Chapter 9

Question 1

Macroeconomics

Answer 1

Refers to the economy as a whole (national or global scale)

Question 2

Macroeconomic objective

Answer 2

A goal a government would like to achieve for the macroeconomy

Question 3

Economic policy

Answer 3

The economic tools and instruments avaliable for a government to use to influence economic performance

Question 4

Objectives of government macroeconomic policy

Answer 4

Economic growth (measures how the value of output in an economy, national income, has grown over one year period)

Price stability (average level of prices of a range of goods and services rises over a period of one year)

Minimising unemployment

Stable balance of payments on current account (outflows of money = inflows of money)

Balancing the budget

Achieving an equitable distribution of income

Question 5

Economic growth

Answer 5

The change in national income measured over a period of time

Question 6

Balance of payments

Answer 6

The record of financial transactions between the UK and the rest of the world

Question 7

Government’s budget

Answer 7

Refers to the value of government spending compared with the money earned by the government through taxation over a period over time

Question 8

Distribution of an income

Answer 8

How evenly incomes are shared between individuals and households across the economy

Question 9

Policy conflict

Answer 9

Attempts to achieve one economic objective move us further away from another economic objective

Question 10

Main priorities among the governments economic objectives

Answer 10

Economic growth

Price stability

Minimising unemployment

Achieving a stable balance on the current account of the balance of payments

(These may change)

Question 11

Macroeconomic indicator

Answer 11

A statistic used to represent the achievement of a macroeconomic objective

Question 12

Gross domestic product (GDP)

Answer 12

The term used widely to represent the national income of an economy

Question 13

National income

Answer 13

The total income generated within an economy over a period of time

Question 14

Real gross domestic product (rGDP)

Answer 14

Real variables are those adjusted for changes in the level of prices, adjusting real GRP national income for changes in average prices (inflation)

Question 15

Per capital

Answer 15

A variable adjusted to give an average amount per person

Question 16

Price level

Answer 16

The average level of prices of a range of goods and services at a point in time (measured monthly)

Question 17

Inflation

Answer 17

An increase in the average level of prices measured over a period of time

Question 18

Inflation rate

Answer 18

The percentage change in the price level measured over the period of one year

Question 19

What’s the governments target rate of inflation

Answer 19

2%

Can also be +1 and -1 (3% or 1%)

Question 20

Labour force

Answer 20

Those of working age who are either in work or actively seeking work

Question 21

Economically inactive

Answer 21

Those of working age who are not in work and not seeking work

Question 22

Unemployment

Answer 22

Those of working age who are currently out of work but are actively seeking work

Question 23

Claimant court

Answer 23

The measure of unemployment in the uk that counts those who are receiving unemployment benefits

Question 24

Two main measures of unemployment

Answer 24

Claimant count

Labour force survey

Question 25

The labour force survey (LFS)

Answer 25

Monthly sample of people Records those who report they are looking for work but can’t find it (no matter if they recieve benefits or not) .

Question 26

Unemployment rate

Answer 26

The number of unemployed people expressed as a percentage of the current labour force

Question 27

Productivity

Answer 27

A measure of efficiency comparing the level of output with the level of inputs

Question 28

Labour productivity

Answer 28

Output of the workforce compared with the amount of labour (either in people or hours) used to produce the output

Question 29

Capital productivity

Answer 29

Output per item of capital equipment measured over a period of time

Question 30

Current account

Answer 30

Part of the balance of payments that looks at the net income flows earned through either trade in goods and services or the reward from investments located overseas

Question 31

Current account deficits

Answer 31

Where the flow of money from trade and other incomes out of the country are greater than the equivalent flows into the country

Question 32

Index number

Answer 32

A number used to show the size of changes in a variable over time

Question 33

Foreign trade

Answer 33

Exports of goods and services (produced in the UK but sold to foreigners) Imports of goods and services (produced overseas but purchased by the UK population)

Question 34

Balance of trade

Answer 34

Exports - imports Exports > imports = surplus Exports < imports = deficit

Question 35

What does the Uk balance look like normally

Answer 35

Surplus on trade for services Deficit on trade for goods

Question 36

What’s index number used for

Answer 36

Comparison made over periods of time Size of changes in variables that need to be highlighted

Question 37

What’s the base year value

Answer 37

Usually 100, the change in the index number will show how far the variable has moved away

Question 38

Price index

Answer 38

An average level of prices based on a selection of products bought by the typical household

Question 39

Basket of goods and services

Answer 39

The selection of products included within the price index based on typical household purchases

Question 40

What’s inflation rate measured by

Answer 40

Annual percentage change in the CPI (a number measuring the average level of prices for the uk)

Question 41

Weighted price index

Answer 41

CPI is this An average level of prices adjusted so that price changes in popular items affect the price index more than price changes in items bought infrequently

Question 42

Issues with CPI

Answer 42

• based on imaginary typical family the CPI never really reflects anyone’s exact spending pattern • has to include many goods and services that not everyone buys • no account is taken of the quality of the items included

Question 43

Uses of national income data

Answer 43

Real GDP shows what GDP can buy after adjusting for changes in price over time This measure of GDP is used to assess the standard of living Higher GDP per capita means individuals are able to buy more goods and services Estimate tax revenues Assess inflationary pressure

Question 44

Limitations of National income data

Answer 44

Distribution of income (doesn’t measure income inequality ) Composition of GDP (doesnt measure how national income is generated) Shadow economy Negative externalities (pollution) Non financial factors (quality of health, education)

Question 45

Shadow economy

Answer 45

The value of transactions that are not recorded in official National income data (either to avoid tax or for illegal transaction)

Question 46

Non marketed output

Answer 46

Transactions that occur without a monetary payment being made in exchange for a good or service

Question 47

Purchasing power parity (PPP)

Answer 47

The exchange rate that would equalise the price of goods and services in different countries once converted onto the same currency

Question 48

What’s a solution of inappropriate exchange rates

Answer 48

PPP

Question 49

what’s a problem of purchasing power parity

Answer 49

Assumes the goods being compared are identical

Question 50

Strengths of GDP data determining living standards

Answer 50

Commonly used as it’s easier to understand Adjustments can be make (include estimates for the shadow economy)