Macroeconomics

Question 1

What are the key objectives of a macroeconomic policy ?

Answer 1

Price stability
Growth of real GDP
Falling unemployment
Rising employment
Higher average standard of living
Stable balance of payments ( exports)
An equitable distribution of wealth

Question 2

What are some additional objectives of the original aims of macroeconomic policy ?

Answer 2

Balancing the budgets and reducing national debt
Improve economic wellbeing
Better regional balance in the UK economy
Improved access to public services
Improved competitiveness
Environmental sustainability

Question 3

What is a positive multiplier in macroeconomics ?

Answer 3

When an initial increase in an injection leads to a greater final increase in real GDP

Question 4

What is a negative multiplier in macroeconomics ?

Answer 4

An initial decrease in an injection leads to greater final decrease in real GDP

Question 5

What is the Marginal propensity to consume ( MSC ) ?

Answer 5

Change in consumption following a change in income

Question 6

What is the Marginal propensity to save ( MPS ) ?

Answer 6

Change in savings following a change in income

Question 7

What is the MSC equation ?

Answer 7

Change in total consumption / change in gross income

Question 8

What is the MPS equation ?

Answer 8

Change in total savings / change in gross income

Question 9

What is the equation for a multiplier ?

Answer 9

1 / 1 - MPC ( marginal propensity to consume )

1 / 1 - MPW ( marginal propensity to withdraw )

Question 10

A high multiplier is introduced when … ?

Answer 10

The economy has plenty of spare capacity to meet higher demand
Marginal propensity to import + tax is low
High propensity to consume any extra income

Question 11

A Low multiplier is introduced when … ?

Answer 11

Economy has came too close to its capacity limits
Propensity to import goods + services is high in extra demand
Higher interest rates caused by inflation when

Question 12

What determines the size of a fiscal multiplier ?

Answer 12

GOVT capital investment , the new infrastructure results in a higher multiplier effect

Question 13

What is national income ?

Answer 13

Measures the monetary value of the flow of output of goods and services produced in an economy over a period of time

Question 14

What are some key uses of national income data ?

Answer 14

Measuring the level and rate of growth of national income

Important for keeping track of economic growth , living standards , distribution of wealth .

Question 15

What is GDP ?

Answer 15

It is the measure of the total value of national output produced in a given period

Question 16

What are the 3 ways of calculating GDP ?

Answer 16

National output
National expenditure ( aggregate demand )
National income

Question 17

How can we measure GDP off our countries EXPENDITURE ?

Answer 17

Consumption
GOVT spending
Investment spending
Change in the value of stocks
Exports
Aggregate demand

Question 18

How can we measure GDP off our countries FACTOR INCOMES ?

Answer 18

Income for people in jobs and self employment ( wage + salaries )
Profits of public and private sector businesses
Rental income from the ownership of land

Question 19

How can we measure GDP off our countries VALUE OF OUTPUT ?

Answer 19

Value added from each of the main economic sectors

These sectors are ( construction , manufacturing , Tertiary , Quaternary )

Question 20

What is the equation for Aggregate demand ?

Answer 20

Consumption + investment + GOVT spending + ( export - imports )

Question 21

What is value added in macroeconomics ?

Answer 21

Is the increase in market value for goods / services as a result of the production process .

It excludes the cost incurred in the supplying the output of a good or service

Question 22

Name a low value added industry ?

Answer 22

Textiles
Mass produced foods
Farming
Social care
Cleaning contract services

Question 23

Name some High value added industries ?

Answer 23

Information technology
Renewable energy
Aerospace
Biotechnology
Precision engineering

Question 24

What does Nominal mean in macroeconomics ?

Answer 24

Monetary values for data not adjusted for inflation , Data expressed at current prices

Question 25

What does Real mean in macroeconomics ?

Answer 25

Adjusted to inflation , prices held at level of the chosen base year , expressed at constant prices

Question 26

What does Purchasing Power Parity ? ( PPP)

Answer 26

Measures the units of one country's currency are needed to buy exactly the same basket of goods with a given amount of another country's currency .

Question 27

What are economic indicators ?

Answer 27

Ways of expressing economic data

Question 28

What is the base value number of economic indicators ?

Answer 28

Always have a base value of a 100

Question 29

What is the equation used for economic indicators ?

Answer 29

Index number year Y = ( data value in year y / base year value ) x 100

Question 30

What is the inflation ( consumer price index ) ?

Answer 30

Measure of the annual percentage change in consumers prices A sustained increase in the cost of living of a general price level leading to a fall in the purchasing power of money

Question 31

How is the rate of inflation calculated ?

Answer 31

A representative basket of goods / services are attached to each item Every year , a family expenditure survey is carried out over a number of homes

Question 32

What are some examples of macro conflicts ?

Answer 32

Unemployment and inflation Economic growth and inflation Economic growth and the balance of payments Economic growth and inequality

Question 33

What does the Phillips curve of unemployment and inflation show ?

Answer 33

As inflation falls - labour shortages create an increase in wage inflation and higher labour costs When an economy is booming so does the price of components and raw materials leading to higher costs Rising demand and falling unemployment leads to higher supplier costs to increase their margins

Question 34

What are supply side policies to improve growth ?

Answer 34

Reforms to improve labour productivity Incentives to boost research / development / innovation Measures to increase investment in export sectors

Question 35

What is exchange rate depreciation policy

Answer 35

When a depreciation in a currency makes exports more price competitive + imports more expensive

Question 36

What is effective macroeconomic policies ?

Answer 36

Monetary policy to help keep inflation low , relative to inflation and competitors Infrastructure investment to increase export competitiveness

Question 37

What are the four parts of the circular flow model ?

Answer 37

Households - get income via wages / buy goods from firms Businesses - hire land labour capital when making products . Firms get money from consumers Govt -collect taxes to fund public services . State spending External sector- the U.K. buys imports from other countries . Overseas buys our exports

Question 38

What are some injections in macroeconomics ?

Answer 38

Investment Exports of goods and services Govt spending

Question 39

What are some leakages in macroeconomics ?

Answer 39

Savings Imports of goods and services Taxation

Question 40

What is Aggregate demand ?

Answer 40

Total level of planned real expenditure on the goods and services produced in a country

Question 41

What are the components of Aggregate demand ?

Answer 41

(C) - Household spending (I) - Capital investment spending (G) - Govt consumption / public spending (X) - Exports of goods and services (M) - Imports of goods and services

Question 42

What is the wealth affect ?

Answer 42

As price increases , the value of income falls / they have less purchasing power . Vice Versa

Question 43

What is balance of trade ?

Answer 43

An increase of price in country X could make imports cheaper , fall in exports and rise in imports

Question 44

What is the interest rate effect ?

Answer 44

As price increases , Causes inflation , an increase in demand for money causes an increase in loans interest rates

Question 45

Name some examples of fall in Aggregate demand

Answer 45

Fall in exports Cuts in GOVT spending Decline in household wealth Higher interest rates

Question 46

Name some examples of increases in Aggregate demand

Answer 46

Depreciation in exchange rate Cuts in direct taxes In