Macro Intro

Question 1

State 5 macroeconomic objectives.

Answer 1

High & sustainable economic growth, low unemployment, low stable inflation, balance of payments equilibrium, low inequality

Question 2

What does the trendline on the trade/ business cycle show?

Answer 2

Trend rate of Real GDP in the long run, shows productive potential of the economy.

Question 3

Define a boom, recession, recovery and downturn.

Answer 3

Boom - High GDP growth, low u/e, high AD (maybe inflation)

Recession - Falling GDP, high u/e, low AD & inflation

Recovery - GDP growth increasing, u/e falls, AD rises

Downturn - GDP growth falling, u/e rises, AD falls, less inflation

Question 4

Define a positive and negative output gap.

Answer 4

+ve - During a boom, the actual level of output is above trend line (Inflationary gap)

-ve - Actual level of output is below the trend line, below the LRAS. (Deflationary gap)

Question 5

What are the 4 functions of money?

Answer 5

Medium of exchange, measure of value, store of value, method of deferred payment.

Question 6

How is money a medium of exchange?

Answer 6

You can buy goods produced by someone else. Price is quick to agree, easy to transport.

Question 7

How is money a measure of value?

Answer 7

It provides a common value of G/S being exchanged. You can know the price and make choices about how much to buy/ sell.

Question 8

How is money a store of value?

Answer 8

Money’s value is retained over time, it does not deteriorate with time or uses.

Question 9

How is money a method of deferred payment?

Answer 9

It can be used to buy something for later (savings) or to pay later for something consumed now (loans)

Question 10

What is the difference between a credit card and debit card?

Answer 10

Credit card - borrowed money to pay back later.

Debit card - transferring cash directly from bank account when you buy something.