Pack 2: Macroeconomic objectives

Question 1

What is inflation?

Answer 1

Increase in general price level

Question 2

What is disinflation?

Answer 2

Fall in rate of inflation

Question 3

What is deflation?

Answer 3

Fall in general price level

Question 4

What are the two measures of inflation?

Answer 4

~RPI
~CPI

Question 5

What are the differences between CPI and RPI?

Answer 5

~CPI excludes housing related costs
~CPI - geometric mean, RPI - arithmetic
~RPI excludes top 4% and pensioners deriving at least 75% of income from state

Question 6

What is CPI measuring?

Answer 6

How much on average a representative basket of goods and services costs in UK

Question 7

What are the limitations of CPI?

Answer 7

~Only an average rate
~Weightings only changed annually
~Can’t indicate quality, only price
~Sampling issues
~Housing costs excluded

Question 8

What is demand pull inflation?

Answer 8

Increase in general price level, caused by higher AD in economy

Question 9

What are the causes of demand pull inflation?

Answer 9

~Rising consumption
~Rising investment
~Rising government spending
~Rising net exports

Question 10

What is cost push inflation

Answer 10

Increase in general price level, caused by higher cots of production

Question 11

What are the causes of cost push inflation?

Answer 11

~Up commodity prices
~Up labour costs
~Up indirect taxation
~Fall in exchange rate

Question 12

What is the money supply?

Answer 12

Total amount of money in circulation or existence in a country

Question 13

What is employment?

Answer 13

Total number of people with job, including with firms, other organisations and self-employed

Question 14

What is unemployment?

Answer 14

People without a job but willing and able to work at current wage rates

Question 15

What is economically inactive?

Answer 15

People of working age, not in employment or looking for work. e.g. students, early retirement, disabled, homemakers

Question 16

What is underemployment?

Answer 16

Individual employed but not fully utilised in terms of skills or hours

Question 17

What are the reasons for underemployment?

Answer 17

~Skills/job vacancies mismatch
~Changes in business cycle
~Technological change

Question 18

What is the claimant count measure?

Answer 18

Number of people claiming unemployment related benefits

Question 19

Limitations of the claimant count measure?

Answer 19

~Open to government manipulation
~Not internationally recognisable
~Data inaccuracies

Question 20

What is the ILO measure?

Answer 20

Number of people aged 16-65 unemployed, based on labour force survey

Question 21

What is structural unemployment?

Answer 21

Pattern of demand and production changes leaving workers unemployed . e.g. UK shipbuilding

Question 22

What is frictional unemployment?

Answer 22

Workers unemployed for short amount of time. e.g. while searching for work

Question 23

What is seasonal unemployment?

Answer 23

Workers unemployed at certain times of year. e.g. agricultural workers in winter

Question 24

What is cyclical unemployment?

Answer 24

Insufficient demand in economy for workers who wish to work at current wage to get a job

Question 25

What is real wage unemployment?

Answer 25

Real wages too high and inflexible downwards, insufficient demand from employers

Question 26

What are the balance of payments?

Answer 26

Record of all transactions associated with imports and exports, together with all capital movements

Question 27

What is international trade?

Answer 27

Exchange of goods and services across international borders

Question 28

What is the current account?

Answer 28

Part of the balance of payments where payments for goods/services, investment income and transfers are recorded

Question 29

What is a current account deficit?

Answer 29

Amount by which money from trade, investment income and transfers going out is more than coming in.

Question 30

What is a current account surplus?

Answer 30

Amount by which money from trade, investment income and transfers going in is more than going out.

Question 31

Causes of current account surpluses/deficits?

Answer 31

~Exchange rate
~International competitivness
~Growth and savings
~Investment income and transfers

Question 32

How will a deficit affect the circular flow?

Answer 32

Will represent a net withdrawal

Question 33

How will a surplus affect the circular flow?

Answer 33

Will represent a net injection

Question 34

What are the effects of an increasing current account deficit?

Answer 34

~Reduced economic growth
~Reduced inflation
~Increased unemployment