First 5 Lectures

Question 1

Main drivers of change from barter to monetised economies

Answer 1

Markets & Monetary Profits

Question 2

Major Macro Issues

Answer 2

1. Economic Growth
2. Business Cycles
3. Unemployment
4. Inflation

Question 3

3 Social classes in Quesnay Model

Answer 3

Landlords (Idle class)
Artisans (sterile class)
Farmers (productive class)

Question 4

Basic Circular Flow Model

Answer 4

Firms produce and sell to households, households consume these and sell labour to firms

Question 5

Basic Model: Household income (Y) =

Answer 5

Consumption (C) + Savings (S)

Question 6

Basic Model: Firms Output (Y) =

Answer 6

Consumption goods (C) + Capital Investment (I)

Question 7

3 Measures of national income and output

Answer 7

1. Income measure
2. Output measure
3. Expenditure measure

Question 8

Output method

Answer 8

Add up total output produced by all firms in the economy

Question 9

Gross Value Added

Answer 9

Value added measures each firm’s contribution to total output. Sum of all is a measure of the economy’s total output

Question 10

How to transfer between GVA and GDP

Answer 10

GDP (market prices) = GDP (base prices) + (taxes - subsidies)

Question 11

Income Method

Answer 11

Value of total output measured by adding up incomes received in production of output

Question 12

3 Types of Income in Income method

Answer 12

1. Compensation of Employees
2. Operation Surplus
3. Mixed Incomes

Question 13

Compensation of Employees

Answer 13

Wages and salaries including NI contributions, taxes withheld and pension contributions

Question 14

Operation Surplus

Answer 14

Net business incomes after payments has been made to labour and material before tax (pre-tax profits)

Question 15

Mixed Incomes

Answer 15

Incomes earned by people selling their services or output but not employed by organisation eg self employed

Question 16

Expenditure Method

Answer 16

All output produced within a year is either consumed (consumption goods) or put aside to nations wealth (Investment goods)

Question 17

Classes of goods Households spend on

Answer 17

1. Services
2. Non-durable goods
3. Durable goods

Question 18

3 Categories of Investment spending

Answer 18

1. Fixed Capital Formation
2. Change in inventories
3. Net acquisition of Valuables

Question 19

Fixed Capital Formation

Answer 19

Production of new capital goods

Question 20

Change in Inventories

Answer 20

Stocks of inputs and unsold outputs held by firms

Question 21

Net Acquisition of Valuables

Answer 21

Some productive activity creates goods that are neither consumed nor invested

Question 22

How is Net Investment measured

Answer 22

Gross Investment - depreciation

Question 23

Contributions Analysis

Answer 23

Shows what each component of GDP contributes to GDP

Question 24

Contributions Analysis Formula

Answer 24

∆GDP/GDP(t-1) = ∆C/GDP(t-1) + ∆I/GDP(t-1) +∆G/GDP(t-1) + ∆X/GDP(t-1) - ∆M/GDP(t-1)

Question 25

Non-Bank Private (S-I)=

Answer 25

Public Sector (G-T)+(X-M)

Question 26

P(GDP)=

Answer 26

GDP at current prices/GDP at constant prices x 100

Question 27

Inflation rate=

Answer 27

(Pt - Pt-1)x100/Pt-1

Question 28

Retail Price Index

Answer 28

Weighted average of typical bundle of consumer goods - change in cost of living in households

Question 29

HICP

Answer 29

Harmonised Index of Consumer Prices - method used by bank of england and many EU states. Gives lower value than RPI

Question 30

Omissions from measured NI

Answer 30

- Hidden Economy - Non-paid non-market activities eg housework - Externalities - Leisure time

Question 31

Why are GDP comparisions beween countries unreliable

Answer 31

- Different countries measure differently - Size of GDP varies with size of country - GDP measured in local currency, if from PPP then comparisons unreliable

Question 32

Factors other than GDP when measuring happiness

Answer 32

- Stable Relationships - Freedom and political control over life - Leisure time - Good health and living in conflict free society