Definitions

Question 1

Monetary Policy

Answer 1

The manipulation of interest rates, exchange rates and the money supply to influence economic activity. Monetary policy is either expansionary (increase AD) or contractionary (decrease AD).

Question 2

Fiscal Policy

Answer 2

The manipulation of government spending, taxing and the budget balance to influence economic activity. The 3 main targets of fiscal policy are to keep inflation at a 2% target, to stabilise the economic cycle (minimising peaks and troughs) and to stimulate economic growth.

Question 3

Unemployment

Answer 3

When someone is willing and available to work but cant get a job despite active search. There are 4 types of unemployment, cyclical, structural, seasonal and frictional.

Question 4

Supply Side Policies

Answer 4

Government Policies that aim to improve productivity and the long run productive potential of an economy. This would shift the aggregate supply curve to the right.

Question 5

Budget Balance

Answer 5

The difference between government spending and government tax receipts. The budget balance can either be in surplus (tax>spending) or deficit (spending>tax)

Question 6

Inflation

Answer 6

An increase in the general price level from one year to the next. It is the fall in the value of money.

Question 7

Demand Pull Inflation

Answer 7

Inflation due to too much demand and not enough supply. Can be described as too much money chasing too few goods

Question 8

Cost Push Inflation

Answer 8

When costs of productions increase so firms supply less. A decrease in supply with demand remaining the same will result in an increase in price.

Question 9

Aggregate Demand

Answer 9

Total spending in the economy. AD is calculated by consumer spending + business spending + government spending + (exports - imports).

Question 10

What is the y-axis on the economic cycle.

Answer 10

Output or Spending or Income or Employment or GDP.

Question 11

Real Economic Growth

Answer 11

Nominal economic growth - inflation rate. Nominal economic growth is the percentage increase in GDP from one year to the next.

Question 12

Multiplier Effect

Answer 12

When a change in one component of initial AD leads to a multiplied final change in the equilibrium level of GDP

Question 13

Accelerator Effect

Answer 13

When an increase in GDP results in a rise in investment