macro in general

Question 1

macroeconomic objectives PEGBYED

Answer 1

price level - low and stable inflation
employment - keeping unemployment as low as possible
GDP/Growth - economic growth
balance of payemnts on the current account - as close to 0 as possible
y(income inequality) - distribution of income
environmental protection
debt - national debt - budget deficit

Question 2

why cant all macro objectives be met simultaneously?

Answer 2

because there are trade offs between objectives

Question 3

circular flow of income

Answer 3

households provide fops to firms and demand g/s (maximise utility)
firms provide g/s and demand fops (maximise profit)
injections: investment, government spending, exports
leakages: savings, taxation, imports

Question 4

AD formula

Answer 4

AD=c+i+g+(x-m)

Question 5

gdp def (gross domestic product)

Answer 5

total value of output produced by an economy at a given time period

Question 6

Aggregate demand def

Answer 6

total planned spending at each price level in the economy in a give time period

Question 7

nominal vs real value

Answer 7

nominal - raw value
real - nominal value adjusted for inflation as inflation distorts data

Question 8

economic growth def

Answer 8

percentage change in real gdp over time period

Question 9

standard of living def

Answer 9

real gdp per capita - div by population

Question 10

HDI def

Answer 10

human development index
a measure of economic developnebt between 0 and 1, weighs 3 things equally:
- GNI per capita - output
- mean years of schooling - education
- life expectancy at birth - healthcare

Question 11

development def

Answer 11

increase in material wellbeing of society

Question 12

hot money`

Answer 12

highly liquid capital flow moved internationally (international boundry) looking for high short run return or reward

Question 13

multiplier effect

Answer 13

an increase in an injection leading to a more than proportional increase in real GDP

Question 14

accelerator effect

Answer 14

an increase in GDP equals a more than proportional increase in injections - specifically investment

Question 15

potential causes of economic growth

Answer 15

• more exports
• improved in factors of production
• higher consumer demand
• more investment - can be FDI
• lower interest rates
• less impoerts
• migration

Question 16

what is potential growth

Answer 16

what could be achieved if all resources were employed

Question 17

GDP as a measure of growth advantages

Answer 17

• simplistic model
• comparable
• input variable for other things like standards of living

Question 18

gdp as a measure of growth disads

Answer 18

• does not take into account inflation - real GDP does
• doesnt factor in environmentlal effects - green gdp
• unrecorded output - subsident tasks - people do for themselves
• black market transactions - not documented or taxed - not accounted for
• not comparable because of countries currencies
• GDP data never 100% complete

Question 19

how to compare GDP between countries

Answer 19

convwrt to the same currency
- use purcharing power parity exchange rate
- this is mroe constant than a spot rate
- PPP equilises a basket of goods and services which are identical, and includes inflation

Question 20

advantages of economic growth

Answer 20

• lower unemployment - labour is derived demand
• higher HDI
• higher standards of living = gdo/population
• lower pobverty
• global competitiveness
• more confidence for consumers and producers - investment and conumption rise

Question 21

disadvantages of economic growth

Answer 21

• inflation likely to rise - demand-pull
• could increase income inequality - the richer are the ones that are getting richer not the poorer
• environmental damage
• BoP on the current account could worsten - if people have higher wages they are mrore likely to import g/s
• diminishing marginal utility rising at a slower rate