Economics Macroeconomics Syllabus

Macroeconomics syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Macroeconomics in Economics, not a summary of it.

1. 1

   Measuring Economic Performance

   3 topics

   • National Income Accounting
   • Economic Growth
   • Measures of Living Standards
2. 2

   Aggregate Demand and Supply

   4 topics

   • Components of Aggregate Demand
   • Aggregate Supply
   • Macroeconomic Equilibrium
   • The Multiplier and Accelerator
3. 3

   Unemployment and Inflation

   4 topics

   • Types of Unemployment
   • Measuring Unemployment
   • Inflation and Deflation
   • The Phillips Curve
4. 4

   Fiscal Policy

   4 topics

   • Government Spending and Taxation
   • Budget Deficits and Surpluses
   • National Debt
   • Automatic Stabilisers and Discretionary Policy
5. 5

   Monetary Policy

   4 topics

   • Money Supply and Interest Rates
   • Role of the Central Bank
   • Quantitative Easing
   • Inflation Targeting
6. 6

   Supply-side Policies

   3 topics

   • Market-based Policies
   • Interventionist Policies
   • Productivity and Competitiveness
7. 7

   Economic Growth and Development

   4 topics

   • Determinants of Growth
   • Costs and Benefits of Growth
   • Development Economics
   • Sustainability and the Environment

Macroeconomics flashcards for Economics

25 of 52 cards from the Macroeconomics deck — real questions with worked answers.

1. What does GDP (Gross Domestic Product) measure?

   The total market value of all final goods and services produced within a country's borders in a given time period (regardless of producer nationality).

2. State the three equivalent methods of measuring National Income (GDP).

   The output (value-added) method, the income method, and the expenditure method. In principle all three yield the same total: output = income = expenditure.

3. Write the expenditure formula for GDP and define each term.

   $$GDP = C + I + G + (X - M)$$ where $C$ = consumption, $I$ = investment, $G$ = government spending, $X$ = exports, $M$ = imports (so $X-M$ is net exports).

4. Distinguish between nominal GDP and real GDP.

   Nominal GDP is measured at current prices, so it rises with inflation. Real GDP is measured at constant (base-year) prices, removing price changes to show actual changes in output volume.

5. How is the GDP deflator calculated?

   $$\text{GDP deflator} = \frac{\text{Nominal GDP}}{\text{Real GDP}} \times 100$$ It is a broad price index reflecting the prices of all domestically produced goods and services.

6. Distinguish GDP from GNP (Gross National Product).

   GDP measures output produced within a country's borders. GNP (or GNI) adds net income from abroad: $$GNP = GDP + \text{net property income from abroad}$$ i.e. income earned by nationals abroad minus income earned by foreigners domestically.

7. What is economic growth, and how is the growth rate calculated?

   Economic growth is the increase in real output (real GDP) over time. The rate is $$g = \frac{GDP_{t} - GDP_{t-1}}{GDP_{t-1}} \times 100\%$$ It is usually shown by an outward shift of the PPF or a rightward shift of long-run aggregate supply.

8. Distinguish actual growth from potential growth.

   Actual growth is the real increase in output actually achieved (using existing capacity). Potential growth is the increase in the economy's productive capacity (a shift of the PPF / LRAS outward), driven by more or better factors of production.

9. List the main determinants of long-run (potential) economic growth.

   Increases in the quantity and quality of factors of production: labour supply and human capital, physical capital investment, natural resources, technological progress, and improvements in productivity/efficiency.

10. Why is real GDP per capita a better measure of living standards than total real GDP?

    $$\text{GDP per capita} = \frac{\text{Real GDP}}{\text{Population}}$$ It adjusts for population size, so it better reflects the average output/income available per person rather than just the size of the economy.

11. State four limitations of using GDP per capita as a measure of living standards.

    It ignores income distribution/inequality; excludes non-market and informal ('black economy') activity and unpaid work; does not account for negative externalities (e.g. pollution); and omits non-material factors like leisure, health, and life expectancy.

12. What is the Human Development Index (HDI) and what three dimensions does it combine?

    The HDI is a composite index of living standards (0 to 1). Its three dimensions are: health (life expectancy at birth), education (mean and expected years of schooling), and income (GNI per capita).

13. Define aggregate demand and list its four components.

    Aggregate demand (AD) is the total planned expenditure on an economy's goods and services at a given price level. $$AD = C + I + G + (X - M)$$ Its components are consumption, investment, government spending, and net exports.

14. List the main determinants of consumption (C).

    Disposable income (the biggest factor), interest rates, consumer confidence/expectations, wealth (housing and financial assets), availability of credit, and the distribution of income.

15. Define the marginal propensity to consume (MPC) and give its formula.

    The MPC is the fraction of any additional income that is spent on consumption: $$MPC = \frac{\Delta C}{\Delta Y}$$ It always lies between 0 and 1.

16. List the main determinants of investment (I).

    Interest rates (cost of borrowing), business confidence/'animal spirits' and expected profits, the rate of technological change, corporation tax, the accelerator effect (rate of change of demand), and access to finance.

17. Why does the aggregate demand curve slope downwards?

    Three effects: the real balance (wealth) effect — lower prices raise real value of money and spending; the interest rate effect — lower prices reduce money demand and interest rates, boosting investment; and the international trade effect — lower domestic prices make exports more competitive.

18. Define aggregate supply and distinguish short-run from long-run AS.

    Aggregate supply (AS) is the total output firms plan to produce at each price level. Short-run AS (SRAS) slopes upward (some input prices, e.g. wages, are sticky). Long-run AS (LRAS) shows productive capacity; it is vertical (classical) or has a horizontal-then-vertical shape (Keynesian).

19. List factors that cause the SRAS curve to shift.

    Changes in costs of production: wage rates, raw material and commodity prices (e.g. oil), exchange rates (import costs), business taxes/subsidies, and productivity. A rise in costs shifts SRAS left.

20. Contrast the Keynesian and classical views of the long-run aggregate supply curve.

    Classical LRAS is vertical at full-employment output: the economy always self-corrects to full capacity. Keynesian LRAS is horizontal at low output (spare capacity), curving to vertical near capacity: output can be stuck below full employment.

21. How is macroeconomic equilibrium determined?

    Where aggregate demand equals aggregate supply, $AD = AS$. This determines the equilibrium real national output and the general price level, at the intersection of the AD and AS curves.

22. What is a deflationary (recessionary) gap?

    When equilibrium real output is below the full-employment level of output, so there is spare capacity and unemployment. It reflects a deficiency of aggregate demand.

23. What is an inflationary gap?

    When aggregate demand exceeds the full-employment level of output, so the economy is producing beyond sustainable capacity, causing demand-pull inflation.

24. State the multiplier formula in terms of the MPC and the marginal propensity to withdraw.

    $$k = \frac{1}{1 - MPC} = \frac{1}{MPW}$$ where $MPW = MPS + MPT + MPM$ (withdrawals into saving, tax, and imports).

25. Explain the multiplier effect.

    An initial change in injections (e.g. investment or government spending) leads to a larger final change in national income, because one person's spending becomes another's income, which is partly re-spent in successive rounds.

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