1

How is economic growth measured?

Answer 1

GDP

Question 2

What are the main or “typical” objectives of macro economic policy?

Answer 2

• Price Stability (CPI Inflation of 2%)
• Growth of Real GDP (National Output)
• Falling Unemployment / Raising Employment
• Higher Average Living Standards (national income per capita)
• Stable Balance of Payments on the current account
• An Equitable Distribution of Income and Wealth

Question 3

What was Thatcher and David Cameron main macro-economic objectives?

Answer 3

Thatcher: Getting rid of inflation (1979 is 27%)

David Cameron: Paying off UK debt

Question 4

What’s GDP?

Answer 4

Gross Domestic Product:

The sum of all goods and services, or level of output produced in the economy over a period of time

Question 4

What’s Short run economic growth?

Answer 4

Growth of real output resulting from unused resources, including labour, thereby increasing the economy’s efficiency

Question 5

What’s Long run economic growth?

Answer 5

An increased in the economy’s potential level of output, and an outward shift of the economy’s PPF

Question 6

What’s Nominal GDP?

Answer 6

GDP measured at the current market price, without removing the effect of inflation

Question 7

What’s Real GDP?

Answer 7

Measure of all goods and services produced in an economy, adjusted for price changes or inflation

Question 8

What’s Full employment?

Answer 8

It is the level of employment occurring at the market-clearing real-wage rate, where the number of workers whom employers wish to hire = workers willing to work

Question 9

What’s Unemployment?

Answer 9

Willing or able to work at current minimum wage but is not working.

Question 10

What’s Claimant count measure of unemployment?

Answer 10

Measures according to those people who are claiming unemployment related benefits

Question 12

What’s Labour force survey measure of unemployment?

Answer 12

A quarterly sample survey of households. The survey seeks information on respondent’s personal circumstances and their labour market status during a period of 1-4 weeks

Question 13

What’s Inflation?

Answer 13

A persistent or continuing rise in the average price level

Question 14

What’s Deflation?

Answer 14

A persistent or continuing fall in the average price level

Question 15

What’s Disinflation?

Answer 15

When the rate of inflation is falling but still positive

Question 16

What’s CPI and how is it collected?

Answer 16

Consumer Price Index. The official measure used to calculate the rate of consumer price inflation in the UK. It calculates the average price increase of a basket of 700 goods & services

Question 17

What’s RPI?

Answer 17

Retail Price Index. The older measure used to calculate UK rate of inflation

Question 18

What’s Indexation?

Answer 18

The automatic adjustment of items such as pensions and welfare benefits to changes in the price level, through the use of price index

Question 19

What’s Balance of payments?

Answer 19

The record of all currency flows into and out of a country over a period of time

Question 20

What’s Current account?

Answer 20

Measures all the currency flows into and out of a country in a particular time period in payments for exports and imports, together with income and transfer flows

Question 21

What’s Exports?

Answer 21

Domestically produced goods or services sold to residents of other countries

Question 22

What’s Imports?

Answer 22

Goods and services produced in the other countries and sold to residents of this country

Question 23

What’s Balance of trade?

Answer 23

The difference between the money value of a country’s imports and its exports

Question 24

Balance of Trade deficit?

Answer 24

The money value of a country’s imports exceeds the money value of it’s exports

Question 25

Balance of Trade surplus?

Answer 25

The money value of a country’s exports exceeds the money value of it’s imports

Question 26

What’s a Balanced budget?

Answer 26

When government spending equals government revenue, which is mostly tax revenue

Question 27

What’s a Budget deficit?

Answer 27

When government spending is greater than government revenue

Question 28

Define positive output gap?

Answer 28

Occurs when the actual output is greater than potential output. (Actual GDP is above GDP trend line)

Question 29

Define negative output gap?

Answer 29

Occurs when the actual output is less than potential output. (Actual GDP is below GDP trend line)

Question 30

Define AD?

Answer 30

Aggregate demand is the total planned spending on real output produced within the economy.

Question 31

Formula for aggregate demand?

Answer 31

Consumption + Investment + Goverenment Spending + (Export - Import) = AD