Macro Economic Objectives

Question 1

Define economic growth

Answer 1

Refers to an increase in real GDP over time

Question 2

What are the three ways to measure GDP

Answer 2

Total expenditure
Total income
Total output of goods and services

Question 4

What is potential output

Answer 4

The level of real gdp that an economy can reach at the natural rate of unemployment

Question 5

What is potential growth

Answer 5

Occurs when there is an improvement in the quantity and/or quality of a country’s factor of production, illustrated by an outward shift in ppc.

Question 6

Factors affecting economic growth

Answer 6

Size and skills of the labour force
Investment expenditure e.g. FDI(foreign direct investment)
Labour productivity
Discovery of raw materials

Question 7

Describe labour mobility in terms of economic growth

Answer 7

Occupational mobility - the ease at which workers can move in between jobs in different fields.
Geographical mobility - the ease at which workers can move in between different physical locations. The more mobile workers there are, the higher levels of economic growth tends to be

Question 8

Real GDP equation

Answer 8

Real GDP = nominal GDP/ GDP deflator x 100

Question 9

GDP per capita define

Answer 9

Refers to the value of GDP per person in the country

Question 10

Employment

Answer 10

Refers to the use of factors of production process, usually applied on labour resources

Question 11

Unemployment define

Question 12

Unemployment define

Answer 12

Refers to people are willing and able to work, actively seeking work, but cannot find work at the current wage rate. This means that resources are not being fully utilised in the economy

Question 13

What are cyclical unemployment

Answer 13

When the demand for goods and services fall during a recession, the demand for labour also falls as firms no longer need to hire so many workers.

Question 14

Define structural unemployment

Answer 14

It occurs when there is a long-term decline in the demand for labour in specific industry

Question 15

Example of structural unemployment

Answer 15

Port talbot - workers were replaced by machinery in the steel industry

Question 16

Causes of structural unemployment

Answer 16

Geographical location - some firms may hire workers from developing countries where wages are generally cheaper. E.g. apple in china

Question 17

Cause of structural unemployment to do with wages

Answer 17

For instance the minimum wage( wmin) is set above the wage equilibrium. The quantity supplied for labour is greater than the quantity demanded, which leads to a surplus of labour and resulting in structural unemployment

Question 18

Seasonal unemployment and example

Answer 18

Caused by changes in the demand for labour during particular times of the year. E.g. ski instructor and school bus drivers during holidays

Question 19

What is frictional unemployment

Answer 19

occurs when people are temporally unemployed as they move between jobs. This happens as time is needed for the labour market to match the demand and supply of specific jobs.

Question 20

Examples of frictional unemployment

Answer 20

People who get fired from their employers
People who take time off time to loook after their family
People who just finished university

Question 21

Real world example of frictional unemployment

Answer 21

there is lower youth unemployment especially for graduate students as shown by next 2024(lord Wolfson) preparing record low youth unemployment due to the new labour budget(chancellor of exchequer- Rachel reeves) because there has been increases in national minimum wage and national insurance for employer

Question 22

Explain the factors which might determine the natural rate of employment(15 mark)

Answer 22

1. Intro ->define NRU give examples+use key terms, current unemployment rate
   
   2. NRU diagram -> show changes in wage level, explain fully
   3. Frictional unemployment -> what is it?, give examples of cause(use terminology - imperative information, geographical mobility) - case study ‘next’
   4. Structural employment - define/example manchester(1980s), or port talbot, labour market shift diagram - explain, causes - deindustrialisation/ lack of skills/ tech replacing humans/ changing state/ hysteresis

Question 23

Define natural rate of unemployment

Answer 23

The unemployment rate when labour market is in equilibrium

Question 24

Natural rate of unemployment equation

Answer 24

Seasonal unemployment + structural unemployment + frictional unemployment = natural rate of unemployment

Question 25

Costs of unemployment

Answer 25

Loss of GDP - negative economic growth Loss of tax revenues - due to lower incomes Loss iof income for individuals - lower house hold income for individuals and families

Question 26

Inflation

Answer 26

Sustained increase in the general price level off an economy over time

Question 27

How is inflation measures by the consumer price index

Answer 27

The consumer price index is weighted index of the average of price of goods and services consumed by the typical household

Question 28

What is malign deflation

Answer 28

Generally harmful as it caused by a decrease in aggregate demand. Leads to lower economic growth and higher unemployment and is usually associated with a recession

Question 30

What is benign deflation

Answer 30

Benign deflation leads to a higher national output. This can be caused by an increase in SRAS and LRAS. This may not be harmful to the economy if households have cheaper access to goods and services

Question 31

What is disinflation

Answer 31

Disinflation occurs when there is a fall in the rate of inflation, meaning that the prices levels are still rising but a slower rate. Disinflation is not to be confused with deflation

Question 32

Costs of inflation

Answer 32

Impact on econ growth - wage spiral Uncertainty - lowers consumption as purchasing power decreases

Question 33

Costs of deflation

Answer 33

Differed consumption waiting for prices to fall even more Deflationary spiral results in low levels of consumption and insvtemnt