Macro economics

• What does the term "macroeconomy" refer to?

  The economy in aggregate, the sum of all individual markets.
• What are the four main macroeconomic objectives of government?

  • Strong and sustained economic growth (higher GDP)
  • Low unemployment
  • Low and stable inflation
  • Satisfactory trade position
• What does GDP stand for?

  Gross Domestic Product.
• How is GDP defined?

  The value of all output generated in the domestic economy over a given time period.
• What does GNP stand for?

  Gross National Product.
• How is GNP calculated?

  GDP plus net property income from abroad.
• What is property income from abroad?

  Income derived from ownership of assets in other countries.
• What does economic growth refer to?

  The increase in GDP over a given time period.
• How is inflation defined?

  The sustained increase in the general price level of an economy.
• What is unemployment?

  Unemployment consists of those of working age actively seeking work but without a job.
• What is the current account of the balance of payments?

  A record of international income and expenditure for economic agents over a given period.
• What are 'visibles' in the current account?

  Entries relating to trade in goods.
• What is primary income?

  Interest, profit, and dividends generated by investments abroad.
• What is secondary income?

  International transfers, such as remittances made by migrant workers.
• What are 'invisibles' in the current account?

  Entries relating to trade in services and primary and secondary income.
• What is real GDP?

  The value of GDP adjusted to remove the effects of inflation.
• How is nominal GDP defined?

  The value of GDP without adjustment for inflation.
• What is real GDP per capita?

  Real GDP divided by population.
• What does an index represent?

  All values relative to a base, which is given the value 100.
• What is a weighted index?

  A composite index adjusted for the relative importance of its components.
• What does CPI stand for?

  Consumer Price Index.
• What is the RPI?

  The Retail Price Index, an alternative weighted price index.
• What is RPIX?

  The RPI excluding mortgage interest payments.
• What is core inflation?

  The inflation rate excluding sectors with volatile prices, like food and energy.
• What is the Claimant Count?

  A measure of unemployment based on those claiming Job Seeker’s Allowance.
• What is the ILO measure?

  The International Labour Organisation’s measure of unemployment based on survey data.
• How are living standards usually measured?

  Using real GDP per capita.
• What are PPP exchange rates?

  Exchange rates that give equal spending power when converting currencies.
• What is the circular flow of income?

  • A model of the economy
  • Households supply factors of production to firms
  • Firms provide goods and services to households
  • Consumer expenditure returns to households as factor income
• What are injections in the circular flow?

  Sources of expenditure from outside the flow, such as investment, government expenditure, and exports.
• What are withdrawals in the circular flow?

  Income received by households not returned to firms as consumer expenditure.
• What is the national income identity?

  Income is identical to output is identical to expenditure.
• What is aggregate demand?

  The total demand for goods and services produced in an economy over a given period.
• What is the formula for aggregate demand?

  AD = C + I + G + X - M.
• What does consumption (C) refer to?


  Expenditure by households on goods and services.
• What is disposable income?

  Income after tax and benefits.
• What is discretionary income?

  Income left after providing for basic needs and commitments.
• What is the marginal propensity to consume (MPC)?

  The proportion of each additional £ of income which is consumed.
• What is the life-cycle hypothesis?

  The theory that consumers use borrowing and saving to smooth consumption over their lifetimes.
• What is the permanent income hypothesis?

  Milton Friedman’s hypothesis that increases in income will only be spent if believed to be permanent.