DMEG

Question 1

Measures of Inflation + Methods

Answer 1

1. CPI = Headline Inflation (basket/regimen)
2. Underlying Inflation Rate (exclusion method, trimmed mean method, weighted mean method)

Question 2

Headline vs Underlying

Answer 2

1. Diff Sized Regimen
2. Diff Statistical Results
3. Diff Uses

Question 3

Limitations of CPI

Answer 3

1. Only Metropolitan Households
2. Inappropriate Item Weighting
3. Volatile Items affect by one-off events

Question 4

Causes of Inflation

Answer 4

1. Demand Inflation (Causes: 1. Falling stocks, 2. shortages, 3. inability to lift output)
2. Cost Inflation (Causes: Less Fav AS conditions)

Question 5

Benefits of Low and Stable Inflation

Answer 5

1. Protects PurchPow
2. Promotes Equitable Income Distrib
3. Improve Intercomp and Trade Balance
4. Stronger Dom Economy

Question 6

Consequences if Inflation too HIGH:

Answer 6

1. Reduced PurchPow
2. Wage Price Spiral
3. Distort Spending/Investment
4. Reduced Intercomp + more struc unemp
5. Reduced Alloc Eff/Long-term Growth
6. Change in Income Distribution (depends if income keeps up)

Question 7

Consequences if inflation too LOW:

Answer 7

1. Delayed Consumption
2. Higher Unemploy (uncertain of future opp + falling invest returns + delay spending)

Question 8

Why is SSEG at 3%

Answer 8

Because that is level which AS can keep up with rises in AD

Question 9

Types of GDP

Answer 9

GDP (P) - production
GDP (I) - income of indiv and businesses
GDP (E) - expenditure
GDP (A) - average

Question 10

Nominal GDP Influenced by…

Answer 10

1. Unit Prices of GnS
2. Volume Produced

Question 11

Limitations of GDP

Answer 11

1. Underestimates from exclusion
2. Imputed errors
3. Quality changes not reflected
4. Errors from remove price changes

Question 12

Causes of Econ Growth

Answer 12

1. AD Factors - reflects short term growth changes thru how much PC is used
2. AS Factors - reflects longterm potential sustain growth rate - how willing to supply

Question 13

Benefits of SSEG

Answer 13

1. Lower Unemp
2. Raise Incomes and PurchPow
3. Grow Gov Finances to provide better GnS

Question 14

Consequences if EG is too HIGH:

Answer 14

1. Higher Inflat
2. Environ Degrade
3. Externa Pressures (bad for trade balance - import much and export less)

Question 15

Consequences if EG is too LOW:

Answer 15

1. Higher unemp and lower LS
2. Weaker gov finances/outlays

Question 16

Labour Market Indicators

Answer 16

1. LF size and growth
2. Employment numbers
3. Unemp rate
4. Participation Rate
5. Job Vacancies
6. Underemp/Disguised
7. Underutilisation Rate
8. Hidden Unemp
9. Long-term Unemp
10. Aggregate Hours Worked

Question 17

Limitations of Unemp Stats

Answer 17

1. Arbitrary Definitions
2. Changes in participation and other rates affect results
3. Hidden Unemp not counted
4. Survey errors (small sample size)

Question 18

Causes of Unemp

Answer 18

1. Cyclical Unemp
2. Natural Unemp (struc, frictional, seasonal, hardcore)

Question 19

Benefits of Full Employ

Answer 19

1. Econ close to PC&raquo_space; enhance GDP and incomes
2. Strengthen LS
3. Equitable Income Distrib
4. Strengthen gov finances through tax rev

Question 20

Consequences if Unemp is too HIGH:

Answer 20

1. Lower GDP
2. Loss of Tax Rev&raquo_space; weaker Gov finances
3. Greater Income Inequal (welfare is very small income)

Question 21

Consequences if Unemp is too LOW:

Answer 21

1. Higher Inflat (less unemp&raquo_space; more income&raquo_space; demand inflation + wage growth&raquo_space; cost inflation)
2. Less Intercomp/Trade Balance (from inflation)