Macro L2

Question 1

Equation for index number:

Answer 1

Index number = preferred period/ base period x 100 (round to 1dp)

Question 2

What is usually the base period?

Answer 2

The beginning period

Question 3

What are measurements of nominal values?

Answer 3

Prices that are current at the time of the transaction

Question 4

What are measurements of real values?

Answer 4

Quantities produced after removed effect of price changes

Question 5

Equation to convert nominal to real measurements:

Answer 5

Price index = nominal GDP/real GDP x 100

Question 6

Equation to convert nominal to real percentage change:

Answer 6

real percentage change = nominal percentage change - inflation percentage

Question 7

Economic growth is either:

Answer 7

• Increase in the real value of goods + services
• Increase in the productive capacity of an economy ( caused by quantity and quality changes in factors of production)

Question 8

GDP measurement features:

Answer 8

• shows total output of economy
• focuses on domestic economy
• best to measure quantity of resources

Question 9

GNI measurement:

Answer 9

• focuses on income flows between countries
• best to measure standard of living

Question 10

What is actual economic growth represented by?

Answer 10

Percentage rate of growth of GDP/GNI

Question 11

Equation for GDP/GNI per capita:

Answer 11

GDP per capita = GDP in a period/ pop in a country

Question 12

Inflation:

Answer 12

Increase in general price level for goods + services

Question 13

Deflation:

Answer 13

Decrease in general price level for goods + services

Question 14

Disinflation:

Answer 14

Fall in rate of inflation (prices rising at a slower rate)

Question 15

Why is deflation sometimes perceived to be negative?

Answer 15

People would expect lower prices so there would be a fall in demand as they postpone purchases

Question 16

Employed:

Answer 16

Self-employed or working for firms

Question 17

Unemployed:

Answer 17

In the workforce but without a job

Question 18

Economically inactive:

Answer 18

Not active in the workforce –> may be sick, student

Question 19

What other group of people does economically inactive include?

Answer 19

Discouraged workers, who have given up finding work

Question 20

Underemployment:

Answer 20

The overqualified/ working less hours than they wish

Question 21

Name one macroeconomic policy objective and what it means.

Answer 21

Full employment is when all available labour resources are being used

Question 22

Why does full employment not always mean zero unemployment?

Answer 22

If there wasn’t some unemployment (due to job-seekers), there would be constant upward pressure on wages and prices

Question 23

What are the two measures of unemployment?

Answer 23

1. Claimant count of unemployment (JSA)
2. ILO unemployment rate

Question 24

What is the JSA?

Answer 24

Jobseeker’s Allowance, which is people claiming a benefit as they are out of work and ‘prepared’ to work

Question 25

What are the advantages and disadvantages of the claimant count of unemployment?

Answer 25

Advantages: - Shows who's claiming to be out of work Disadvantages: - Includes those who are unavailable or not prepared to work as well - Excludes those who aren't claiming the benefit but also need work - Starts at 18

Question 26

What are the advantages and disadvantages of ILO unemployment rate?

Answer 26

Advantage: - Shows those available, seeking work and without a job - Starts at 16-17 years of age Disadvantage: - Based on sample evidence, which is extrapolated and therefore not representative

Question 27

Hyperinflation:

Answer 27

Very high rates of inflation where price levels increase by more than 50% per month

Question 28

How to measure each of the areas of macroeconomic performances?

Answer 28

Economic growth --> GDP, GNI, PPP Inflation --> CPI/RPI/CPIH (consumer price index for housing as well) Unemployment --> Claimant count, ILO unemployment rate

Question 29

What is a CPI?

Answer 29

Consumer Price Index --> overall change in consumer prices - Doesn't include housing - Every year certain important items are added/removed

Question 30

RPI:

Answer 30

Retail Price Index

Question 31

What are the balance of payments account and how is it divided?

Answer 31

Record of all financial dealings. It is divided into: - Current account = Record of purchases of goods + services - Capital + Financial account = Record of money associated w/ savings, investment (speculation) + currency stabilisation

Question 32

What signs are given to an import and an export?

Answer 32

Import --> negative sign Export --> positive sign

Question 33

What is a trade in goods called?

Answer 33

Trade in visibles

Question 34

What is a trade in services called?

Answer 34

Trade in invisibles

Question 35

How is balance of trade calculated?

Answer 35

Exports - imports

Question 36

What does current account consist of?

Answer 36

Balance of trade in goods and services + primary income + secondary income

Question 37

How is current balance calculated?

Answer 37

Balance of trade in goods + Balance of primary and secondary income

Question 38

Primary income:

Answer 38

Money which flows in and out of a country resulting from employment or investment

Question 39

Secondary income:

Answer 39

Movement of money between countries which aren't paying for goods and services and are not the result of investment

Question 40

What is the current account status if exports > imports?

Answer 40

Current account surplus

Question 41

What is the current account status if imports > exports?

Answer 41

Current account deficit

Question 42

What can current account deficit be caused by?

Answer 42

- Excessive gov spending - Buying too many imports - Borrowing excessively

Question 43

Limitations of increased GDP:

Answer 43

- To what extent are people spending even if GDP increases? - What about hidden economy? - Does not necessarily mean there is an improvement in standard of living - Does not account for (regional) inequality - Worsened environmental impact

Question 44

Purchasing Power Parity

Answer 44

Measurement to compare spending power between two or more countries

Question 45

What does PPP allow?

Answer 45

Productivity and standard of living between countries to be compared

Question 46

Why may people not claim the JSA?

Answer 46

- Stigma - High savings

Question 47

What is the Labour Force Survey?

Answer 47

Survey by the International Labour Organisation of those looking for work in the past 4 weeks and those available to work in the next 2

Question 48

What does a fall in exchange rate actually mean?

Answer 48

The currency has weakened

Question 49

How to calculate AD?

Answer 49

Aggregate demand = consumption + investment + gov spending + (exports - imports)