recap

• What are the main macroeconomic objectives of government policy?

  Economic growth, price stability, high employment
• What does price stability refer to in macroeconomic objectives?

  Control of cost and price inflation
• What is meant by a sustainable overseas trade balance?

  Balance of Payments current account in equilibrium
• Why might it be difficult to meet all macroeconomic objectives simultaneously?

  There are trade-offs between different objectives
• What are some trade-offs that can occur in macroeconomic objectives?

  • Faster growth can lead to inflation
  • Low unemployment may increase real wages
  • Policies to reduce inflation can slow growth
  • Reducing government borrowing can stagnate living standards
• What are some other goals the government can set beyond macroeconomic objectives?

  Net zero, reducing child poverty, new housing
• How can economic and political contexts affect government objectives?

  Objectives can change based on current crises
• What is an index number?

  A figure reflecting price or quantity compared to a base value
• What is the base value of an index number?

  The base value always has an index number of 100
• How do you calculate the percentage change in an economic variable?

  Percentage change = (new - old) / old x 100
• What was the annual percentage change between 2021 and 2022 if the index numbers were 105 and 110?

  + 4.76%
• What does productivity measure in macroeconomics?

  Supply-side efficiency
• What is total factor productivity?

  Output per unit of input
• What is the Labour Force Survey?

  A survey asking households to classify employment status
• What does the Claimant Count measure?

  Total number of Job Seeker's Allowance recipients
• What does GDP measure?

  Value of real output of the economy
• What is the difference between nominal GDP and real GDP?

  Nominal GDP is at current prices, real GDP is adjusted for inflation
• What is real GDP per capita used for?

  Proxy measure for the standard of living
• What does the Consumer Price Index (CPI) track?

  Changes in prices of a basket of goods
• What is the Retail Price Index (RPI)?

  A measure including items not in the CPI
• What does the Balance of Payments record?

  All flows of money between residents and the world
• What is the balance of trade?

  Value of exports minus value of imports
• How is public finance measured?

  By looking at the budget deficit and national debt
• How is income inequality measured?

  By the Gini coefficient
• What is the importance of comparing macroeconomic indicators across countries?

  To ensure like-for-like comparisons and accuracy
• What are the components of the circular flow of income?

  • Households: own productive resources, earn income
  • Firms: hire resources, produce output
  • Injections: investment, government spending, exports
  • Withdrawals: savings, taxation, imports
• What is national income?

  Monetary value of output produced in an economy
• How can national income be measured?

  As income flows round the economy
• What are injections in the circular flow of income?

  Money added to the economy, like investment
• What happens when injections exceed withdrawals?

  National income rises, indicating economic growth
• What is the financial sector's role in the circular flow model?

  It lends saved income to businesses for investment
• How does the government sector affect the circular flow of income?

  It injects income through spending and collects taxes
• What is the difference between wealth and income?

  Wealth is a stock; income is a flow
• What is aggregate demand (AD)?

  AD is the total demand for goods and services
• What is the formula for aggregate demand?

  AD = C + I + G + X - M
• What happens to AD when the general price level falls?

  AD extends, leading to higher real income
• What is the real income effect?

  As price level falls, real income rises
• How does the balance of trade effect influence AD?

  A fall in price level can increase exports
• What is the interest rate effect on AD?

  Low inflation may reduce interest rates, boosting AD
• What shifts the AD curve to the right?

  Any increase in AD other than price level change