Definitions Flashcards
Define infrastructure.
Refers to roads, bridges, highways and railways including communication systems which support the effective operation of society and the economy.
What is market failure?
Occurs when prices in the market are no longer determined by the forces of demand and supply and resources are misallocated.
What does macroeconomic study?
How the economy as a whole functions along with factors which affect the economy.
Define economic growth.
An increase in the value of total goods and services produced in an economy over time.
What is the trade cycle?
Represents the regular fluctuations an economy goes through, consisting of four stages: recovery, boom, recession, and slump.
Define inflation.
A sustained increase in the general prices in an economy as the value of money declines.
What is demand-pull inflation?
Occurs when the demand for goods and services exceeds an economy’s ability to supply these goods and services.
What is cost-push inflation?
Occurs when firms have to pay increasing prices for labor and raw materials for production.
Define recession.
Associated with falling demand, output, and unemployment over a period of at least 6 months.
What is a slump?
Occurs after recession, when production and employment are at their lowest and many businesses are failing.
What does unemployment refer to?
The portion of people wanting and seeking a job, but not currently working.
Define structural unemployment.
Occurs due to fundamental changes in the economy, particularly as industries are dying and particular labor skills are no longer needed.
What is cyclical unemployment?
Caused by fluctuations in the trade cycle, e.g., unemployment is high during recession.
Define frictional unemployment.
Refers to when people are temporarily out of work as they have left their previous jobs and are yet to find a new one.
What is monetary policy?
Regulates the amount of money supply and interest rate of an economy.
Define fiscal policy.
Uses taxing and expenditure to achieve a desired level of economic activity.
What is a direct tax?
A form of taxation imposed on income and wealth, e.g., income tax.
Define indirect tax.
A form of taxation imposed on spending.
What are supply-side policies?
A range of measures which promote the effective operation of the free market and therefore increase the total output supplied or produced by an economy.
What is an exchange rate?
The price of a country’s currency in terms of the price of another currency.
