The Macro economy

Question 1

The circular flow of income

Answer 1

the model of the flow of funds between firms, households, government and overseas

Question 2

Gross Domestic Product

Answer 2

the value goods and services produce by an economy in a given time period

Question 3

calculation of GDP

Answer 3

output (firms production)
income (wages, profits, rent, interest)
expenditure (consumption, investment, government spending, net exports)
all equall

Question 4

Gross National Product

Answer 4

GDP+international assets and investment abroad

Question 5

real GDP vs nominal

Answer 5

adjusted for inflation vs not

Question 6

economic growth

Answer 6

the rise in real GDP over time

Question 7

Evaluation of GDP

Answer 7

inaccurate - muotpeq
time lag
different measurements
unrecorded/under recorded economic activity (parallel markets/tax evasion)
external costs - depletion of resources, pollution
quality of life - well-being index
composition of output - inequalities in distribution
purchasing power parative (of population)

Question 8

Economic cycle

Answer 8

rate of economic growth over time

Question 9

recession

Answer 9

two consecutive quarters of negative growth

Question 10

consequences of recessions

Answer 10

falling incomes, less diversity of goods, unemployment, worsening public services

Question 11

government objectives

Answer 11

low unemployment
good balance of payments
low inflation,
steady + sustainable economic growth
less income inequality

Question 12

unemployment

Answer 12

when people are willing and able to work, but cannot get work at the going wage rate

Question 13

inflation

Answer 13

a sustained rise in the general price level resulting in a fall in the value of money

Question 14

confidence

Answer 14

the extent to which people are positive in their predictions about the future

Question 15

investment

Answer 15

spending on capital goods or holding stocks of finished goods

Question 16

output gap

Answer 16

difference between the actual level of national output and its trend level

Question 17

intervention for governments

Answer 17

monetary policy (interest rates + QE)
fiscal policy (government spending+taxation)

Question 18

Elements of living standards (UN HDI index)

Answer 18

income (GDP)
health (life expectancy)
education (average years in school)

Question 19

GNI

Answer 19

GDP+Net property income abroad (inflow of domestic assets owned abroad- outflows of foreign assets in the domestic economy)

Question 20

Leakages and injections in the circular flow of income

Answer 20

leakages: savings, taxation, imports
injections: investment, government spending, export

Question 21

Infrastructure

Answer 21

Large scale public systems (services and facilities) used to allow or foster economic activity. Usually supplied by the government because often public goods.

Question 22

Allocation of resources

Answer 22

How the factors of production are distributed in an economy