National Economy & Macroeconomic Issues

Question 1

What is economic growth?

Answer 1

The term economists use to describe the change in the level of an economy’s output from period to period

• over 12 months = annual rate of growth
• over 3 months = quarterly rate of growth

Question 2

Do countries experience stable economic growth?

Answer 2

Rarely, the periodic fluctuations of national output is the business cycle.

Periods of rapid growth are followed by periods of low growth or even decline in national output.

Question 3

What needs to happen so economic growth can be sustained over the longer term?

Answer 3

The economy’s capacity must increase

Question 4

What is unemployment and how do you work out the unemployment rate?

Answer 4

Those of working age who are without work, but who are available for work at current wage rates

The unemployment rate is the % of unemployed over the total labour force (defined as those in employment + those unemployed)

Question 5

What is inflation?

Answer 5

A general rise in prices throughout the economy

The rate of inflation is the % increase in prices over a 12-month period. The UK government publishes a consumer price index (CPI) each month & the rate of inflation is the percentage increase in that index over the previous 12 months

Question 6

What do the government pursue regarding macroeconomic issues?

Answer 6

• High and stable economic growth
• Low unemployment
• Low inflation
• The avoidance of balance of payments deficits and excessive exchange rate fluctuations
• A stable financial system
• Avoidance of excessively financially distressed sectors of economy

POLICY OBJECTIVES MAY CONFLICT

Question 7

What are the three ways of measuring GDP?

Answer 7

1. Product method
2. Income method
3. Expenditure method