Macroeconomics

Question 1

What is macroeconomics?

Answer 1

Macroeconomics studies the aggregate behaviour of the economy

Question 2

What is fallacy of composition

Answer 2

The idea that we can scale up from a single economic element such as a a single market, to see ow the entire economy operates.

Question 3

What are endogenous variables?

Answer 3

Those that the model attempts to explain

Question 4

What are exogenous variables?

Answer 4

Those that are determined outside of the model.

Question 5

What is GDP?

Answer 5

A measure of overall economic performance.
Either total expenditure on domestically produced final goods and services.
Or total income earned by domestically located factors of production.

Question 6

What is economic growth?

Answer 6

The percentage change in real GDP

Question 7

What is consumption?

Answer 7

The value of goods and services bought by households

Question 8

What is investment?

Answer 8

Either spending on capital

Or spending on the goods bought for future use

Question 9

What is net exports?

Answer 9

Exports - imports

Question 10

What are the four measures of GDP

Answer 10

Total income
Total expenditure
Total output
The sum of value add at all stages in the production of final goods

Question 11

What is a flow variable?

Answer 11

A quantity measure per unit time eg GDP

Question 12

What is a stock variable?

Answer 12

A quantity measured at a given point in time.

Question 13

What is nominal GDP?

Answer 13

Using current prices. The value of production is measured in terms of production is measured in terms of the price goods were sold in the year they were produced.

Question 14

What is real GDP?

Answer 14

Using constant prices. The value of production is measured in terms of the prices goods were sold at in the same base period.

Question 15

What is inflation?

Answer 15

The percentage increase in the overall level of prices in an economy.

Question 16

What is cpi?

Answer 16

The consumer price index takes a fixed basket of goods and works out how much it would cost to buy the basket of goods over time.

Question 17

What are the three differences between the GDP deflator and cpi?

Answer 17

Basket of goods fixed in cpi but change every year in deflator.
Prices of capital goods included in GDP deflator but excluded from cpi.
Prices of imported consumer goods included inclined but excluded from deflator.

Question 18

What are capital goods?

Answer 18

Those which are used in the production of other goods and services but not consumed by households.

Question 19

What does employed mean?

Answer 19

Working at a paid job

Question 20

What does unemployed mean?

Answer 20

Not employed but looking for a job

Question 21

What is the labour force?

Answer 21

The amount of labour available.
Equal to total employed plus total unemployed.
If you are not employed and not looking for work then you are not part of the labour force.

Question 22

What is a closed economy?

Answer 22

One that does not have flows to/from abroad. There are no imports and no exports.

Question 23

What are flexible prices?

Answer 23

Prices that adjust quickly to bring supply and demand into equilibrium.

Question 24

What are sticky prices?

Answer 24

Demand doesn’t always equal supply as variables are sometimes slow to adjust.

Question 25

What is a market clearing?

Answer 25

The assumption of flexible prices.

Question 26

What methods did Reagan use to cut the deficit?

Answer 26

Expansionary fiscal policy.

Increased defence spending and big tax cuts.

Question 27

Why are some prices considered sticky?

Answer 27

Prices and wages get set in advance and in reality few prices change instantaneously.

Question 28

What does classical theory assume about prices?

Answer 28

It assumes complete price flexibility. Hence we assume that classical theory applies only in the long run.