Module 13

Question 1

What are the four macroeconomic objectives of the govt?

Answer 1

• low inflation
• high employment
• economic growth
• avoidance of BOP deficits and exchange rate problems

Question 2

What is aggregate demand and supply?

Answer 2

total demand supply from individual companies

Question 3

What is GDP?

Answer 3

sum of the market values of all goods and services produced in a period

Question 4

What are the factors of production?

Answer 4

• capital
• enterprise
• land
• labour

Question 5

What are the payment/rewards of the factors of production?

Answer 5

• rent
• salaries
• profit
• interest

Question 6

What are withdrawals from the circular flow?

Answer 6

• savings
• imports
• taxes

Question 7

What are injections to the circular flow?

Answer 7

• exports
• govt spending
• investments

Question 8

What is a balance of payments?

Answer 8

different between imports and exports

Question 9

What is a trade surplus?

Answer 9

exports>imports

Question 10

What is a trade deficit?

Answer 10

imports>exports

Question 11

What is a budget deficit?

Answer 11

govt spending> taxes

Question 12

What is a budget surplus?

Answer 12

taxes>govt spending

Question 13

What is the public sector net cash requirement?

Answer 13

the total amount the govt requires to borrow

Question 14

What is the formula fro aggregate demand?

Answer 14

AD=exports + govt spending+ consumer spending + investment - imports

Question 15

What is the formula for income?

Answer 15

income = consumption + savings

Question 16

What is the consumption function?

Answer 16

C = a + bY
C - consumption
a -autonomous consumption
b- MPC

Question 17

What is the marginal propensity to save?

Answer 17

MPS= 1- MPC

Question 18

What is the formula for increase in national income due to an injection?

Answer 18

=injection * 1/MPS

Question 19

What is frictional unemployment?

Answer 19

because of switching jobs and the time it takes to match employees with jobs

Question 20

What us seasonal unemployment?

Answer 20

certain times of the year

think farming or tourism

Question 21

What is structural unemployment?

Answer 21

where the supply of labour in one industry outstrips demand and poles kills are too inflexible to change industry, can lead to regional unemployment

Question 22

What is classical unemployment?

Answer 22

sometimes called real wage unemployment
when the number of workers companies are willing to employ at certain rate is less than demand.
can be due to things that keep wage artificially high i.e. minimum wage or trade unions

Question 23

What id demand deficient unemployment?

Answer 23

-often called cyclical or Keynesian

due to low growth or recession and demand curve shifts left

Question 24

What can the govt do to tackle unemployment?

Answer 24

use interest rates
geographical subsidies
change minimum or living wage

Question 25

How often is inflation measured?

Answer 25

monthly

Question 26

What is the difference between consumer price index and retail price index?

Answer 26

CPI doesn't include council tax or mortgages

Question 27

What are the issues associated with inflation?

Answer 27

- uncertainty - savers would be worse off - BOP - county's exports will become more expensive and imports will seem cheaper

Question 28

What is demand pull inflation?

Answer 28

When demand increases and firms respond by increasing prices

Question 29

What is cost push inflation?

Answer 29

as production costs get more expensive, firms supply fewer goods and prices are raised. this can lead to wage price spiral where workers demand higher wages which then further increase the firms prices.

Question 30

Who sets the inflation target in the UK?

Answer 30

UK government sets a target for the Bank of England.

Question 31

What id demand side policy?

Answer 31

seek to change the level of spending in the economy

Question 32

What is supply side policy?

Answer 32

encouraging firms to produce more

Question 33

What is expansionary fiscal policy?

Answer 33

tax cuts and govt spending

Question 34

What is contractionary govt policy?

Answer 34

cuts in spending and increasing taxes

Question 35

What are the advantages of fiscal policies?

Answer 35

- resdribute wealth | - alter behaviour

Question 36

What are the diadvantages of fiscal policies?

Answer 36

-time lag -households might not react as anticipated may increase inflation

Question 37

Who sets interest rates?

Answer 37

Bank of England and Monetary Policy committee (members from boe and external experts)

Question 38

What is quantitive easing?

Answer 38

BoE creates digital money and buys things like govt bonds which 1. lowers the bond yield, hence interest rates 2. frees up investors