Macroeconomic objectives

Question 1

What are the four macroeconomic objectives

Answer 1

• strong and stable economic growth
• low and stable rate of inflation
• low rate of unemployment
• balance of payments equilibrium

Question 2

How do you calculate real GDP from nominal GDP and Consumer Price Index
(CPI is inflation in index number form)

Answer 2

real GDP = nominal GDP/CPI x100

Question 3

What is Sustainable Economic Growth

Answer 3

The expansion of the long term productive potential without reducing quantity of factors of production in the future

Question 4

What is productivity

Answer 4

Any measure of supply side efficiency e.g. output per hour

Question 5

What is the labour force and what % of the population is the labour force

Answer 5

The members of the population who are active and participating in the economy - 78% of people between 16-64

Question 6

What is an unemployed person

Answer 6

Someone without a job who has been actively seeking work in the last 4 weeks and available to start work in the next 2 weeks

Question 7

What is an example of a measure of unemployment

Answer 7

Labour force survey - samples 100,000 people

Question 8

What is inflation

Answer 8

A sustained increase in the general price level

Question 9

What are ways that the CPI can increase

Answer 9

• Rise in cost of living
• Fall in the value of money

Question 10

What is the inflation rate target

Answer 10

2% inflation

Question 11

What is price stability

Answer 11

When inflation rises at a low predictable rate for a long time

Question 12

Explain how CPI is measured

Answer 12

1) Collect a family expenditure survey of 6000 households
2) weight different goods and services differently based on percentage of total consumption
3) Create an weighted index of the price of the different goods

Question 13

What is a fall in the rate of inflation called

Answer 13

Disinflation (prices are still rising but less quick)

Question 14

Limitations of the CPI as a measure of cost of living

Answer 14

• Excludes many costs associated with housing e.g. mortgage
• CPI is the average cost of living, some families cost of living may be higher

Question 15

What is the balance of payments

Answer 15

Records the UK’s economic relationship with the rest of the world (imports and exports). Data is recorded in the current account

Question 16

What is the balance of payments equilibrium objective

Answer 16

When overall imports and exports are a similar value

Question 17

What are the 4 types of import and export flow within the current account

Answer 17

1. Net trade in goods e.g. raw materials
2. Net trade in services e.g. finance
3. Net investment income e.g. rent
4. Transfers to other governments e.g. aid

Question 18

What is the balance of payments in the UK currently

Answer 18

Growing deficit in the last 30 years

Question 19

What is the difference between trade balance and balance of payments

Answer 19

Trade balance is the net trade of just goods and services. Balance of payments takes into account investment income from other countries