What is the Macroeconomy: Topic 2.1.1-2.1.4

Question 1

What are the four main Macroeconomic objectives

Answer 1

Economic growth, low unemployment, low and stable rate of inflation and Balance of Payments equilibrium on the current account

Question 2

Cost and Benefit of growth for Consumer/Worker

Answer 2

Cost - inflation
Benefit - higher wages, higher SOL, more employment opportunities

Question 3

Cost and Benefit of growth for Firm

Answer 3

Cost - higher costs due to higher wages
Benefit - increased revenue and profits, increased consumer and business confidence leading to more investment

Question 4

Cost and Benefit of growth for Government

Answer 4

Cost - Potential for higher levels of relative poverty, worsening trade balance (increased imports)
Benefit - higher tax revenues therefore improved budget balance

Question 5

Cost and benefit of growth for Current and future living standards

Answer 5

Cost - more pollution, less consumer goods purchased today
Benefit - improved environment owing to more efficient and cleaner tech

Question 6

Why might GDP might not be best measurement of growth

Answer 6

Doesn’t account for SoL and inequality

Question 7

Unemployed definition

Answer 7

In population of working age, out of work and actively seeking employment

Question 8

Economically inactive definition

Answer 8

Of working age, out of work but not seeking employment (carers, students, temporarily/long-term sick

Question 9

Discouraged worker

Answer 9

Of working age, out of work but not seeking a job due to lack of success

Question 10

Underemployed definition

Answer 10

Employed but not working amount of hours they want to

Question 11

Cyclical (demand-deficient) unemployment

Answer 11

Occurs when there’s a negative output gap in the economy as AD is too low, caused by downturn in economic cycle

Question 12

Structural unemployment

Answer 12

When structure of economy changes and decline in old industries leaves some workers unable to transition to new industries

Question 13

Frictional unemployment

Answer 13

Exists when people are in between jobs (i.e. spending time either looking for or moving between jobs)

Question 14

Seasonal unemployment

Answer 14

Results from regular fluctuations in weather conditions or demand (common in tourism, agriculture and construction industries)

Question 15

Real wage (classical) unemployment

Answer 15

When wages are pushed up by unions or increased minimum wages causing firms to layoff workers

Question 16

Inflation/deflation definition

Answer 16

A general and sustained rise/fall in the price level over time

Question 17

Disinflation definition

Answer 17

Where inflation is falling but prices are still rising (e.g. 5%-3%)

Question 18

Wage-price spiral

Answer 18

As workers expect inflation, they will argue for higher wages: this will push firm’s costs up and lead to them increasing prices and therefore more inflation

Question 19

Deflationary spiral

Answer 19

Consumers offset purchasing goods if they expect prices will decrease more in the future

Question 20

Two types of inflation

Answer 20

Cost-push inflation, demand-pull inflation

Question 21

PPP Exchange Rate

Answer 21

Price in currency 1/Price in currency 2

Question 22

Gross National Income (GNI) definition

Answer 22

Measures the total economic output of a country, including the value of all goods and services produced within the country (its GDP) plus income earned from abroad (such as dividends, interest, and remittances), minus income paid to foreign entities.

Question 23

Gross Domestic Product (GDP) definition

Answer 23

Value of all goods and services produced within the country

Question 24

Gross National Product (GNP) definition

Answer 24

It is a measure of the total economic output produced by the residents of a country, regardless of whether the production occurs domestically or abroad. GDP = GDP + net property income from abroad

Question 25

Claimant Count - Measure of Unemployment

Answer 25

Measures no. of people claiming Job Seekers' Allowance, eligible range is 18-State Pension Age. (People with too high a level of savings and spouse/partner earning too much aren't eligible).

Question 26

Labour Force Survey - measures of unemployment

Answer 26

Measures those actively looking for a job who have been out of work for 4 weeks. Covers ages 16-65, done by questionnaire and interview or phone survey, internationally recognised, surveys sample of the population so there will be a margin of error

Question 27

Withdrawals

Answer 27

Imports (M), Savings (S), Taxes (T)

Question 28

Injections

Answer 28

Exports (X), Investment (I), Government spending (G)

Question 29

AD components and % of AD

Answer 29

Consumption (C) 60%, Investment (I) 15%, Government Spending (G) 25%, Net Exports (NX) 1%

Question 30

National Debt Definition

Answer 30

Total money owed by a country to its creditors

Question 31

Budget Deficit Definition

Answer 31

When the government's spending is higher than government revenue

Question 32

Wealth effect

Answer 32

Positive wealth effect - prices go down, so despite no income increases spending increases as perceived wealth has increased, vice versa applies

Question 33

Higher level aspects that affect Investment

Answer 33

Gov. tax, availability of credit (context, 2008 recession led to banks being unwilling to loan credit), gov. regulations

Question 34

Factors that affect LRAS

Answer 34

Changes in productivity, technological advances, investment in capital goods, R&D/innovation, changes in education, skills and training, changes in gov. regulations, reduced union power, demographic changes (population growth, immigration, more women in LF e.t.c.)

Question 35

CPI and RPI

Answer 35

Collection of 700 goods and services from 150 locations each month, indices weighted to reflect importance of various items, RPI includes mortgage interest payments