Week 4 - macroeconomic environment

Question 1

What is political economy

Answer 1

How the political, economic and legal system of a country are interdependent e.g how they interact with each other and how they affect the economic wellbeing of a firm

Question 2

What is the political system

Answer 2

The system of government in a nation

Question 3

The link between political ideology and economic systems

Answer 3

• countries that stress individuals goals are likely to have market based economies
• countries where state ownership is common, collective goals will be dominant

Question 4

Market economies

Answer 4

All productive activities are privately owned and production is determined by the interaction of supply and demand

Question 5

Command and planned economies

Answer 5

Government plans the goods and services that a country produces, how much they produce and their set prices

Question 6

Mixed economies

Answer 6

Certain sectors of the economy are left to private ownership while other sectors have state ownership

Question 7

What does the circular flow of income demonstrate

Answer 7

How money moves through society and measures a nations income

Question 8

Aggregate (monetary) demand (AD) calc

Answer 8

AD = c + i + g + x -m
c = consumer spending
i = investment spending
G = government spending
x-m = net exports

Question 9

Multiplier effects

Answer 9

The increase in government spending, this initial injection raises income and consumption which circulates between firms and consumers

Question 10

Accelerator effects

Answer 10

If the same increase in government spending encourages firms to invest more, this will allow firms to meet the additional consumer demand

Question 11

Key macroeconomic issues

Answer 11

• economic growth
• unemployment
• inflation
• global economic relationships
• financial wellbeing
• the relationship between the financial system and the economy

Question 12

Economic growth =

Answer 12

Refers to the increase in the production of goods and services in an economy over a period of time (measured in GDP)

Question 13

Consumer price index (macroeconomic indicator)

Answer 13

Measures the average change in prices paid by consumers for a basket of goods and services over time

Question 14

Headline cpi

Answer 14

raw figure that reflects changes in the cpi across the entire economy

Question 15

Core cpi

Answer 15

cpi is adjusted to exclude food and energy prices

Question 16

Producer price index (macroeconomic indicator)

Answer 16

Measures the average change in selling prices received by domestic producers for their output, tracking inflation at the level before it reaches consumers

Question 17

Purchasing managers index

Answer 17

Survey based indicator of economic activity. It assesses changes in production, employment new orders and the condition of the supply chain

Question 18

The business cycle

Answer 18

The natural rise and fall of economic growth over time

Question 19

Expansion phase - business cycle

Answer 19

• increasing economic activity
• decreasing unemployment
• rising consumer and business confidence

Question 20

Peak phase - business cycle

Answer 20

• maximum output
• high confidence
• inflation may significantly rise
• investments slow as economy reaches limit

Question 21

Contraction phase - business cycle

Answer 21

• declining economic activity and GDP
• rising unemployment
• decreased consumer spending
• falling inflation as demand weakens
• investor confidence drops

Question 22

Trough - business cycle

Answer 22

Lowest point of economic activity
- high unemployment
- low consumer confidence
- inflation low or negative
- economy stop declining and stablizes

Question 23

Recovery - business cycle

Answer 23

• slow improvement in economic indicators
• lower unemployment
• rising GDP
• increased consumer spending and investments

Question 24

Impact of the expansion phase on a business

Answer 24

Businesses expand, hire more workers and invest in growth

Question 25

Impact of the peak phase on businesses

Answer 25

businesses may struggle with rising costs and tight labour markets

Question 26

Impact of contraction phase on businesses

Answer 26

Businesses cut back on production, delay investments and lay off workers

Question 27

Impact of trough phase on businesses

Answer 27

Businesses may consolidate and prepare for the next cycle of growth

Question 28

What do the government do in relation to the business cycle

Answer 28

Use fiscal and monetary policy tools to smooth out extremes in the cycle

Question 29

What do global economic relationships refer to

Answer 29

Refer to bi - lateral and multilateral economic interaction and interdependencies

Question 30

Examples of global economic relationships

Answer 30

World trade organisation - makes sure that nation states adhere to laid down in trade treaties, promote lower barriers to trade and investment