T2.1 Macroeconomics (UK economy)

Question 1

What is Gross Domestic Product?

Answer 1

GDP measures the total value of national output of goods and services produced in a given time period

Question 2

How is GDP calculated?

Answer 2

AD = C + I + G + (X-M)

Question 3

Define GDP per capita?

Answer 3

GDP per capita measures the average economic output per person in a country

Question 4

How do you calculate GDP PER CAPITA?

Answer 4

Per capita GDP = Total GDP/ Population

Question 5

What is Gross National Income?

Answer 5

GNI is an alternative to GDP as a measure of wealth

Question 6

Formula of GNI

Answer 6

GNI = GDP + Net Primary Income + Net secondary income

Question 7

Define Purchasing Power Parity

Answer 7

PPP measures how many units of one country’s currency are needed to buy the same basket of goods and services as can be bought with a given amount of another currency

Question 8

What is Inflation?

Answer 8

Inflation is a sustained rise in the general price level

Question 9

What is Hyper-inflation?

Answer 9

Hyper-inflation is a phase of extremely rapid inflation nearly always the result of mass money printing by the government with money as an asset ending up as worthless

Question 10

Define Deflation

Answer 10

It is a sustained period when the general price level for good and services is falling

Question 11

Define Disinflation

Answer 11

It is a fall in the rate of inflation but not sufficient to bring about price deflation

Question 12

Define Consumer price index

Answer 12

CPI is a measure that track changes in the average price level

Question 13

Limitations of the UK consumer price index:

Answer 13

1.The CPI basket is not fully representative of all consumers
2.Spending patterns - different spending patterns from households that have children

Question 14

How is CPI calculated?

Answer 14

1. A base year for prices is selected
2. A family expenditure survey is carried out
3. A represented basket of 600 goods and services is used, and weights are attached to each item
4. Weights are then multiplied by price changes
5. The weight price changes are then totalled to calculate the inflation rate

Question 15

Define purchasing power

Answer 15

The buying power of a unit of currency. It is inversely related to the rate of inflation

Question 16

Causes of inflation

Answer 16

Money & credit boom
Higher wage costs
Increased energy bills
Falling exchange

Question 17

Define Cost-push inflation

Answer 17

This occurs when the costs of production for businesses increase; this can include increases in wage costs.

Question 18

Define Demand inflation

Answer 18

This occurs when total demand for goods and services exceeds total supply

Question 19

Demand-side causes of deflation

Answer 19

Deep fall in total demand in an economy, causing a persistent recession/depression. This is usually characterised by a high level spare capacity

Question 20

Supply-side causes of deflation

Answer 20

Improved productivity of labour & capital
Technological advances in the production process that lowers unit costs
Falling wage rates
High (strong) exchange rate causing import prices to fall (causing SRAS to shift outwards)

Question 21

Economic effects of deflation:

Answer 21

Holding on spending
Debts increase
Lower profit margins

Question 22

How is unemployment measured?

Answer 22

Labour Force Survey

Question 23

Adv. of Labour Force Survey

Answer 23

1. Because the same methodology is used in many countries, it allows inter-country comparisons
2. The criteria for assessing unemployment has changed very little over time, and it allows goods quality time-series comparisons
3. It provides a very rich data set on many aspects of the labour market

Question 24

Disadv. of Labour Force Survey

Answer 24

1. Because it is a survey only 60,000 households, there will be sampling errors - and not everyone who is unemployed can be counted
2. It is costly and time-consuming to carry out
3. It is only conducted quarterly, so may not pick up changes in the labour mark/et very quickly

Question 25

Adv. of the Claimant Count of uneployment

Answer 25

1. Accurate in the sense that an exact number of people who claim unemployment benefit can be calculated - this also makes it an inexpensive measure
2. It is easy to classify whether someone is actively seeking work or no
3. It. is easy to see regional/ local differences in unemployment patterns

Question 26

Disadv. of the Claimant Count

Answer 26

1. There are a lot of unemployed people who do not meet the criteria for collecting unemployment benefits
2. People might be to proud to claim - part of the problem of calculating the scale of hidden employment

Question 27

What is under-employment?

Answer 27

Under-employment occurs when people are counted as preferring to work longer hours in their current job

Question 28

Causes of unemployment

Answer 28

1. Cyclical unemployment
2. Friction unemployment
3. Structural employment
4. Seasonal employment