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Various Macro-Economic Questions and answers

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Introduction

27th Jan (ARG) Explain the difference between micro and macroeconomics? Microeconomics is looking at individual segments of the economy, looking at the effects of certain company?s actions such as social costs and benefits, macroeconomics is looking at the economy as a whole. Macroeconomics covers the objectives of the government such as growth, inflation, balance of payments and employment. These are all causes of the actions of the economy as a whole, such as growth is the increase in production over the whole economy, inflation is a general rise in the price level across the whole UK market and employment is an effect and cause of aggregate demand. What is ?economic activity?? The actions of the economy as a whole, it is the input, production and output of all of the individual firms in the economy. It covers all sectors, primary, secondary, tertiary, private and public and can be defined as: ?the process of producing a good/service and for it to then be exchanged in a market place? Economic activity comprises all activities involved in producing goods and services for sale in the marketplace. Explain in detail the main economic objectives of a government. Why are they desirable? To maintain full employment or aim to achieve as higher employment as possible. High employment/ low unemployment is key to a healthy economy because high employment means national income rises, stimulating demand and therefore welfare of firms across the country. ...read more.

Middle

Explain the term ?Economic Cycle? Economic cycles are the typical changes in an economy over time. Periods of rapid increase in growth (Boobs) are averaged out by periods of slower increase in growth (Busts). The time between one boom and another is typically 5 years. But in the long run we can see that the economy is steadily growing. Explain with a diagram the term ?output gap? The output gap is the difference between potential GDP and actual GDP. If this number is positive, it?s called an inflationary gap as aggregate demand is outweighing aggregate supply, possibly creating inflation. If the number is negative, it is called a recessionary gap-possible signifying deflating. This is the output gap. ________________ By 2nd Mar (ARG) Other than a rise in GDP, what factors determine economic welfare? Explain them. Economic welfare is measured in different ways. Factors used to measure the economic welfare of a population include GDP, literacy, access to health care, and assessments of environmental quality. Explain in detail the problems associated with economic growth Stress and polution are the main problems, as economic growth Explain in detail the components of aggregate demand? Aggregate demand is composed of several components: Government spending, which is an injection into aggregte demand and thus if government spending rises, so does demand. ...read more.

Conclusion

producer ? for example an increase in taxes designed to meet the government?s environmental objectives will cause higher costs and an inward shift in the short run aggregate supply curve. A rise in VAT on raw materials will have the same effect. Explain what is meant by ?equilibrium in the economy?? Where supply equals demand so neither the suppliers or the consumers need to change anything as all demand is being supplied and all supply is being consumed so everyone is happy, this is only a constuct though and cannot exist in the real world. How is ?short run equilibrium,? different to ?long run equilibrium?? A market can exist is short run equilibrium for a short time but long run equilibrium is much harder to achieve and can only really be achieved through a thoroughly planned economy. What is ?consumption?? Explain how is consumption related to income Explain the main determinants of consumption Explain the main determinants of saving By 30th Mar (ARG) Investment What is ?investment?? How is it different to ?saving?? Explain the Marginal Efficiency of Capital theory Explain the factors that affect the level of investment What is ?the accelerator?? How is it supposed to work? Supply side policies What is meant by ?a supply side policy?? Give three examples of such policies and explain in detail how they are supposed to work. Explain the limitations of supply side policies ...read more.

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