Study for EEM midterm MCQ - NTU

How to calculate GDP deflator (formula)

GDP deflator = (Nominal GDP/ Real GDP) *100

What is the equation for GNDI ?

GNDI= GNI + Net current transfers from abroad (TRF)

GNDI = ... + ... ?

GNDI= GNI + TRF

GNI = ... + ... ?

GNI = GDP + YF

What is the equation for GNI ?

GNI= GDP + Net factor income from abroad (YF)

GFCF

Gross Fixed capital formation

I

Gross Investment

What is I and what is GFCF?

Gross Investment (I) or Gross Fixed Capital Formation (GFCF) is the increase in physical

GNI

Gross National Income

S

Gross National Savings

GNDI

Gross national disposable income

Q

Gross output

What is important to keep in mind about macroeconomic aggregates?

It's not a simple addition, must look at value added, beware of fallacy of composition

What is trend/potential output?

Its the level of output where there is a normal degree of slack and a stable inflation rate

What are the four key sectors and their accounts?

MERF • Monetary Sector (Monetary Accounts) • External Sector (Balance of Payments Accounts) • Real Sector (National Income and Expenditure Accounts) • Fiscal Sectors (Government Financial Statistics)

Drivers of business and investments prospects

Macro factors and shocks

What pressures can monetary financing create?

Monetary financing can create inflation pressures.

What is the level associated with stable rate of inflation?

NAIRU which is the unemployment level associated with a stable rate of inflation.

NX=...-....?

NX=X-M

What does M1 include and what does it stand for?

Narrow money (M1) is defined as currency in circulation outside depository corporations plus demand/transferrable deposits.

NX

Net Exports

What is the formula for net exports?

Net Exports (NX): X-M

What can be seen as foreign surveys

This gap between an economy's savings and investment (its current account balance) can be thus be viewed as a country's use of "foreign savings".

How to define GDP

Thus we define Gross Domestic Product (GDP) as the sum of VA across all domestic (resident) sectors of the economy over a given period (typically a quarter or year) (and we would also add any taxes and subtract any subsidies on products not included in the value of their outputs).

What is another name for net factor income from abroad?

To get a measure of Gross National Income (GNI) or Gross National Product (GNP) we simply add net factor income from abroad (also known as net primary income).

What is the trade balance?

Trade balance is simply the difference between exports and imports of goods.

What are financial transactions?

Transactions can also involve international financial flows which we call financial transactions.

VA=...-... ?

VA= Q-C

VA

Value added

Name of the mistake of generalising concepts of individuals to the whole economy

fallacy of composition

Current account four main categories?

goods, services, income and current transfers

Name of the period since mid 1980's

indeed the period since the mid-1980s has become known as the "Great Moderation"

How is output gap defined

its defined at the deviation of actual output from potential output expressed as a percentage of potential output.

The money multiplier (m) is defined as the ratio of the money stock (or broad money) to reserve money: Translate this as an equation

m = BM/RM

What is Okun's Law

short-run relationship between unemployment and GDP (output or the output gap) which is called Okun's Law.

The difference between the total revenue and expenditure is also known as...?

the net lending/net borrowing balance.

Macroeconomics

using microeconomics assumptions, study the whole economy, by focusing on relationships between economy-wide output, expenditure, income, prices, employment and government policies.

What is the optimum employment level of an economy?

Full employment is broadly defined as the optimum employment level of an economy

What is the formula of GDP expenditure approach with NX, Cp and Ip and G?

GDP (at market prices) = Cp + Ip + G + NX

Net Domestic product = ... - .... ?

GDP - depreciation

equation expenditure approach of gdp

GDP = A + NX

C

Consumption

equation income approach of gdp

GDP = compensation of employees + gross operating surplus of enterprises + (taxes-subsidies on products)

A=...+...?

A=C+I

A

Absorption

What is formula for absorption?

Absorption (A): A= C+I (also called aggregate domestic demand)

Equation production approach of GDP

GDP = sum of VA across all sectors + (taxes-subsidies on products)

GDP = sum of ?

GDP = sum of VA through all quarters

What includes consumption of the government and private sectors?

Final Consumption (C) includes consumption of the government and private sectors (i.e., households and NPISHs).

Coverage: fiscal statistics at their broadest cover the consolidated public sector which includes?

- general government - non-financial public enterprises - quasi-fiscal operations

Microeconomics (2 bullet points)

- how individual consumers and producers interact - how their behaviors and decisions in markets determine demand, supply and prices

The various fiscal balances are flow concepts and include:

1. fiscal balance or net lending/borrowing requirement 2. current fiscal balance or net operation balance 3. primary balance or primary net lending/borrowing balance 4. Cyclically adjusted balance or structural balance 5. The fiscal impulse

Metric for reserve adequacy should cover how long?

