macrooverviews

Question 1

describe the circular flow of income

Answer 1

entrepeneurs buy factors of production from households, so they can set up and run businesses to produce goods and services

then firms sell the goods and services to the households.

households use the income they earned by selling the factors of production to buy the goods and services that they need and want

Question 2

why are firms dependent on households

Answer 2

firms rely on households for labour and money (factors of production)

Question 3

why are households dependent on firms

Answer 3

households are dependent on firm for money and wages, and the goods and services they make

Question 4

what is aggregate demand

Answer 4

the total planned demand for goods and services in the economy

Question 5

how is aggregate demand calculated

Answer 5

Consumption + Investement + Government + (Exports - Imports)

C+I+G+(X-M)

Question 6

how is aggregate demand affected by changed in the price level

Answer 6

when price level decreases, demand expands

when price level increases, demand contracts

Question 7

what is aggregate supply

Answer 7

the total planned supply for goods and services in the economy

Question 8

how is aggregate supply affected by changed in the price level ( and why)

Answer 8

as price level increases, supply also increases

1- for a firm to supply more, they must pay their workers overtime which means they need to increase the price level to pay the workers this extra rate

2- it becomes more profitable to produce goods and services

Question 9

what is macroeconomic equilibrium

Answer 9

the price level where aggregate supply equals aggregate demand

Question 10

what do we know at macroequilibrium

Answer 10

the GDP

the price level

Question 11

what does macroeconomic equilibrium represent

Answer 11

-where ad and as meet

Question 12

what is economic growth

Answer 12

when the GDP of a country rises from one period to another

Question 13

state 3 benefits of economic growth

Answer 13

government taxes increase so they can increase public spending

living standards increase

employment increases

Question 14

state 3 disadvantages of economic growth

Answer 14

increased pollution and congestion

it can increase inequality

it can increase inflation which leads to higher prices

Question 15

what is full employment

Answer 15

when most people who are able to work are in employment

Question 16

what is unemployment

Answer 16

when someone doesn’t have a job but they’re able to have one

Question 17

state 3 causes of unemployment

Answer 17

seasonal jobs

economic recession

automation

Question 18

define the rate of inflation

Answer 18

the rate at which prices increase

Question 19

define price stability

Answer 19

when inflation rate is around 2% a year

Question 20

why are stable prices important

Answer 20

it boosts consumer confidence as prices are more predictable

it also boosts business confidence, which makes the economy bigger

Question 21

define the balance of payments

Answer 21

a record of a country’s financial transactions with the rest of the world

Question 22

what are the three accounts that make up the balance of payments and what do they record

Answer 22

current account - imports and exports
financial account - foreign direct investement
capital account

Question 23

why is a trade deficit a problem

Answer 23

it suggests the economy has problems and relies on other contries for assets

Question 24

why do governments need accurate data

Answer 24

to be able to understand and influence the economy

Question 25

what are 3 pieces of data the government use

Answer 25

GDP, CPI (consumer prices index), employment and unemployment

Question 26

define fiscal policy

Answer 26

deliberate use of taxes and spending to influence the economy

Question 27

define expansionary fiscal policy and when is it used

Answer 27

cuts taxes/increases spending

used when the economy is in a slump

Question 28

define contractionary fiscal policy and when is it used

Answer 28

increases taxes/cuts spending

used when there is a high inflation rate

Question 29

how does expansionary fiscal policy affect the economy

Answer 29

lower taxes mean more disposable income, and an increase in aggregate demand, so the economy grows and gets out of a slump

Question 30

define monetary policy

Answer 30

deliberate use of the country’s interest rate to influence the economy

Question 31

define expansionary monetary policy and when is it used

Answer 31

cut in the base rate makes borrowing cheaper and saving less attractive

used when the economy is in a slump

Question 32

define contractionary monetary policy and when is it used

Answer 32

increase in the bank rate which makes borrowing more expensive and saving more attractive - so consumption and investement will reduce and aggregate demand decreases

used when the economy is in a boom with high inflation

Question 33

define supply side policy

Answer 33

long term policies that allow the economy to grow

Question 34

describe a supply side policy including its positive effects

Answer 34

government spending on infrastructure like railways to make transporting goods more efficient, growing the economy

Question 35

why do supply side policies increase aggregate supply

Answer 35

aggregate supply increases as firms invest more to take advantage of a growing economy