Theme 2 Video

Question 1

Why are the macroeconomic objectives (TIGERS)?

Answer 1

Trade balanced
Inflation low and stable
Growth strong and sustained
Employment - low unemployment
Redistribution of income
Stability in the economy

Question 2

What are the three leakages in an economy?

Answer 2

Savings (S)
Taxation (T)
Imports (I)

Question 3

What are the three types of injections within an economy?

Answer 3

Government spending (G)
Investment (I)
Exports (X)

Question 4

What are the three measurements of growth?

Answer 4

Output Method - Real GDP
Income Method
Expenditure Method - AD

Question 5

What is GDP?

Answer 5

The value of all final goods produced in an economy in a year.

Question 6

What does GDP measure?

Answer 6

Growth.
Living Standards.

Question 7

What are the limitations of GDP?

Answer 7

Double counting.
Informal activity.
Errors given vast data collection.

Negative externalities.
Income inequality.
Output produced.
Other quality of life aspects.

Question 8

What is the equation for GDP per capita?

Answer 8

GDP/population

Question 9

What are some limitations of GDP per capita?

Answer 9

Factor income abroad - remittances
Influence of FDI.

Question 10

What is the definition for GNI?

Answer 10

The total income generated by a countries factors of production, regardless of where they are located.

Question 11

What is the equation of GNI?

Answer 11

GDP + net factor income

Net factor income = Income earned by domestic work - income earned by foreign work.

Question 12

What is Green GDP?

Answer 12

Accounts for environmental costs of production.

Question 13

How do you calculate Green GDP?

Answer 13

GDP - Environmental costs

Question 14

What are limitations of Green GDP?

Answer 14

Monetary value on environmental costs are difficult.
GDP could all drastically - too politically sensitive.

Question 15

What causes short term growth?

Answer 15

Increase in AD.

Question 16

What causes Long term growth?

Answer 16

Increase in the quantity or quality of factors of production.

Question 17

What is a negative output gap?

Answer 17

Where there is spare capacity, when actual growth is less than potential

Question 18

What is a positive output gap?

Answer 18

When actual growth is more than potential growth.

Question 19

How to measure inflation using CPI?

Answer 19

1) Family expenditure survey
2) Basket of 650 goods and services
3) Weight attached according to % of income spent.
4) Base year selected = 100
5) Index numbers generated
6) Monthly collection of data. Annual % change measured
7) Basket of goods and weights changed every year

Question 20

What are the limitations of CPI measure for inflation?

Answer 20

Basket may not be representative of all consumers.
Data may be inaccurate. Error in collection.
Other countries may use different measures.
Takes time for basket to change.
If baskets change - comparisons of past inflation become difficult.

Question 21

What is demand pull inflation?

Answer 21

Increase in AD.

Question 22

What is cost push inflation?

Answer 22

Short run increase in as.
Increase in costs of production.

Question 23

What is deflation?

Answer 23

When there is negative inflation.

Question 24

Why is demand side deflation bad?

Answer 24

Consumers delay consumption - as believe cheaper prices.
Reduces effect of interest rates.
Increases the real value of debt.

Question 25

What is the definition of unemployment?

Answer 25

Those registered as able , available and willing to work but cannot find work despite an active search.

Question 26

What are the two measures of unemployment?

Answer 26

Labour force survey Claimant count

Question 27

What is cyclical (demand deficient) unemployment?

Answer 27

Less demand for labour. Shift AD to left.

Question 28

What are limitations of unemployment measures?

Answer 28

Economically inactive Under-employed

Question 29

What is structural unemployment?

Answer 29

Immobility of labour: Occupational - lack skills Geographical - not willing to move.

Question 30

What is frictional unemployment?

Answer 30

Unemployment when a person is in between jobs.

Question 31

What are types of protectionism?

Answer 31

Tariffs Quotas Embargos Subsidies Red tape VER ( Voluntary exchange restraints)

Question 32

What are the benefits of trade?

Answer 32

Cheaper production Increase sales Technology growth Greater consumer choice

Question 33

What is exchange rate?

Answer 33

The price of one currency in another currency.

Question 34

Why does exchange rate get stronger.

Answer 34

More foreign exchange.

Question 35

What causes a movement along AD?

Answer 35

Wealth effect Trade effect Interest Effect

Question 36

What affects SRAS?

Answer 36

Costs of production.

Question 37

What affects LRAS?

Answer 37

Quantity and Quality of factors of production. Productive efficiency.

Question 38

What is fiscal policy?

Answer 38

Government decision on taxation.

Question 39

What is monetary policy?

Answer 39

Decides interest rates Money supply Exchange rate

Question 40

What are supply side policies?

Answer 40

Aim to increase productive potential of the economy by increasing quantity/quality of factors of production. OR improve efficiency of markets, interventionist of free market promoting. Efficiency Productivity Incentives Competition.

Question 41

What is the classical interpretation?

Answer 41

An economy will always be at the full employment level of output.

Question 42

What is the Keynesian interpretation?

Answer 42

Increase AD Based on economic cycle. No short term.

Question 43

What is the Phillips curve?

Answer 43

Relationship between inflation and unemployment. Downward sloping curve

Question 44

What is the multiplier?

Answer 44

Changes of AD will lead to an even greater change in national output. Creating income and spending for others.

Question 45

What is the equation for the multiplier?

Answer 45

1/(1 - MPC) = 1/MPW (MPS + MPT + MPM)

Question 46

What is the accelerator effect?

Answer 46

Changes in investment can be directly linked to changes in the role of GDP growth.