Key Definitions

Question 1

GDP

Answer 1

monetary value of final goods and services produced in an economy, over a given time

Question 2

recession

Answer 2

two consecutive quarters of negative economic growth

Question 3

unemployment

Answer 3

where people are available and willing to work but cannot find a job

Question 4

underemployment

Answer 4

where people have a job but cannot work more hours, despite wanting to

Question 5

inflation

Answer 5

ongoing increase in average level of prices across the economy, over a period fo time

Question 6

deficit

Answer 6

where a country is importing more goods than they are exporting

Question 7

surplus

Answer 7

where a country is exporting more goods than they are receiving imports

Question 8

national income

Answer 8

measures the monetary value of the flow of output of goods and services produced in an economy over time

Question 9

income

Answer 9

a flow concept - earned over time from employment or income generated from wealth

Question 10

wealth

Answer 10

a stock concept - value of assets at a given point in time that you have accumulated from investing past income into assets

Question 11

aggregate demand

Answer 11

total planned real expenditure on a country’s goods and services produced within an economy, over a given period of time

Question 12

consumption

Answer 12

total money spent on final goods and services by individuals and households

Question 13

disposable income

Answer 13

amount of income left over after taxes have been removed and is what consumers can choose to spend

Question 14

consumption function

Answer 14

number of factors which determine how much a household consumes

Question 15

marginal propensity to consume

Answer 15

measures how much more individuals will spend for every additional unit of income, as opposed to being saved
change in consumption / change in income

Question 16

average propensity to consume

Answer 16

measures the average amount spend on consumption out of total income
consumption / income

Question 17

Paradox of thrift

Answer 17

households might save more of their income due to uncertainty, which then depresses AD for goods and services which has negative effect on output, jobs and investment

Question 18

The Saving Function

Answer 18

factors which affect consumption, which also affects saving

Question 19

average propensity to save

Answer 19

proportion of income that is saved rather than spent on current goods and services
saving / income

Question 20

marginal propensity to save

Answer 20

proportion of each additional £ of household income that is used for saving
change in saving / change in income

Question 21

investment

Answer 21

addition to the capital stock of the economy

Question 22

gross investment

Answer 22

amount a firm invests in business assets that does not account for depreciation (before)

Question 23

depreciation

Answer 23

loss of value (e.g. cars)

Question 24

net investment

Answer 24

actual addition to capital stock of an economy after depreciation

Question 25

Accelerator Theory

Answer 25

when faced with excess demand, firms typically choose to increase investment to increase their capacity to supply

Question 26

budget fiscal deficit

Answer 26

gov spending > tax revenue

Question 27

cyclical fiscal deficit

Answer 27

size of the deficit is influenced by the state of the economy

Question 28

structural fiscal deficit

Answer 28

part of deficit that is not related to the state of the economy and does not disappear when the economy recovers

Question 29

direct taxation

Answer 29

taxes on income, profit and wealth paid directly by the bearer

Question 30

indirect taxation

Answer 30

taxes on expenditure, paid by the suppliers of the goods, not the consumers

Question 31

national debt

Answer 31

total amount owned by the government which has accumulated over the years

Question 32

Macroeconomic policy

Answer 32

intended to help achieve economic growth and support government objectives

Question 33

fiscal policy

Answer 33

any policy relating to government spending, tax or borrowing

Question 34

monetary policy

Answer 34

any policy relating to interest rates, money supply and managing exchange rates

Question 35

supply side policy

Answer 35

any policy intended to increase productive potential of the economy

Question 36

discretionary fiscal policy

Answer 36

a policy which is implemented through one-off policy changes

Question 37

automatic stabilisers

Answer 37

policies which offset fluctuations in the economy, triggered without gov intervention

Question 38

expansionary fiscal policy

Answer 38

used during times of economical decline by increasing size of budget deficit

Question 39

contractionary fiscal policy

Answer 39

used during periods of economic growth which reduces the size of the budget deficit

Question 40

progressive tax

Answer 40

a tax that takes a higher proportion of income as income rises, e.g. income tax

Question 41

regressive tax

Answer 41

a tax that takes a higher proportion of income as income falls, e.g. council tax

Question 42

proportional tax

Answer 42

a tax that takes some proportion