Videos

Question 1

What are the 5 determinants of consumer spending?

Answer 1

Level of real disposable income, interest rates & availability of credit, consumer confidence, asset prices, household indebtedness

Question 2

What are the determinants of investment?

Answer 2

Interest rates, business confidence, corporation tax, spare capacity, level of competition, price of capital.

Question 3

What are the 4 types of government spending?

Answer 3

Current, capital, welfare, debt interest payments

Question 4

Which ones are injections?

Answer 4

Current, capital, welfare

Question 5

What are the determinants of net exports?

Answer 5

Incomes earned at home and abroad, exchange rates, protectionism at home and abroad, relative inflation levels at home (competitiveness)

Question 6

In the short run, on a classical diagram, what is macro equilibrium? How is it shown?

Answer 6

Where AD=SRAS≠LRAS
Normal AD and SRAS cross in the middle but with LRAS either side to show a negative or positive output gap
—> LRAS can’t be at equilibrium as according to classical economists the economy recovers back to equilibrium in the long run

Question 7

In the long run what is macro equilibrium?

Answer 7

AD=SRAS=LRAS

Question 8

Where is long run equilibrium on a Keynesian curve?

Answer 8

Wherever LRAS=AD

Question 9

What is the multiplier effect?

Answer 9

Process by which any changes in the components of AD lead to an even greater change in national output

Question 10

What is the accelerator effect?

Answer 10

Changes in investment can be directly linked to changes in the rate of GDP growth

Question 11

What’s the equation for the multiplier?

Answer 11

1/1-mpc

Question 12

The bigger the value of the multiplier…

Answer 12

The bigger the change in RGDP will be

Question 13

What determines the value of the multiplier?

Answer 13

The mpc

Question 14

What 3 things affect the value of the multiplier

Answer 14

Culture of saving, lots of tax, high mpm

Question 15

Explain the accelerator effect…

Answer 15

When the rate of GDP growth increases, firms are more willing to invest as firms are bullish. They think demand and growth will rise in the further so it would be a good time to invest.

Question 16

What is a negative output gap?

Answer 16

Where actual output is less than potential output

Question 17

What is a positive output gap?

Answer 17

Where actual output is greater than potential output

Question 18

What are 4 measures of economic growth?

Answer 18

GDP, GDP/Capita, GNI, Green GDP

Question 19

What are two benefits of GDP

Answer 19

It allows us to measure growth and living standards

Question 20

What are 6 limitations of gdp when measuring growth and living standards?

Answer 20

Growth-
1) risk of double counting
2) informal activity
3) errors in date collection
Living standards-
1) negative externalities and quality of output not given
2) income inequality not mentioned
3) type of output
4) other quality of life aspects (education, healthcare)

Question 21

What are disadvantages of using GDP/Capita?

Answer 21

(Same as GDP limitations)
- factor income abroad and significance of remittances
- influence of FDI and repatriation of profit

Question 22

What is GNI?

Answer 22

GDP+net factor incomes
Income earned by domestic workers/ firms minus income earned by foreign workers at home

Question 23

What is the equation for green GDP?

Answer 23

GDP-environmental costs

Question 24

What are the limitations of green gdp?

Answer 24

Difficult to measure monetary value of environmental costs

GDP could fall dramatically making it politically sensitive (China tried)

Question 25

What is economic growth

Answer 25

An increase in real gdp in an economy in a year caused by and increase in AD/ an increase in LRAS

Question 26

How does short run growth occur? (Actual growth)

Answer 26

When AD increases by using spare capacity to increase RGDP

Question 27

What are causes of growth? Reasons for C+I+G+(X-M)

Answer 27

Lower interest rates - C,I,X-M Lower income/corporation tax - C,I Higher consumer/business confidence - C,I Higher government spending - G Weaker exchange rates - X-M

Question 28

When does long run growth occur?

Answer 28

When there’s an increase in LRAS (increase in productive capacity of the economy)

Question 29

What factors shift LRAS?

Answer 29

Q2MCELL higher labour productivity Increased workforce size Investment Infrastructure improvements Increase in competition New resource discoveries

Question 30

What can shocks not be? What two types are there? What do they cause?

Answer 30

Can’t be predicted Demand (higher IR, banking crisis) and supply side (natural disasters, BIG tax) Causes fluctuations in the economic cycle

Question 31

What is a boom

Answer 31

Growth faster than the trend rate

Question 32

What are characteristics of a boom?

Answer 32

High profits Low unemployment High confidence High demand for imports Higher government revenues

Question 33

What is a recession/trough?

Answer 33

Declining AD

Question 34

What are characteristics of a recessions?

Answer 34

High unemployment Falls in confidence/investment Restocking or discounting Fall in your prices and construction Loose policy Lower inflation Low demand for imports

Question 35

What are characteristics of a recovery?

Answer 35

Rising confidence Higher house prices (C increases on luxury goods such as houses and cars) Rising business confidence Higher investment Loose policy

Question 36

What are 4 benefits of growth?

Answer 36

Higher disposable income Higher employment Higher profit for firms Fiscal dividend for GOV

Question 37

What are the 4 coats of growth?

Answer 37

Inflation income inequality - one sector dominance, capital intensive, rural bs urban, poor quality jobs, lack of welfare state Environmental costs Current account deficit

Question 38

What are 4 ways to evaluate growth?

Answer 38

Is it… Sustainable Inclusive Balanced Are the private sector and government paying workers well, reducing environmental damage, investing well, SSPs in place to avoid inflation, redistribution of income policies, tax revenues used efficiently