Macro and Global Economics

Question 1

Demand side shock

Answer 1

A sudden unexpected event that increases or decreases demand. E.g Covid

Question 2

Supply side shock

Answer 2

A sudden unexpected event that increases or decreases supply . E.g Russia Ukraine war

Question 3

National Income

Answer 3

Measures the income received by the factors of production CELL.

Question 4

National Output

Answer 4

Measures the actual goods produced in an economy

Question 5

National Expenditure

Answer 5

Measures the spending of these incomes on G+S.

Question 6

Factors that influence short run AS

Answer 6

Cost of production - capital, minimum wage, tax, Economies of scale…

Question 7

Factors that influence AD

Answer 7

Consumption, Investment, Gov. Spending, net exports

Question 8

Factors that influence Long Run AS

Answer 8

CELL - Capital, Enterprise, land labour

Question 9

Factor mobility

Answer 9

looks how easy it is to change the factors of production out of one production process and into another.

Question 10

economic development

Answer 10

The measure of living standards in an economy.

Question 11

Marginal Propensity to consume (MPC)

Answer 11

the change in consumption following a small change in income. = change in consumption/change in income

Question 12

Marginal Propensity to save (MPS)

Answer 12

The change in savings following a change in income. = change in total savings/change in total income

Question 13

Multiplier effect

Answer 13

The final change in equilibrium AD from an initial change in AD. = 1/marginal propensity to save. or 1/marginal propensity to withdraw

Question 14

AD formula

Answer 14

The total demand in the economy at different price levels. = C+I+G+(X-M)

Question 15

define Accelerator effect

Answer 15

When the economy is growing and then leads to inncreased investment. due to increased bussuniuess confidence and decreased spare capacity.

Question 16

3 Formula for the multiplier effect

Answer 16

1. 1/MPW
2. 1/1-MPC
3. Change in GDP/Injection

Question 17

Formula for marginal propensity to withdraw (MPW)

Answer 17

Marginal propensity to save + marginal propensity to tax + marginal propensity to import

Question 18

Actual GDP growth

Answer 18

% change in GDP

Question 19

Potential GDP growth

Answer 19

change in productive potential of the economy over time LRAS or PPF curve shifts

Question 20

Positive output gap

Answer 20

when actual production is outside the potential possibility curve (PPC)

Question 21

Negative output gap

Answer 21

when actual production is inside the potential possibility curve (PPC)

Question 22

Benefits of economic growth

Answer 22

1. improved public services
2. decreased unemployment
   3.reduced poverty
3. increased consumption

Question 23

How does the CPI calculate inflation

Answer 23

1. The CPI send out a survey to households to see what they buy more/less
2. The CPI then updates the basket of goods included
3. They then calculate the change in price for all these goods and then they come up with the inflation rate

Question 24

Structural unemployment

Answer 24

When unemployment happens due to the changing structure of the economy.

Question 25

Cyclical unemployment

Answer 25

When unemployment happens due to negative economic growth

Question 26

Seasonal unemployment

Answer 26

When unemployment happens due to changing seasons.

Question 27

frictional unemployemnt

Answer 27

unemployment that happens due to changing of jobs

Question 28

What causes short run economic growth (increase in AD)

Answer 28

1. lower interest rates (C,I,(x-m))
   2.lower taxes (C,I)
2. higher business/ consumer confidence (C,I)
   4.higher gov spending (g)
3. weaker exchange rate (x-m)

short run growth can decrease spare capacity

Question 29

What causes Long run economic growth
(increase in LRAS)

Answer 29

1. Increase labour productivity
2. increase size of workforce
   3.increased investment
   4.infrastructure improvements
   5.increase in competition
   6.new resource discoveries

Question 30

underemployment

Answer 30

when somebody has either accepted a job bellow their skill set or working fewer hours than they intend to.

Question 31

How does quantitive easing work (7)

Answer 31

1.Bank of England electronically print money and buy gov. bonds
2.This increases the demand and price for the bonds
3. This causes the yield of the bond to fall
4. This makes consumers want to invest in commercial bonds instead/ make people want to save the money in the bank
5. Businesses would then need to save the money in the bank
6. this increases the money supply in the economy. resulting in lower cost of borrowing
7.This causes AD to increase

Question 32

How does quantitive tightening work

Answer 32

1. Bank of England sells all the government Bonds
2. Demand for Bonds decrease and the price for the bonds decrease
3. This causes the yield of the bond to rise
4. Causing individuals want to invest in government bonds instead/ give money to the gov.
5. Bank liquidity would fall, decreasing lending
   6.This would increase the cost of borrowing, causing AD to shift inwards

Question 33

Interventionist supply side polices

Answer 33

1. public sector investment
   2.Education
   3.Vocational training
   4.Housing supply
2. Health Spending
   6.Subsides on research and development

Question 34

Free Market Orientated supply side policies

Answer 34

1. Deregulation
   2.Relaxation of Sunday trade
   3.Privatisation
   4.Free trade agreements
2. Decreased welfare benefits
   6.Flexible labour market