How the Macroeconomy works

Question 1

What is national income

Answer 1

total monetary value of the output of the economy over a period of time

Question 2

whilst income is a flow, wealth is…

Answer 2

stock of assets
Value of all assets minus liabilities
What they own minus what they owe

Question 3

What is nominal and real

Answer 3

nominal is actual value
real is adjusted for inflation

Question 4

How is it adjusted for infaltion

Answer 4

Percentage infaltion calcualted of nominal value and taken away

Question 5

How often is national income calculated

Answer 5

monlthy, quaterly and anuually

Question 6

What does national inome give indicaiton on

Answer 6

standard of living, global comparisons and international comparisons

Question 7

Draw circular flow of income

Question 8

Name three ways to calcuate GDP and how

Answer 8

Expenditure - AD way
Income - W+R+I+P
output - add vlaue of all output

Question 9

What is volume of GDP

Answer 9

physical quantity

Question 10

What is the household savings ratio

Answer 10

measures household savings as a proportion of household income

Question 11

What is savings

Answer 11

proportion of income by household that is not spent

Question 12

What is investment

Answer 12

expenditure on capital goods by firms

Question 13

What is full employment

Answer 13

the level of income at which an economy is operating at full capatity

Question 14

what is full capacity

Answer 14

employed all available fop

Question 15

what is sapre capacity

Answer 15

difference between potential capacity and real

Question 16

What are deteminants of AD

Answer 16

C+I+G+(X-M)

Question 17

What are transfer payments and exmaple

Answer 17

payments made by goc for which g/s ar enot exchange
unemployment benefits

Question 18

What is governemtn spending

Answer 18

total spending by gov on the economy

Question 19

Determinants of consumption

Answer 19

interest rates
consumer confidence
changes in wealth

Question 20

Determinants of investment

Answer 20

business confience
interest rates
gov intervention
demand for exports

Question 21

Determinants of gov spending

Answer 21

politicla decisons
Stage in economic cycle

Question 22

Determinants of net exports

Answer 22

State of other economies
exchnage rates
degree of protectionism

Question 23

Determinants of SRAS

Answer 23

COP eg commodity prices, subsidies exchnage rates

Question 24

Determinants LRAS

Answer 24

Productivity eg regulations, training, tech
competition policy
institutional structure of economy

Question 25

what are reforms

Answer 25

changes in economic policies to improve economic performance

Question 26

Give an real world example of where institutional struture

Answer 26

recession 2008, banks inability to help business maek recssion worse

Question 27

What do keynesian believe in for supply curves and draw anything

Answer 27

no LRAS (but there is one)

Question 28

what do keynes believe?

Answer 28

not self correcting, gov intervention

Question 29

what do classical economists believe

Answer 29

self correcting, limites gov intervention SRAS and LRAS

Question 30

LRAS in relation to PPC???

Question 31

What is an economic shock

Answer 31

Unpredictable event that has consequences on the economy

Question 32

What is demand and supply side shock

Question 33

Give three examples of UK shocks

Answer 33

Hurricane fiona pandemic 2020 geopolitial tensions (ukriane russia war)

Question 34

What is the multiplier effect

Answer 34

any injection in economyleads to greater impact on the economy than the value of the intial injection

Question 35

Why does the multipler effect occur?

Answer 35

succesive rounds of spending

Question 36

What effects the size of the multipler>

Answer 36

size of leakages

Question 37

WHat is MPC

Answer 37

proportional of additional income spent on consumption

Question 38

What is crowding out

Answer 38

Negative impact gov spending has on private investment

Question 39

Reason for crowding out

Answer 39

Spending - inflation - less investment

Question 40

FOrmula or MPC

Answer 40

C in consumption/ C in income

Question 41

FOmula for Multiplier

Answer 41

1/1-MPC or 1/MPW

Question 42

since multiplier is based on MPC, what chaneges the multipler

Answer 42

disposable income

Question 43

Give examples of leakages that change multiplier

Answer 43

tax increase - lower Inflation confidence - higher

Question 44

Does multipler happen immediantly

Answer 44

time lag

Question 45

what can multiplier be usd for

Answer 45

gov judge impact of increased spending when deciding to

Question 46

What is the accelerator process?

Answer 46

When an increase in national income results in a proportionately larger rise in capital investment spending

Question 47

What type of relationship does investment have with economic cycle

Answer 47

cyclical

Question 48

What is accelerated investment?

Answer 48

when increase in investment is greater than initial increas ein demand

Question 49

Why do people do accelerated investment?

Answer 49

Investors expect further future increase in AD

Question 50

How to calulcate basic accelerator process

Answer 50

I = K*CY investment capital-output ratio change in national income

Question 51

what is the capital-output ratio

Answer 51

capital needed for one unit of output

Question 52

Define productivity

Answer 52

Output per worker per time period

Question 53

What is the law where supply creates its own demand

Answer 53

Say's law

Question 54

Why can subsidies be goods and bad?

Answer 54

Reduces cost but can lead to inefficiency as no motivation to be productive.

Question 55

WHat is the link between recession and spare capacity?

Answer 55

Recession cause decrease in demand, price and supply, so less output is made leading to spare capacity

Question 56

What is the difference between Classical and Keynesian full employment

Answer 56

Classical does not include voluntary unemployment Keynesian does