Definitions

• What is the definition of macroeconomy?

  The economy in aggregate
• What are the macroeconomic objectives of government?

  • Strong and sustained economic growth (higher GDP)
  • Low unemployment
  • Low and stable inflation
  • balanced balance of payments
• What does GDP stand for?

  Gross Domestic Product
• What is GDP?

  the total value of all goods and services produced within an economy over a given period of time.
• What is economic growth?

  The increase in GDP over time
• What is inflation?

  The sustained increase in general price level
• Unemployment

  the number of people who are willing and able to work, actively seeking employment, but unable to find a job.
• What is the current account of the balance of payments?

  a record of a country’s

  • net trade in goods and services
  • net primary income (e.g. interest, dividends, profits)
  • net secondary income (e.g. aid, transfers).
• What are 'visibles' in the current account?

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

  Interest, profit, and dividends from abroad
• What is secondary income?

  International transfers like remittances
• What are 'invisibles' in the current account?

  Entries relating to trade in services
• What is real GDP?

  GDP adjusted for inflation effects
• What is nominal GDP?

  GDP without adjustment for inflation
• How is real GDP per capita calculated?

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

  Values relative to a base of 100
• What is a weighted index?

  A composite index adjusted for importance
• What is the Consumer Price Index (CPI)?

  A weighted price index for inflation
• How does the Retail Price Index (RPI) differ from CPI?

  It uses different goods and services
• What is the Claimant Count?

  A measure of unemployment claiming benefits
• What is the ILO measure of unemployment?

  A survey-based measure of unemployment
• How are living standards usually measured?

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

  Rates that equalize spending power across currencies
• What is the circular flow of income?

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

  Expenditure from outside the flow
• What are withdrawals in the circular flow?

  Income not returned to firms as expenditure
• What is the national income identity?

  Income equals output equals expenditure
• What is aggregate demand?

  Total demand for goods and services in an economy
• What is consumption (C)?

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

  Income after tax and benefits
• What is discretionary income?

  Income left after basic needs are met
• What is the marginal propensity to consume (MPC)?

  Proportion of additional income that is consumed
• What are the determinants of consumption?

  • Disposable income
  • Discretionary income
  • Interest rates
  • Consumer confidence
  • House prices
• What is the wealth effect?

  Consumption increases as wealth rises
• What is saving (S)?

  Part of disposable income not consumed
• What is the saving ratio?

  Proportion of national income that is saved
• What are the determinants of saving?

  • Interest rates
  • Income
  • Income distribution
  • Age distribution
  • Inflation
  • Confidence
• What is investment (I)?

  Expenditure by firms on capital stock
• What are the determinants of investment?

  Levels of retained profits and interest rates
• What are the types of government spending?

  • Current spending (e.g., wages)
  • Capital spending (e.g., building schools)
  • Transfer payments (e.g., Job Seeker’s Allowance)