3 months of imports of goods and services (this could be forward looking).

Explain the link between these words P.2 Factors of production Household Firms Consumers Income

Answer: Households are consumers. Households are also owners of factors of production. Firms use factors of production to generate income for households.

Explain the link between these words P.2 Economy Public sector Households Others (NGO & charities) Institutional framework Policies, demographics and geographic endowments.

Answer: The economy is the interaction between the public sector, households and others (NGO & charities) within the Institutional framework and its policies, demographics and geographic endowments.

What statistics are usually reported?

At a minimum, statistics for the central government (which formulates the national budget) are usually reported.

What the balance sheet equation of the Monetary Survey or Depository Corporations Survey ?

BM or M2 = NFA + NDA = NFA + NDC + OIN

How can a governement borrow other than domestic borrow and monetary financing?

Borrowing from the nonbank private sector

What does M2 include ? And what does it stand for?

Broad Money (M2) includes all the liabilities of depository corporations (in the DCS).

What are the variations around the trend/potential output?

Business cycles

What is the equation with international reserves in it?

CAB + FI - ΔRES = 0

What is the current account balance equation?

CAB = (X-M) + YF +TRF

What formula do we get for CAB with domestic absorption (A=C+I) and what approach is this

CAB = GNDI - A absorption approach to the balance of payments

CAB = ... + ... + ... also CAB = .... - ....

CAB = NX + YF + TRF and CAB = S-I

What equation do we get using through the important relationship between the current account balance (CAB) and the saving-investment balance?

CAB = S - I = foreign savings

CAB

Current account balance

What are in the capital and financial accounts?

Direct investments, Portfolio investments, Other investments, Reserve assets

What can domestic borrowing by the governement do ?

Domestic borrowing by the government can "crowd out" private sector spending.

What principle of account does BOP use ?

Double-entry accounting: Most transactions have two sides and each side in entered in the BOP accounts.

What are the formulas for expenditure approach of GDP ?

Expenditure Approach: GDP (at market prices) = C + I + (X-M) = A + (X-M)

X

Exports

What is the other name for external transaction ?

External transactions is the trade in goods and services or real transactions.

What are the 5 important actors in economics?

FNHEG (Finance sector, Non-profit inst., households, enterprises, Gov)

M

Imports

What is inflation ?

Inflation is usually defined as a sustained andpersistent increase in the overall price level.

TRF

Net current transfers from abroad

YF

Net factor income abroad

Net investment= ...-... ?

Net investment = I - depreciation

What is Real GDP?

Real GDP refers to the volumes of output compared across years but valued at unchanged prices of some reference year.

What other commonly applied measure is used in reserve buffers?

Reserves can also help buffer against shocks to the capital and financial account (say a sudden reversal of capital flows). So another commonly applied measure is the reserve coverage of short-term external debt (debt with original or remaining maturity of one year or less).

Between whom are the transactions of BOP?

Residency: BOP transactions relate to transactions between resident and nonresidents

What is the formula for gross national savings?

S = GNDI - C

S= .. - ..?

S=GNDI-C

How is called the language of accounting in macroeconomics

SNA (System National Account)

What is GDP at current prices?

So far we have discussed what we call nominal GDP which is GDP during a particular year valued at current market prices during that year.

When is a CAD not sustainable?

The CAD is not sustainable if the country lacks the means to finance it either now or in the future.

What is the Philips curve

The empirical relationship between the unemployment rate (or the output gap) and inflation over the course of the business cycle is called the short-run Phillips curve.

What is the fiscal balance?

The fiscal balance is the difference between total revenue and total expenditure of a governement

how to calculate unemployment rate

The labour force is defined as those of working age (which is usually above 16) who are either working or looking for work. The unemployed are those looking for work but not currently working; and the unemployment rate = unemployed/labour force.

What are the main functions of a central bank ?

The main functions of a central bank include issuance of currency, holding foreign reserves, acting as the banker for the government, and the conduct of monetary policy.

What is the BOP equal to? hint CAB

The overall balance of payments equals the CAB plus all capital and financial transactions: CAB + net capital inflows excl. monetary authorities (FI) = ΔRES

What period of gap growth cycle was most studied?

The roughly 50 to 60 year type of long-cycle has been extensively studied and labeled various things including the Kondratieff wave, long cycle, and secular trend.

Change in BOP entail changes in net international reserves.

Δ NFA = - Δ RES