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1
Q

Define economics.

A

A social science concerned with the production, distribution and consumptions of goods / services.

i.e. the study of resource allocation

2
Q

What is microeconomics?

A

The resource usage of individual consumers and businesses.

3
Q

What is macroeconomics?

A

The resource usage of economies at the regional, national and international scale.

4
Q

What is economics most concerned with?

A

Efficiency of production and exchange.

5
Q

What is the aim of economic policies?

A

To maximise output.

6
Q

What is the main principle / problem of economics?

A

That human beings have unlimited wants and needs but occupy a world of limited means.

7
Q

Economists argue that a better use of resources will lead to…

A

A higher standard of living

8
Q

Define economic growth.

A

An increase in the amount of goods and services produced per head of the population over unit time (usually a year)

9
Q

Microeconomics looks at how individuals and businesses make decisions. It therefore analyses…

A

Aspects of human behaviour

10
Q

Which aspect of human behaviour does microeconomics focus on?

A

Demand for a good at a particular price / how behaviour if affected by changes in price.

11
Q

What 3 things does microeconomics try to explain?

A
  1. How and why goods are valued differently
  2. How individuals and businesses can make the best financial decisions
  3. How best individuals / businesses should cooperate to trade with eachother
12
Q

Name 5 areas of study that fall under microeconomics.

A
  1. Supply-demand dynamics
  2. Efficiency / cost of production of goods / services
  3. Division / allocation of labour
  4. Risk
  5. Strategic game theory
13
Q

Name 6 areas of study that fall under macroeconomics.

A
  1. Foreign trade
  2. Government fiscal or monetary policy
  3. Unemployment
  4. Inflation and interest
  5. The growth of total production output
  6. Business cycles
14
Q

How is the growth of total production output studied?

A

By looking at changes in GDP.

15
Q

Name 4 phases of business cycles.

A
  1. Expansions
  2. Booms
  3. Recessions
  4. Depressions
16
Q

Different schools of economic theory analyse data differently. Name two ways in which economic data is analysed.

A
  1. Formal logic

2. Empiricism

17
Q

Define formal logic.

A

The branch of logic concerned exclusively with deductive reasoning

18
Q

Formal logic is concerned with the context of a proposition. True or false?

A

False - formal logic is concerned with the form of a proposition.

19
Q

Define empiricism.

A

The belief that knowledge of this world comes from our sensory experiences.

20
Q

How do empiricists believe we learn / discover?

A

Learning is based on observation and perception; we must experience things in order to learn / discover.

21
Q

How would an empiricist try to discover something?

A

With procedural observations and falsifiable tests.

22
Q

Name 2 kinds of economics that favour empiricism.

A
  1. Macroeconomics

2. Marshallian economics

23
Q

Other than economics, name another field in which empiricism is commonly used.

A

The natural sciences

24
Q

Why is the use of empiricism criticised in economics?

A

You cannot create ‘true’ experiments, so empirical economists rely on simplifying assumptions and retrospective analysis. This is thought to generate incorrect answers.

25
Q

Name the two building blocks of study in economics.

A
  1. Labour

2. Trade

26
Q

What is the key economic principle around labour?

A

It is more efficient for individuals / companies to specialise in specific types of labour and trade for their wants / needs, instead of trying to produce everything on their own

27
Q

What is the key economic principle around trade?

A

That it is most efficient when coordinated through a medium of exchange (money)

28
Q

What assumption are most economic models based on? Is this assumption true?

A

The assumption that humans act with rational behaviour.

This is not true; humans are unpredictable and inconsistent.

29
Q

What would rational behaviour lead to?

A

The optimal level of benefit or utility.

30
Q

Economic principles are not suited to empirical testing because humans act with rational behaviour. True or false?

A

False - economic principles are not suited to empirical testing because humans are unpredictable and inconsistent.

31
Q

What is human behaviour based on?

A

Subjective personal values.

32
Q

Are economic models obtainable in real life? Why, why not?

A

No, because they assume that humans behave rationally and this is rarely ever true.

33
Q

Are economic models useful?

A

Yes - even though they are not obtainable in real life, they provide key insight into human behaviour.

34
Q

Why are many economic policies centred around incentives?

A

Because people act in their own self interest, so incentivising is a good way to mobilise people.

35
Q

What is the point of economic indicators?

A

To demonstrate a country’s performance in a particular area.

36
Q

Name 4 things that economic indicators can have an effect on when published. Why is this?

A
  1. Forex markets
  2. Stocks
  3. Fixed income
  4. Investment decisions

Because they show how well a country is doing / whether a country is a safe investment or not.

37
Q

What does GDP stand for?

A

Gross Domestic Product

38
Q

Define GDP.

A

The total market value of all finished goods / services produced in a country in a given year.

39
Q

GDP is considered to be a lagging indicator. What does this mean?

A

An indicator that confirms but cannot predict a trend.

Basically, by the time it is published it is already out of date.

40
Q

What are retail sales?

A

The total value of all merchandise sold in shops.

41
Q

Why are retail sales important?

A

They are a proxy for consumer spending.

42
Q

Consumer spending accounts for approximately 66% of a country’s GDP. Why are we interested in retail sales figures?

A

Because they indicate the general direction of the economy.

43
Q

Retail sales figures are considered a timely indicator. Why?

A

Because they are based on the previous month’s sales.

44
Q

What is capacity utilisation ratio?

A

The proportion of productive capacity being used in the economy (rather than standing idle)

45
Q

It is preferred for a country to see increasing values of productivity and capacity utilisation at all levels. True or false?

A

True

46
Q

Is capacity utilisation falls below 80%, it is considered ‘slack’. What does this indicate?

A

An increased likelihood of recession.

47
Q

If capacity utilisation is between 82-85%, it is considered ‘tight’. What does this indicate?

A

Increased likelihood of supply shortage and therefore inflation.

48
Q

What does employment data look at?

A

The proportion of employed vs. unemployed people in the economy.

49
Q

Generally, what do sharp increases in employment indicate?

A

Prosperous economic growth.

50
Q

Generally, what does increasing unemployment indicate?

A

Economic contraction.

51
Q

When looking at employment data, context is important. In a society that has suffered a recession, would rising employment be a good thing? Why, why not? What would happen to the currency?

A

Rising employment would be good as it would be a sign of economic recovery.

This could cause currency appreciation.

52
Q

When looking at employment data, context is important. In an overheated economy, would rising employment be a good thing? Why, why not? What would happen to the currency?

A

Rising employment could be a bad thing, as increased disposable income of workers could lead to increased demand and therefore inflation.

This could cause currency depreciation.

53
Q

Define currency appreciation.

A

An increase in the value of a currency compared to other countries.

54
Q

Define currency depreciation.

A

A decrease in the value of a currency compared to other countries.

55
Q

What does CPI stand for?

A

Consumer Price Index

56
Q

Define CPI.

A

A measure of the costs that consumers pay for things.

57
Q

What is CPI used as?

A

A benchmark for inflation.

58
Q

Define a basket of goods.

A

A fixed set of consumers goods / services whose price is evaluated on a regular basis which is used to track inflation.

59
Q

CPI is one of the most important economic indicators. Name 3 things its release can affect.

A
  1. Forex markets
  2. Fixed income
  3. Equity volatility
60
Q

Greater than expected increases in CPI are a sign of inflation. What effect might this have on the currency?

A

It will decrease in value compared to other countries.