Macro Exam knowledge

Question 1

Why does the balance of trade change?

Answer 1

exchange rates
efficiency and productivity
competitiveness
innovation and design

Question 2

Why does investment change?

Answer 2

interest rates
expectations
efficiency of capital
technological change

Question 3

Why does government spending change?

Answer 3

Government policy
Economic cycle
Elections

Question 4

Define inflation

Answer 4

Increase in the general price level

Question 5

Define deflation

Answer 5

Fall in the general price level

Question 6

Define hyperinflation

Answer 6

Very high rate of inflation

Question 7

Define unemployment

Answer 7

People who are willing and able to work but unable to find employment

Question 8

Why is weighting used for the inflation basket?

Answer 8

Because people spend different proportions of their income on different goods.

Question 9

Define Claimant Count

Answer 9

Measure includes people who claim the Job Seeker’s Allowance

Question 10

Define Labour Force Survey

Answer 10

Counts those who are without any kind of work including part time work but who have looked for work in the past month and are able to start work immediately

Question 11

Name the 5 types of unemployment

Answer 11

Cyclical

Classical (real-wage)

Structural

Seasonal

Frictional

Question 12

Define cyclical unemployment

Answer 12

Caused by a downturn in the economy

Question 13

Define classical unemployment

Answer 13

Caused by the fact that wages are too high that a company can afford the job due to national minimum wage and machinery (replacing human workers)

Question 14

Define structural unemployment

Answer 14

Structural change in the economy (decline of industry/ region) leads to unemployment leaving people with the wrong skills

Question 15

Define seasonal unemployment

Answer 15

Caused by the changing of the seasons

Question 16

Define frictional unemployment

Answer 16

Short-term: where people are between jobs

Question 17

Define sustainability

Answer 17

Sustainability means using resources so as not to
compromise future generations’ standard of living.

e.g. Sustainability means minimising negative externalities on future generations, e.g. by using more environmentally friendly forms of farming such as organic farming.

Question 18

Define debt

Answer 18

cumulative deficit

Question 19

Budget deficit

Answer 19

Year- on- year difference in government spending and tax revenues

Question 20

Under which conditions is government debt not bad?

Answer 20

When affordable (low interest rate)

When spent on the right things (capital expenditure and supply side policies)

When it can be controlled

When proportion of GDP is not too big

Question 21

When is fiscal policy useful?

Answer 21

capital expenditure better

useful when MPC high (depends on economic climate and income of people that are targeted)

when not crowding out/ crowding in is good

monetary policy should be tried before

government debt affordable and maneable

good if it solves market failure, supply side policies

Question 22

Define Crowding Out

Answer 22

When government spending replaces private sector spending that would have taken place