Deck 2 (D-F)

Question 1

Deflation

Answer 1

A situation in which the average level of prices is falling - this is negative inflation

Question 2

Demand-deficient unemployment

Answer 2

Unemployment that arises because of a lack of aggregate demand in the economy, so that the equilibrium level of output is below full employment

Question 3

Demand-pull inflation

Answer 3

Inflation initiated by an increase in aggregate demand

Question 4

Depreciation

Answer 4

Currency - a fall in the exchange rate system

Capital equipment - fall in value of physical capital equipment over time as it is subject to wear and tear

Question 5

Devaluation

Answer 5

Process whereby a government reduces the price of its currency relative to an agreed rate in terms of foreign currency

Question 6

Discouraged workers

Answer 6

People who have been unable to find employment and who are no longer looking for work

Question 7

Disposable income

Answer 7

Income that households have to devote to consumption and saving, after taxes have been paid and state benefits added

Question 8

Economically inactive

Answer 8

People of working age who are not looking for work

Question 9

Effective exchange rate

Answer 9

The exchange rate for a country relative to a weighted average of currencies of its trading partners

Question 10

Exchange rate

Answer 10

The price of one currency in terms of another currency

Question 11

Exchange Rate Mechanism (ERM)

Answer 11

A system that was set-up by a group of European countries in 1979 with the objective of keeping member countries’ currencies stable against each other

Question 12

Financial account of the balance of payments

Answer 12

Account identifying transactions in financial assets between the residents of a country and the rest of the world

Question 13

Fiscal policy

Answer 13

Decisions made by the government on its expenditure, taxation and borrowing

Question 14

Fixed exchange rate

Answer 14

A system in which the government of a country agrees to fix the value of its currency in terms of that of another country

Question 15

Flat-rate tax system

Answer 15

A system of income tax in which each taxpayer pays the same rate of tax on income

Question 16

Floating exchange rate

Answer 16

A system in which the exchange rate is permitted to find its own level in the market

Question 17

Foreign exchange reserves

Answer 17

Stocks of foreign currency and gold owned by the central bank of a country to enable it to meet any mismatch between the demand and supply of the country’s currency

Question 18

Frictional unemployment

Answer 18

Unemployment associated with people searching for work, they are between jobs

Question 19

Full employment

Answer 19

A situation where people who are economically active in the workforce and are willing and able to work (at going wage rates) are able to find employment

Question 20

Developed economy

Answer 20

An economy with a high level of income per head

Question 21

Developing economy

Answer 21

An economy with a low level of income per head

Question 22

Direct tax

Answer 22

A tax that is taken directly from a person or firm’s income and cannot be easily avoided

Question 23

Distribution of income

Answer 23

How income is shared out between households in a country

Question 24

Economic cycle

Answer 24

The tendency for economic activity to fluctuate outside its trend growth rate

Question 25

Economic growth

Answer 25

Short-run - an increase in real GDP

Long-run - an increase in an economy’s productive capacity

Question 26

Exports

Answer 26

Products and services sold overseas

Question 27

Fiscal drag

Answer 27

When people’s income is dragged into higher tax bands as a result of tax bands not being adjusted in line with inflation

Question 28

Free market mechanism

Answer 28

The system by which the market forces of demand and supply determine prices and the decisions made by consumers and firms