Booklet 1

Question 1

What are the 3 methods of calculating the level of economic activity in the economy?

Answer 1

The Output Method
The Expenditure Method
The Income Method

Question 2

What is The Output Method?

Answer 2

The Output Method is a way to calculate economic activity in the economy by adding up all of the output figures from firms in an economy to get the nations output

Question 3

What is The Expenditure Method?

Answer 3

The Expenditure Method is a way to calculate economic activity in the economy by adding up Consumption, Investment, Government Spending and Net Exports

Question 4

What is the Income Method?

Answer 4

The Income Method is a way to calculate economic activity by totaling the incomes received by every resident of a country

Question 5

What is the difference between Wealth and Income?

Answer 5

Wealth is the value of the assets you own whereas income is the money you earn over a period of time

Question 6

What is the income for each factor?

Answer 6

Capital - Interest
Enterprise - Profits
Land - Rent
Labour - Wages

Question 7

What are the 3 leakages in an economy?

Answer 7

Savings - Income that is not spent
Taxes - Income which goes to the government
Imports - Income that leaves the system and goes to another system

Question 8

What are the 3 injections in an economy?

Answer 8

Export - Foreign money into the market
Government Expenditure - Spending which aids production or increases employment from government
Investment - An injection of money from savings

Question 9

What is Gross Domestic Product (GDP)

Answer 9

GDP is the measure of value added created through the production of goods and services in a country during a period

Question 10

What are 3 things which would contribute to a country’s GDP

Answer 10

The 3 things are Income, Investment and Compensation of Employees (wages)

Question 11

What is are Index Numbers?

Answer 11

Index Numbers are an economic tool which can simplify change by expressing the data relative to a fixed number

Question 12

What are nominal values?

Answer 12

Nominal values are the actual numerical values that are measured

Question 13

What a real values?

Answer 13

Real values are values taken at constant prices which are adjusted for inflation

Question 14

What is the formula for Real GDP

Answer 14

Real GDP = Nominal GDP for Year 2 x 100 / Price Index for Year 2

Question 15

What are the 4 main objectives of government macroeconomic policy?

Answer 15

Economic Growth
Low Inflation (2%)
Low Unemployment
Stable Balance of Repayments