Macroeconomics introduction(L1)

Question 1

What are the key players

Answer 1

Government
Industry
Consumers
Central bank
Civil society

Question 2

Government

Answer 2

Sets the rules that economic agents must follow. Produces public goods and services

Question 3

Industry

Answer 3

Businesses produce goods and services. Most businesses are SMEs (small and medium enterprises).
Majority of businesses tend to be focused on domestic market, larger companies are often multinationals

Question 4

Consumers

Answer 4

Buyers of goods and services.
Some economies are more reliant than others, consumer confidence has a huge impact on the performance of the economy (e.g. the UK and US)

Question 5

Central bank

Answer 5

Sets interest rates, acts as a banker to the banks.

First modern central bank was the Bank of England.

Question 6

Civil society

Answer 6

Groups outside of government and business.

This includes: trade unions, NGOs, charities and academics.

Question 7

Methods of financing a business

Answer 7

Retained profit
Borrowing
Issuing shares
Issuing bonds

Question 8

Retained profit

Answer 8

Profit is the difference between revenue earned by a firm and its costs.
May be used to reward shareholders (dividends) or to fund investment.

Question 9

Revenue

Answer 9

Income a firm receives from the sale of a good or service

Question 10

Dividends

Answer 10

Sum of money payed regularly by a company to shareholders

Question 11

Investment

Answer 11

Spending on capital goods

Question 12

Borrowing

Answer 12

When firms lack money to pay business expenses (wages and materials) it results from delays between providing goods + services + receiving payments. Firms often borrow from financial institutions like banks or they’ll borrow to fund investment.

Question 13

Shares

Answer 13

Financial asset that gives one part ownership in a company. The more shares one owns, the greater control over the company.

Question 14

Why are shares attractive to investors

Answer 14

Capital gains can be made
Dividends an income stream
Provide a means of taking over a company

Question 15

Issuing shares

Answer 15

Shares are traded in primary + secondary markets. Primary markets= they’re issued
Investors buy shares so that they can have more control over the company. When the business improves, the shares hold more value so investors buy them in hopes that they can earn more profit. Shares get given out so that businesses can get money but lose control of part of business.
PLCs (public companies) like Tesco can issue shares on stock exchanges, private ones can’t.

Question 16

Issuing bonds

Answer 16

Company issues bonds
Investors purchase bonds
Up until maturity date of the bond, investors holding bonds receive regular interest payments
When bond natures, investors receive cash in full. Bonds can be traded so the person who receives the money may not be the investor who bought it

Question 17

People who own bonds

Answer 17

Investors, creditors or debt holders

Question 18

Maturity date

Answer 18

Bonds mature when the required amount of time has elapsed

Question 19

Regular interest payments

Answer 19

Coupon rate

Question 20

Key issues for the government and the economy (TIGERS)

Answer 20

Economic growth 
Employment
Inflation
Trade 
TIGERS (trade inflation growth employment redistribution of income stability)

Question 21

Economic growths effect

Answer 21

Size of economy determine determines amount of goods and service available to citizens, we want it to be strong, sustainable

Question 22

Employment issues

Answer 22

We need low unemployment. Full employment. Most people rely on jobs for income, unemployment causes social unrest

Question 23

Inflation

Answer 23

Rate of growth of prices that we want to be low and stable. High inflation erodes living standards

Question 24

Trade

Answer 24

Balance between value of exports and imports are needed. National economies are only capable of producing a limited range of goods and services due to natural resources + climate leaving some goods unavailable. Some countries can’t produce certain goods due to weak technological capabilities

Question 25

Distribution of income

Answer 25

Normative consideration, should be fair

Question 26

Dividend

Answer 26

Profit of a company that’s paid to the people who own shares in it

Question 27

Economic agents

Answer 27

Government consumers producers