Economics Unit 2

Question 1

Aggregate demand

Answer 1

Total demand in the economy made up of consumption, investment, government expenditure and net exports. Known by the identity: C+I+G+(X-M) = AD

Question 2

Aggregate Supply

Answer 2

The total value of goods and services supplied in the economy.

Question 3

Imports

Answer 3

Goods or services purchased from abroad.

Question 4

Economic Growth

Answer 4

The capacity of the economy to produce more goods and services over time.

Question 5

Gross Domestic Product

Answer 5

The total value of goods and services produced in the economy.

Question 6

Negative Output Gap

Answer 6

Where the economy is producing less than its trend output.

Question 7

Positive Output Gap

Answer 7

When actual GDP exceeds trend GDP increasing inflationary pressure.

Question 8

Trade-off

Answer 8

Where one macroeconomic objective has to be curtailed in favour of another objective.

Question 9

Unemployment

Answer 9

Those without a job but who are seeking work at current wage rates.

Question 10

Exports

Answer 10

Goods or services sold abroad.

Question 11

Employment

Answer 11

Where labour is actively engaged in a productive activity usually in exchange for payments such as wages.

Question 12

Exporting

Answer 12

The sale of goods or services to a foreign country, generates income for the home country.

Question 13

Importing

Answer 13

The purchase of goods and services from abroad, leads to expenditure for the home country.

Question 14

Economic indicators

Answer 14

Economic statistics that provide information about the expansions and contractions of business cycles.

Question 15

Nominal GDP

Answer 15

GDP/income/output figures not adjusted for inflation.

Question 16

Real GDP

Answer 16

GDP/income/output figures adjusted for inflation

Question 17

GDP per capita

Answer 17

GDP divided by the population, a measure of living standards.

Question 18

Weighting

Answer 18

Where a commodity is given a weighting proportional to its importance in the general pattern of consumer spending

Question 19

Index numbers

Answer 19

A weighted average of a group of items compared to a given base value of 100.

Question 20

Economic models

Answer 20

These are used to show the essential characteristics of complicated economic conditions in order to analyse them and predict the result of changes of variables.

Question 21

Recession

Answer 21

When an economy is growing at less than its long-term trend rate of growth.

Question 22

Balance of Payments

Answer 22

Exports minus imports - a deficit means more is imported than exported

Question 23

Flow

Answer 23

Measured over a specified period of time

Question 24

Stock

Answer 24

A quantity measured at a particular point in time

Question 25

Injections

Answer 25

Money that originates outside the circular flow and so will increase national income/output/expenditure

Question 26

Withdrawals

Answer 26

Any money not passed on in the circular flow and has the effect of reducing national income/output/expenditure

Question 27

Investment

Answer 27

Spending by firms on buildings, machinery and improving the skills of the labour force

Question 28

Savings

Answer 28

A withdrawal from the circular flow

Question 29

Income Induced

Answer 29

Will increase as income increases and decrease as income decreases

Question 30

Multiplier Effect

Answer 30

Where an increase or decrease in spending leads to a larger than proportionate change in the national income

Question 31

Net Government Spending

Answer 31

The difference between the government spending and taxation

Question 32

Fiscal Policy

Answer 32

The policy of the government regarding taxation and government expenditure

Question 33

Positive Expectations

Answer 33

Businesses expect the future sales and profits to improve due to factors like increased aggregate demand

Question 34

Negative Expectations

Answer 34

Businesses expect future sales and profits to be less due to factors like falling aggregate demand

Question 35

Accelerator Effect

Answer 35

The relation between the change in new investment and the rate of change of national income

Question 36

Privatisation

Answer 36

Sale of government-owned assets to the private sector

Question 37

Classical View

Answer 37

Economists who believed that recessions and slumps would cure themselves

Question 38

Long-run Aggregate Supply

Answer 38

The economy's productive capacity

Question 39

Natural rate of Unemployment

Answer 39

The rate of unemployment that is consistent with a stable rate of inflation

Question 40

Productivity

Answer 40

A measure of efficiency, measuring the ratio of inputs to outputs; the most common measure is labour productivity, which is the output per worker

Question 41

Monetary Policy Committee

Answer 41

A committee of economists/ central bankers who meet monthly and decide whether or not to change the rate of interest

Question 42

Supply-Side Shock

Answer 42

Something that will increase or reduce the costs, hence supply-side of all firms in the economy, e.g. a large increase in the price of oil

Question 43

Boom/Bust Policy

Answer 43

The government using macroeconomic tools to stimulate and then contract the economy

Question 44

Total Factor Productivity

Answer 44

The overall productivity of inputs used by a firm in producing a particular level of output

Question 45

Deflation

Answer 45

A situation where prices persistently fall

Question 46

Credit Crunch

Answer 46

Where borrowing becomes more expensive or unavailable

Question 47

Participation rates

Answer 47

Proportion of the country's population that makes up the country's labour force

Question 48

Demand Pull Inflation

Answer 48

Where aggregate demand exceeds aggregate supply leading to an increase in the level of prices

Question 49

Cost Push Inflation

Answer 49

Where increased costs of production result in firms increasing their prices leading to an increase in the general price level

Question 50

Tight Labour Market

Answer 50

Where firms have to increase wages to attract the labour that they require

Question 51

Cyclical Unemployment

Answer 51

Demand deficient unemployment that occurs as a result of the economic cycle

Question 52

Demand deficient Unemployment

Answer 52

Insufficient aggregate demand in the economy to employ the available labour