Introduction To Macroeconomics

Question 1

Describe the circular flow of income

Answer 1

Money is earned via wages then spent on businesses, who then pay their workers

Question 2

What are the 3 methods of measuring the size of the economy

Answer 2

Expenditure
Income
Output

Question 3

Why are none of these methods better than others

Answer 3

National Income = National Output = National Expenditure

Question 4

Describe the Expenditure method as measuring the size of the economy

Answer 4

Finds the sum of all the money spent on Capital or Consumer goods by economic agents over a given time

Question 5

Describe the Income Method when measuring the size of the economy

Answer 5

Find the sum of the 4 different types of incomes earned through the production of goods and services

Question 6

What is the Output Method also known as

Answer 6

The value-added method

Question 7

Describe the Value-Added method for measuring the size of the economy

Answer 7

Finds the final output of an industry over a given time and subtracting money inputted into the industry

Question 8

What is AD

Answer 8

Aggregate Demand is the total value of all the goods and services sold in an economy

Question 9

Describe an AD diagram

Answer 9

A downward sloping line with axis labelled Y(Real GDP) and PL(Price Level)

Question 10

What are the components of AD

Answer 10

C - Consumption
I - Investment
G - Government expenditure
E - Exports
I - Imports

Question 11

In a developed economy, what is the largest component of AG

Answer 11

Consumption

Question 12

What is the equation for AD

Answer 12

C + I + G + (X - M)

Question 13

Apart from M what are the other 2 leakages

Answer 13

Savings and Taxation

Question 14

What are the 3 types of injections

Answer 14

Investment
Exports
Government expenditure

Question 15

What are injections

Answer 15

Things that add value to AD

Question 16

What are leakages

Answer 16

Things that cause AD to decrease

Question 17

If the economy is in equilibrium, what are injections equal to

Answer 17

Leakages

Question 18

What effect would an increase in Government spending have on AD

Answer 18

It would cause the AD curve to move to the right

Question 19

Why does consumer confidence have an impact on consumption

Answer 19

Is people believe that the economy is likely to grow they will spend more money

Question 20

Why might high income households spend less money proportionate to income

Answer 20

They can afford to save money

Question 21

What is consumer confidence

Answer 21

How people feel the economy will change in a period of time

Question 22

What is aggregate supply

Answer 22

The total value of goods and services produced in an economy

Question 23

Describe a short run AS curve under the ordinary interpretation

Answer 23

Sloping upwards

Question 24

Describe a long run AS curve under the ordinary interpretation

Answer 24

Perfectly inelastic. Labelled Yfe meaning Real GDP at full employment

Question 25

Why is the LRAS curve perfectly inelastic

Answer 25

Since the economy is at max output the total amount of goods and services produced will be unchanged by Price Level (and all other factors)

Question 26

What assuption is made when drawing an AD curve

Answer 26

the amount of money in the economy is constant

Question 27

What are the key macroeconomic indicators

Answer 27

Changes in price level, economic growth and changes in employment levels

Question 28

What could cause the SRAS curve to shift to the right

Answer 28

Decrease in costs for business

Question 29

What could cause the LRAS curve to shift to the right

Answer 29

increase in quality or quantity of factors of production

Question 30

Why is it not always good for the economy to be in equilibrium

Answer 30

It does not mean that all of the factors of production are being utilised

Question 31

When is short run economic growth possible

Answer 31

When the economy is below full employment

Question 32

What causes long run economic growth

Answer 32

An increase in the quality or quantity of a factor of production

Question 33

Why does economic growth benefit individuals

Answer 33

Better quality of living

Question 34

Define inflation

Answer 34

The rate of change of the average price level

Question 35

What is an index

Answer 35

A way of comparing the value of a variable with a base observation

Question 36

What is the consumer price index

Answer 36

A measure of the general level of prices in the UK

Question 37

What is the CPIH

Answer 37

A version of CPI that takes into account the housing costs of owners/occupiers and council tax

Question 38

What is RPI

Answer 38

The Retail Price index is a measure of the average level of prices in the UK

Question 39

What is deflation

Answer 39

Negative inflation

Question 40

What is disinflation

Answer 40

A fall in the rate of inflation

Question 41

What is hyperinflation

Answer 41

A situation where inflation reaches extreme rates

Question 42

What is cost push inflation

Answer 42

Inflation caused by an increase in the costs faced by firm

Question 43

What is demand-pull inflation

Answer 43

Inflation caused by an increase in aggregate demand

Question 44

What is money stock

Answer 44

The amount of money in the economy

Question 45

What is the multiplier effect

Answer 45

When an initial change in aggregate demand has a greater final impact on the equilibrium level of national income

Question 46

What is accelerator theory

Answer 46

The idea that an increase in GDP will often lead to a larger increase in private sector investment

Question 47

Define fiscal

Answer 47

Relating government spending and Taxation

Question 48

How do you calculate the size of a multiplier

Answer 48

1/(1 - MPC) or 1/MPW

Question 49

Prove that 1/(1 - MPC) = 1/MPW

Answer 49

MPC + MPW = 1

Question 50

What is marginal propensity

Answer 50

The % of income spent on a particular area

Question 51

How is the marginal propensity to consume calculated

Answer 51

ΔC / ΔY