MACROECONOMICS YELLOW BC

Question 1

What is Gross Domestic Product?

Answer 1

Measure of total output of goods and services.

Question 2

Explain the difference between Real and Nominal GDP.

Answer 2

Real GDP is the actual amount of goods and services; Nominal GDP includes prices.

Question 3

When might we want to use Real GDP?

Answer 3

To evaluate influence of inflation and allow comparisons between countries.

Question 4

When might we want to use Nominal GDP?

Answer 4

To understand the monetary value of goods and services at current prices.

Question 5

Explain the difference between total and per capita GDP.

Answer 5

Total GDP shows overall economic activity; per capita GDP shows average incomes.

Question 6

When might we want to use total GDP?

Answer 6

To assess the overall economic activity of a country.

Question 7

When might we want to use per capita GDP?

Answer 7

To compare average income levels between countries with different populations.

Question 8

Explain the difference between GNP, GNI, and GDP.

Answer 8

GNP includes profits and incomes from abroad; GNI includes incomes from abroad; GDP is just output in the domestic economy.

Question 9

Why must we be careful when comparing GDP across different countries?

Answer 9

Many developing economies have an informal sector not included in formal calculations.

Question 10

Why must we be careful when comparing GDP over time?

Answer 10

Due to the accuracy of data.

Question 11

What is meant by ‘Purchasing Power Parity’?

Answer 11

Income adjusted for different prices in an economy.

Question 12

Why might Purchasing Power Parity be useful?

Answer 12

It allows for better comparison of what an income will buy in an economy.

Question 13

What does the Easterlin Paradox show?

Answer 13

Higher incomes can lead to greater unhappiness.

Question 14

Suggest why the Easterlin Paradox might be the case.

Answer 14

With higher incomes, individuals may desire even more.

Question 15

What is inflation?

Answer 15

Rise in the general price level and a fall in the purchasing power of money.

Question 16

What is deflation?

Answer 16

Fall in the general price level and a rise in the purchasing power of money.

Question 17

What is disinflation?

Answer 17

Prices are still rising but the rate of rise is falling.

Question 18

Explain how CPI is calculated.

Answer 18

Researching prices on a basket of goods, weighting relative expenditure, indexing against a set year.

Question 19

Give 3 limitations of CPI as a measure of inflation.

Answer 19

• Average basket of goods
• Sample of prices
• Does not reflect regional variations

Question 20

How often is CPI and RPI calculated?

Answer 20

Monthly.

Question 21

Approximately how many goods and services are in the basket?

Answer 21

700+.

Question 22

At approximately how many locations are price data taken?

Answer 22

140 locations.

Question 23

How often are weightings updated?

Answer 23

Yearly.

Question 24

Give an example of 1 product that has been added to the basket over the last year.

Answer 24

Air fryers.

Question 25

Give an example of 1 product that has been removed from the basket over the last year.

Answer 25

Hand sanitiser.

Question 26

Explain the difference between CPI and RPI.

Answer 26

RPI includes mortgage costs.

Question 27

Which is higher, CPI or RPI?

Answer 27

RPI.

Question 28

What is CPIH?

Answer 28

CPI plus costs of running a household but excluding mortgage payments.

Question 29

Explain what is meant by ‘cost push’ inflation.

Answer 29

Costs for businesses rise.

Question 30

Give 3 possible causes of cost push inflation.

Answer 30

* Rise in commodity prices * Increase in wages * Rise in VAT

Question 31

Explain what is meant by ‘demand pull’ inflation.

Answer 31

Rise in consumption or investment, shifting aggregate demand.

Question 32

Give 3 possible causes of demand pull inflation.

Answer 32

* Increase in government welfare spending * Cut in tax rate * Cut in interest rate

Question 33

Explain how growth in the money supply can cause inflation.

Answer 33

Increase in money supply leads to more transactions and higher prices.

Question 34

Explain what is meant by ‘menu costs’.

Answer 34

Cost of repricing for businesses.

Question 35

Explain what is meant by ‘shoe leather costs’.

Answer 35

Costs of consumers looking around to find lowest prices for goods and services.

Question 36

Explain the effects of inflation on consumers/workers.

Answer 36

Reduction in real wages; need to negotiate higher wage rises.

Question 37

Explain the effect of inflation on firms.

Answer 37

Repricing can affect profits and planned investment.

Question 38

Explain the effect of inflation on the government.

Answer 38

Can reduce budget deficit size but complicates future planning and borrowing.

Question 39

Explain possible benefits of inflation.

Answer 39

Can help economic growth if stable and planned; can reduce size of debts.

Question 40

What is meant by ‘unemployment’?

Answer 40

Not in work but seeking work.

Question 41

What is the Claimant Count?

Answer 41

Number of people not in work claiming Jobseeker's Allowance and Universal Credit.

Question 42

Give a reason why the Claimant Count may not be accurate.

Answer 42

Not all unemployed claim benefits; some live off savings.

Question 43

What is the ILO measure of unemployment?

Answer 43

Survey of 60,000 individuals in 24,000 households.

Question 44

Give a reason why the ILO measure might not be accurate.

Answer 44

It is based on a sample.

Question 45

Which of the two measures of unemployment is typically higher and why?

Answer 45

ILO measure due to not all unemployed claiming benefits.

Question 46

What is meant by ‘underemployment’?

Answer 46

Workers wanting full-time work but unable to find it or are overqualified for available jobs.

Question 47

What is meant by ‘employment’?

Answer 47

Being in work.

Question 48

What is meant by ‘economically inactive’?

Answer 48

Individuals between 16 and 64 not available for work.

Question 49

What is the difference between the population of a country and its labour force?

Answer 49

Labour force is the working age population (16-64).

Question 50

Why do we find that Employment and Unemployment sometimes rise at the same time?

Answer 50

Structural unemployment in some industries while new workers enter the labour force.

Question 51

What are the current retirement ages in the UK?

Answer 51

66 for state pension, increasing to 67 in 2026.

Question 52

What is a ‘discouraged’ worker?

Answer 52

Individual no longer looking for work.

Question 53

What is meant by hysteresis in this context?

Answer 53

Reduced skills of long-term unemployed leading to removal from the labour force.

Question 54

What is ‘structural unemployment’?

Answer 54

Mass unemployment due to changes in demand patterns.

Question 55

What is ‘frictional unemployment’?

Answer 55

Inefficiencies in the labour market causing time to find new jobs.

Question 56

What is ‘seasonal unemployment’?

Answer 56

Changes in demand for workers across the year.

Question 57

What is ‘demand deficient’ or ‘cyclical unemployment’?

Answer 57

Unemployment resulting from a fall in aggregate demand.

Question 58

What is ‘real wage inflexibility’?

Answer 58

Wages set above equilibrium leading to excess supply of workers.

Question 59

Which type of unemployment is most likely to result in long-term unemployment?

Answer 59

Structural unemployment.

Question 60

What are the effects of unemployment on individuals?

Answer 60

Lower incomes, falling standard of living, long-term deskilling.

Question 61

What are the effects of unemployment on firms?

Answer 61

Can reduce wage costs but may complicate finding skilled workers.

Question 62

What are the effects of unemployment on government?

Answer 62

Increased benefit payments, falling tax revenues, budget deficits, lower GDP.