Definitions

Question 1

What is aggregate supply

What is aggregate demand

Answer 1

Everything created in an economy

Everything bought in an economy

Question 2

What does price level represent

Answer 2

Inflation

Question 3

What is a recession

Answer 3

A recession means a fall in the level of real national output (GDP), technically defined as two consecutive quarters of negative GDP growth. In a recession national output declines leading to a contraction in employment, incomes and profits.

Question 4

What did Keynes believe

Answer 4

that more money should be put into the economy to fix its problems.

Question 5

What did Hayek believe

Answer 5

the economy is ultimately dominated by people being ‘animals’ so believes people control the market.

Question 6

Name the aggregate demand equation

Answer 6

AD = C + I + G + (X - M)

AD → Aggregate demand
C → Consumption
I → Investment
G → Govt. Spending
X → Exports
M → Imports

Question 7

How is economic growth measured

Answer 7

as a percentage change in the Gross Domestic Product (GDP) or Gross National Income (GNI)

Question 8

What is GDP

Answer 8

GDP refers to the market value of all final goods and services produced in a country in a country in a given period.

Question 9

What is GNI

Answer 9

GNI measures the total value of national output inclusive of output produced abroad.

Question 10

What is GDP per capita

Answer 10

GDP per capita is often considered an indicator of a country’s standard of living.

Question 11

What is Economic growth

Answer 11

Economic growth is defined as the increase in the real value of goods and services produced as measured by the annual percentage change in real Gross Domestic Product (GDP).

Question 12

What is the economic cycle

Answer 12

An economic cycle is the overall state of the economy as it goes through four stages in a cyclical pattern. The four stages of the cycle are expansion, peak, contraction, and trough. Factors such as GDP, interest rates, total employment, and consumer spending, can help determine the current stage of the economic cycle.

Question 13

What is the Trend rate of growth

Answer 13

The trend rate of growth is the long run average rate for a country over a period of time. Measuring the trend requires a long-run series of data to identify the different stages of the economic cycle and then calculate average growth rates from peak to peak or trough to trough.

Question 14

What are output gaps

Answer 14

the amount by which the actual output of an economy falls short of its potential output.

Question 15

What is unemployment

Answer 15

the number or proportion of unemployed people.

Question 16

What is inflation

Answer 16

Inflation is the ongoing increase in the average level of prices across the economy over a period of time

Question 17

What are balance of payments

Answer 17

The balance of payments records a country’s financial transactions with the rest of the world. It comprises the current account which records trade in goods and services, together with income flows and the capital and financial account which records short and long term capital movements.

Question 18

What is GNP

Answer 18

Gross National Product (GNP) is a measure of the value of all goods and services produced by a country’s residents and businesses. It estimates the value of the final products and services manufactured by a country’s residents, regardless of the production location.

Question 19

What are real and nominal terms

Answer 19

In economics, the nominal values of something are its money values in different years. Real values adjust for differences in the price level in those years. Examples include a bundle of commodities, such as Gross Domestic Product, and income.

Question 20

What happens when there is a negative output gap

Answer 20

When there is a negative output gap the country is not working its maximum potential.

Question 21

What happens when there is a positive output gap

Answer 21

When there is a positive output gap the country is working to its full potential, with productivity increasing.

Question 22

What is The Short-Run Aggregate Supply Curve (SRAS)

Answer 22

The SRAS curve shows that as the price level increases and you move along the SRAS, the amount of real GDP that will be produced in an economy increases. An increase in the SRAS is shown as a shift to the right.

Question 23

What is The Long-Run Aggregate Supply Curve (LRAS)

Answer 23

a curve that shows the relationship between price level and real GDP that would be supplied if all prices, including nominal wages, were fully flexible; price can change along the LRAS, but output cannot because that output reflects the full employment output.

Question 24

What is The Long-Run Aggregate Supply Curve (LRAS)

Answer 24

a curve that shows the relationship between price level and real GDP that would be supplied if all prices, including nominal wages, were fully flexible; price can change along the LRAS, but output cannot because that output reflects the full employment output.

Question 25

How do we measure unemployment using the claimant count

Answer 25

The Claimant Count measure of unemployment includes those unemployed people who are eligible to claim the Job Seeker’s Allowance (JSA). The Claimant Count is a “head-count” of people claiming unemployment benefit.