How the Macroeconomy Works

Question 1

What is national income ?

Answer 1

National income is the total value of all goods and services produced by an economy produced in a year

Question 2

What does it mean to be in ‘equilibrium’?

Answer 2

The time period when the economy is in a state of rest

Question 3

What is national output ?

Answer 3

National output is the value of goods and service from firms to households

Question 4

What is national income ?

Answer 4

This is the value of income paid by firms to households in return for FOP ( factors of production)

Question 5

Define multiplier effect

Answer 5

Multiplier effect is an increase or decrease in spending leads to a larger than proportional change in national income

Question 6

What is components of Aggregate Demand (AD) ?

Answer 6

Aggregate Demand = C + I + G +(X-M)

Question 7

What does the amount of govt spending depends on ?

Answer 7

• Views on the extent of market failure , and the ability of state intervention to correct it
• The level of economic activity in the economy

Question 8

Define net exports

Answer 8

This is the demand for a countries exports relative to its demand for imports

Question 9

What is the net exports influenced by ?

Answer 9

• AD for trading : if EU economies are growing demand for UK exports should increase
• Exchange Rate : if GDP falls against euro , the rise in sale as UK goods are cheaper
• Incomes at home : Increase in the demand for imports due to increase in income

Question 10

What are the factors influencing consumption

Answer 10

• Income
• Interest Rates
• Unemployment
• Consumer Confidence
• Savings