Pack 1: Economic Growth

Question 1

What are macroeconomic objectives?

Answer 1

Aims/targets of government to improve economic welfare

Question 2

What are the main macro objectives?

Answer 2

~Economic growth
~Low unemployment
~Low/stable inflation
~balanced government budget
~balance of payments equilibrium on current account
~Greater income equality
~Environment protection

Question 3

What are the policy tools governments can use to achieve objectives?

Answer 3

~Fiscal policy
~monetary policy
~Supply side policies

Question 4

What is income?

Answer 4

Flow of money, acts as reward for services of factors of production. e.g. wages

Question 5

What is wealth?

Answer 5

Stock of assets held by individual/organisation. e.g. shares/properties

Question 6

What is the circular flow of income?

Answer 6

Model of economy showing money flows between households/firms.

Consumption/income flow as financial flows for factors of production and goods/services.

Question 7

What are injections into the circular flow?

Answer 7

~Government spending
~Investment
~Exports

Question 8

What are withdrawals from the circular flow?

Answer 8

~Taxation
~savings
~Imports

Question 9

What is the multiplier effect?

Answer 9

Number of times rise in incomes exceeds rise in injections which caused it

Question 10

What is the multiplier ratio?

Answer 10

Ratio of change in equilibrium real income to injection that brought it

Question 11

What can cause a multiplier effect?

Answer 11

~Investment increases
~Government spending
~Export increases

Question 12

What will limit the multiplier effect?

Answer 12

Withdrawals from the circular flow

Question 13

What is the MPC?

Answer 13

Proportion of additional income spent

Question 14

What is the MPW?

Answer 14

Proportion of additional income withdrawn from circular flow. Tax, savings, imports.

Question 15

What is national income?

Answer 15

Total value a countries final output of all goods/services produced in one year

Question 16

What is gross domestic product?

Answer 16

Value of all goods/services produced in economy over year

Question 17

What is gross national income?

Answer 17

Value of all goods/services produced in economy over year within national borders, plus net income from production abroad.

Question 18

What is nominal GDP?

Answer 18

GDP, unadjusted for inflation

Question 19

What is real GDP?

Answer 19

GDP adjusted for inflation

Question 20

What is GDP per capita?

Answer 20

GDP divided by total population in economy

Question 21

What is purchasing power parity, (PPP)?

Answer 21

Exchange rate between currencies comparing price of typical basket of goods between the countries

Question 22

What are the limitations of using GDP to compare living standards?

Answer 22

~Statistical issues
~Inequality issues
~No quality of life measure

Question 23

What is economic growth?

Answer 23

Increase in real GDP over time

Question 24

What is actual growth?

Answer 24

Increase in real GDP in economy over time

Question 25

What is potential growth?

Answer 25

Increase in productive potential of economy over time

Question 26

What factors can lead to actual growth?

Answer 26

~Up investment ~Down savings ~Up budget deficit ~Down trade deficit

Question 27

What factors can increase potential growth?

Answer 27

~Capital good investment ~Tech advancements ~Healthcare/education improvements

Question 28

What is an output gap?

Answer 28

Difference between actual GDP level and productive potential of economy

Question 29

What is the business/trade cycle?

Answer 29

Phenomenon where GDP fluctuates around underlying trend, following regular pattern

Question 30

What is an economic boom?

Answer 30

GDP well above productive potential/long-term trend rate of growth

Question 31

What is a recession?

Answer 31

GDP falling two or more consecutive quarters

Question 32

What is subjective happiness?

Answer 32

Feelings of wellness/satisfaction, cannot be objectively measured

Question 33

What factors affect subjective happiness?

Answer 33

~Financial situation ~Job satisfaction ~Friends, family, community ~Health ~Personal freedom ~Personal values

Question 34

What is the Easterlin paradox?

Answer 34

Shows relationship between real incomes and subjective happiness

Question 35

Why does subjective happiness plateau?

Answer 35

~Up importance of non-financial factors ~Importance of relative incomes ~Importance of habit

Question 36

What is UK national wellbeing?

Answer 36

Economic measure of quality of life. Conducted by ONS, attempts to look beyond GDP, includes, health, environment, personal well-being

Question 37

What are the limitations of national well-being stats?

Answer 37

~Subjective factors, hard to measure ~Difficult to compare over time and between measures ~Measure not aggregated