MACRO - Unit 8

Question 1

What is the economic growth short run?

Answer 1

the actual annual percentage change in real national output

Question 2

What is the economic growth long run?

Answer 2

an increase in the potential productive capacity of the economy

Question 3

How is short run economic growth measured?

Answer 3

• the annual percentage change in Real National Output

- Gross Domestic Product (GDP)

Question 4

How is long run economic growth measured?

Answer 4

The maximum potential output of the economy using all factor resources as illustrated on the Production Possibility Frontier.

Question 5

What is the primary cause of an increase in economic growth in the short run?

Answer 5

increase in aggregate demand

Question 6

What has to happen for an increase in long run economic growth?

Answer 6

increase in the productive capacity of the economy

Question 7

What does economic cycle mean?

Answer 7

variations in the level of productive capacity of an economy over time.

Question 8

What does GDP mean?

Answer 8

the value of goods and services produced in the economy over a period of time

Question 9

What is a boom characterised by?

Answer 9

• high rate of economic growth
• high demand
• low unemployment
• inflationary pressure
• labour skills shortages
• high confidence in the economy
• capital Investment is high

Question 10

What is a recession characterised by?

Answer 10

• demand falls
• unemployment begins to rise
• some firms will go out of business
• confidence in the economy is low and most firms will
  reduce investment

Question 11

What is a slump characterised by?

Answer 11

• low or negative growth
• demand and inflation are low
• unemployment is high
• confidence in the economy is low
• high rate of bankruptcy

Question 12

What is a recovery characterised by?

Answer 12

• economic growth starts to rise
• demand increases
  Unemployment falls
  Inflation starts to rise
  Confidence in the economy increases
  Capital Investment increases

Question 13

What is an output gap?

Answer 13

the difference between actual GDP and potential GDP

Question 14

What might cause unexpected changes in the economic cycle?

Answer 14

demand-side shocks

supply-side shocks

Question 15

What is a demand-side shock?

Answer 15

unexpected changes in the economy that directly impact on aggregate demand

Question 16

What is a supply-side shock?

Answer 16

unexpected changes in the economy that directly impact on aggregate supply

Question 17

What are the 2 measurements for unemployment?

Answer 17

claimant count

labour force survey

Question 18

What is claimant count?

Answer 18

number of people claiming Job Seekers Allowance

Question 19

What is labour force survey ?

Answer 19

survey studying the employment circumstances of the UK population

Question 20

What will unemployment have consequences?

Answer 20

the economy
business
the unemployed

Question 21

What are the consequences of unemployment for the economy?

Answer 21

lost output
increased government spending
lost tax revenue

Question 22

What are the consequences of unemployment for a business?

Answer 22

• reduced productivity
• reduced profitability
• less incentive to invest
• reduced morale and productivity of remaining workforce

Question 23

What are the consequences of unemployment for the unemployed?

Answer 23

lower living standards
social costs
financial costs
de-skilling
reduced chances of finding work

Question 24

What are the types of unemployment?

Answer 24

cyclical
frictional
technical
seasonal

Question 25

What are the types of unemployment?

Answer 25

``` cyclical frictional technological seasonal structural regional ```

Question 26

What is frictional unemployment?

Answer 26

occurs as workers move between jobs

Question 27

What is seasonal unemployment?

Answer 27

when workers are unemployed at different times of the year

Question 28

What is stuctural unemployment?

Answer 28

occurs when long term shifts in the structure of the economy impact upon the job market

Question 29

What is regional unemployment?

Answer 29

occurs when unemployment occurs within particular regions, due to different sets wanted

Question 30

What is technological unemployment?

Answer 30

occurs when improved capital, is more productive and efficient than labour, so replaces labour

Question 31

What does inflation mean?

Answer 31

the rate of change in the average price level over time

Question 32

What are the 2 ways to measure inflation?

Answer 32

CPI | RPI

Question 33

What is the basket goods?

Answer 33

represent typical purchases in UK, each item has different weightings relative to their importance of effect if priced changed

Question 34

What are the 2 primary causes of inflation?

Answer 34

demand-pull | cost-push

Question 35

What is demand-pull inflation?

Answer 35

caused by excessive demand in the economy for goods and services

Question 36

What is demand-pull inflation?

Answer 36

caused by excessive demand in the economy for goods and services

Question 37

What are the causes of demand-pull inflation?

Answer 37

- reduced taxation - lower interest rates - rise in consumer spending - weak exchange rate

Question 38

What is cost-push inflation?

Answer 38

occurs when firms respond to rising costs of production by increasing prices

Question 39

What are the causes of cost-push inflation?

Answer 39

- wage increases - higher raw material costs - higher taxes - higher import prices - natural disasters

Question 40

What is deflation?

Answer 40

decrease in the general price level at a slower rate

Question 41

What are the problems with deflation?

Answer 41

- consumers tend to delay purchasing decision - consumption slows significantly - firms will lose the confidence to invest

Question 42

What is the balance of payments on current account?

Answer 42

a record of a country’s trade/transactions with the rest of the world

Question 43

What are the 3 sections of balance of payments?

Answer 43

current account financial account capital account

Question 44

What is a surplus?

Answer 44

export > import

Question 45

What is a deficit?

Answer 45

import > export

Question 46

What measures the net exports of visible goods?

Answer 46

trade in goods

Question 47

Why does the UK have a large deficit on trade in goods?

Answer 47

- an increase in the demand for consumer goods, many of which are imports - decline in the UK manufacturing sector - lower production of primary materials such as gas and oil

Question 48

What measures the net exports of invisible goods?

Answer 48

trade in services

Question 49

What is investment income?

Answer 49

generated by UK owned overseas assets

Question 50

What are transfers?

Answer 50

payments made (or received), usually by the government, to or from other countries

Question 51

What are the factors which influence a country's current account balance?

Answer 51

- inflation - improving productivity - strong exchange rate - economic activity in other countries

Question 52

When does a positive negative gap occur?

Answer 52

when actual output is above the trend rate

Question 53

What can the approach to reconciling conflicts can be split into?

Answer 53

keynesian | monetarists

Question 54

What are 2 differences between keynesian a and monetarists?

Answer 54

Keynesian : - no crowding out - in recessions government should intervene Monetarists: - government spending crowds out private sector investment - economy is stable and markets work efficiently with little intervention