Test 1 Term 3

Define “macroeconomics”

It is the branch of economics that deals with the economic problem from society’s point of view

Outline the difference between macroeconomics and microeconomics

Macroeconomics looks at the economy as a whole, including unemployment, economic growth, GDP and inflation. Microeconomics focuses on decisions made by individuals and businesses.

Define microeconomics

Microeconomics deals with the economic problem from a micro point of view.

Outline the “economic equality principle”

It is a conclusion generally held by economists that "one man's spending is another man's income".

Explain the “economic equality principle”

This means the value of output produced by firms must equal the income paid to resource owners, which in turn equals household spending on that output.

What is the equation for the Economic equality principle 

∑O = ∑Y = ∑E 

 

Where: 

• ∑ means "sum of" 

• O means Output 

• Y means Income 

• E means Expenditure 

When is the economy in disequilibrium?

when output and expenditure are not equal, as in: 

 

∑O ≠ ∑E 

what does it mean when the economy is in disequilibrium?

That we are consuming either more or less than we are producing. Firms will respond to this by either increasing or decreasing their production until macroeconomic equilibrium is once again reached. 

Define “the household sector”

it is all the consumers in the economy.

Define consumers:

Individuals or groups who are the final users of goods and services.

Define “the business sector”

It is the total of all producers in the economy.

Define producers

Individuals and businesses involved in the production of goods and services.

Explain the link between the household sector and the business sector

They are reliant on each other as producers use labour to produce goods and services, consumers provide the labour. 

Distinguish between factor markets and product markets

Factor market - where one of the factors of production (land, labor, capital, entrepreneurship) are exchanged for money 

 

Product market - where a good or service is exchanged for money

Define “the financial sector” and outline why it is important to the economy