GCSE AQA - Macroeconomics Complete Revision questions and answers

State the six macroeconomic objectives Maintaining full employment Economic growth Achieving price stability Balacing exports and imports Environmental sustainability Reducing inequality Give examples of how different macroeconomic objectives can conflict with each other Economic growth and stable inflation Economic growth and balance of payments Unemployment and stable inflation Economic growth and inequality Economic growth and environmental sustainability. Explain what is meant by economic growth Explain what is meant by full employment Economic growth refers to the growth of output in the economy. The value of output will be equal to the value of the incomes of the workers and owners of factors of production. This makes the economy richer. Full employment means that everyone who is able and willing to work, has a job. High employment and low unemployment increases the welfare of society and allows people to spend money. Explain what is meant by price stability Explain what is meant by balancing exports and imports Price stability refers to keeping inflation low. The Government sets us a 2% inflation target. If inflation is too high or it moves around a lot, it's hard for businesses to set the right prices and for people to plan their spending. The government aims for a balance between exports and imports over time. A deficit means that more money is leaving the economy than it enters, making the economy have less money. Explain what is fiscal policy Fiscal policy is the use of government spending and taxation to control macroeconomic performance It is used to change the pattern of spending on goods and services. It also a means by which a redistribution of income and wealth can be achieved. Explain what is monetary policy Monetary policy involves the use of interest rates (and money supply) to control macroeconomic performance The main objective of monetary policy has been keeping inflation low and stable, however, it also tries to support the stability of economic growth. Explain what is supply-side policy. Supply side policies are policies that aim to increase the economy's capacity to produce more goods and services, by making them operate more efficiently. E.g. Education and training. Define economic growth Define Gross domestic product (GDP) Define GDP per capita Economic growth is the growth in output of the economy over time - a growth in real GDP over time. GDP is the total value of goods and services produced in the country in a year. GDP per capita is GDP dived by the total population, therefore GDP per person. Explain how is economic growth measured The government measures the value of the country's output - (GDP) the value of all the goods and services produced within the country in a year. They then calculates the rate and which it has risen. (change in GDP / original) x 100 Explain the six factors that can cause economic growth • Investment - Spending on capital increases the capacity to produce more goods and services. • Changes in technology - Technical progress means that the quality and quantity of capital goods increases, increasing output. • A larger workforce - The economy can produce more if it has more workers. This can be natural or an increase in immigration. • Education - The more educated, trained and skilled the workers, the higher the output of the country is likely to be. • Natural resources - If a country discovers or develops natural resources, then they can use the resources to increase output. • Government policies - The government takes responsibility for the macro-economic management of the country. Explain 6 costs of economic growth • Environmental costs - Greater output and consumption can lead to more pollution of the land, sea, air and fresh water. • Congestion - Urban areas can get overcrowed and congested. There may be pressure on public services. • Loss of non-renewable resources - Economic growth uses resources that cannot be replaced, e.g. oil, natural gas and metals. • A lower quality of life - People might have to move to the city , which could be seen as a more stressful life, than in the country. • Inequality of income and wealth - The benefits of growth are unevenly spread, widening the gap between the rich and the poor. • Inflation - Sometimes the rate of economic growth is too fast for the economy to respond without a rise in the general price level. Explain 4 benefits of economic growth • A rise in material living standards - If GDP per capita rises, then people in the economy will be materially better off - they will have higher incomes. • A rise in the welfare of the population - As the capacity of the economy grows, the government will be able to devote more resources to services such as health and education. • A rise in employment rate - As output rises, more workers will be required to produce it, and the unemployment rate will fall. • A reduction in poverty - As output and income rise, the government is able to take in more taxes from the higher-income groups and use the revenue to raise the living of standards for people of low income. Define quality of life and state the factors that affect a person's qualtiy of life The standard of health, comfort, and happiness experienced by an individual or group. Factors that affect are: • Material possessions • Consumption • Amount of leisure time • Quality of the environment they live and work in Define full employment and unemployment Full employment - when all those able and willing to work are in paid employment at the current wage rate. Unemployment - when workers who are able and willing to work are unable to find employment. Explain the two different methods of measuring unemployment Claimant count - measure unemployment according to the number of people claiming unemployment-related benefits (such as Jobseeker's Allowance) Labour Force Survey - a survey of a sample of households, counting people as unemployed if they are actively seeking work but do not have a job. Explain the four different types of unemployment Seasonal unemployment - Caused by workers not being unemployed at other times of the year, e.g. UK coastal resorts tend to employ many workers in the summer months only. Frictional unemployment - Cause when workers are moving between jobs and there are time lags in-between, e.g. schools and college leavers. Structural unemployment - Caused by a long-term change in the structure of industry when