Macroeconomic objectives

Question 1

Main objectives of government macroeconomic policy

Answer 1

• Strong economic growth
• Low inflation
• Minimising unemployment
• Stable balance of payments on current account

Question 2

Key macroeconomic indicators

Answer 2

• Real GDP per capita
• CPI
• Unemployment rate
• Balance of trade in goods and services

Question 3

What is national output?

Answer 3

All the goods and services produced by a country

Question 4

What is nominal GDP?

Answer 4

Measures the annual production of goods or services, including inflation

Question 5

What is real GDP?

Answer 5

Measures the annual production of goods and services, without inflation

Question 6

What are some limitations of GDP?

Answer 6

• Extent of the hidden economy
• Quality of the output
• Income inequality

Question 7

Gross national income formula

Answer 7

GDP + Net income from abroad

Question 8

What is PPP?

Answer 8

Adjustment of an exchange rate to reflect the real purchasing power of two currencies i.e. the exchange rate needed to buy the same quantity of products in each country

Question 9

Index number formula

Answer 9

Number in current year/number in base year x 100

Question 10

What is RPI?

Answer 10

• Measures changes in prices of around 700 most commonly used goods/services
• Includes council tax + mortgage

Question 11

Limitations of indices

Answer 11

• Are the goods and services included in the sample fully representative
• Quality changes over time
• Usually out of date

Question 12

What is frictional unemployment?

Answer 12

Short term unemployment which happens when people are in between jobs

Question 13

What is seasonal unemployment?

Answer 13

Unemployment caused by changes in seasonal demand

Question 14

What is structural unemployment?

Answer 14

Changes in the structure of the economy which can deduce that the skills of some workers are now unnecessary

Question 15

What is cyclical unemployment?

Answer 15

Unemployment created by recession

Question 16

What is the labour force survey?

Answer 16

An extensive survey of UK households to establish changes in unemployment

Question 17

What is claimant count?

Answer 17

The total number of people claiming jobseekers allowance

Question 18

Advantages of claimant count

Answer 18

• Data is easy to obtain
• No cost in collecting data

Question 19

Disadvantages of claimant count

Answer 19

• Can be manipulated by gov to look smaller
• Not everyone who is unemployed claims job seekers allowance

Question 20

Advantages of labour force survey

Answer 20

• More accurate
• Internationally agreed and so easier to compare

Question 21

Disadvantages of labour force survey

Answer 21

• Part time unemployment is included
• Expensive to collect data
• Less up to date

Question 22

What is nominal wage?

Answer 22

The actual amount of money a worker is paid

Question 23

What is real wage?

Answer 23

The purchasing power of a persons income adjusted for inflation

Question 24

What is an output gap?

Answer 24

The difference between the actual level of national output and its potential level

Question 25

What is the actual output?

Answer 25

Level of real output produced in the economy

Question 26

What is negative output gap?

Answer 26

When actual output is less than full capacity output

Question 27

What is deflationary pressure?

Answer 27

The downward pressure on prices in an economy, positively impacting real wages

Question 28

What is positive output gap?

Answer 28

When actual output is more than full capacity output

Question 29

What is inflationary pressure?

Answer 29

The upward pressure on prices in an economy, negatively impacting real wages