key terms

Question 1

Aggregate demand curve

Answer 1

relationship between AD and price level

Question 2

Appreciation

Answer 2

rise in the exchange rate within a floating rate system

Question 3

automatic stabilisers

Answer 3

government expenditure and revenue vary with the economic cycle
helping to stabilise the economy with no direct intervention

Question 4

average propensity to consume

Answer 4

proportion of income households devote the consumer expenditure

Question 5

bank rate

Answer 5

the intrest rate set by the MPC in order to influence inflation.

Question 6

capital account

Answer 6

transactions in physical capital between countries

Question 7

circular flow

Answer 7

a model that shows the movement of g/s between households and firms

Question 8

consumption function

Answer 8

relationship between consumer expenditure and disposable income

Question 9

CPIH

Answer 9

CPI that accounts for housing costs

Question 10

crowding in

Answer 10

process by which decrease in govt expenditure crowds in the private sectors by lowering the cost of borrowing

Question 11

crowding out

Answer 11

process by which an increase in govt expenditure crowds out the private sector by raising the cost of borrowing

Question 12

cyclical deficit

Answer 12

government budget deficit occurring in downturn of business cycle

Question 13

devaluation

Answer 13

govt reduced price of its currency relative to agreed rate of another country

Question 14

direct tax

Answer 14

tax levied on income

Question 15

government capital expenditure

Answer 15

govt spending on capital projects

Question 16

government current expenditure

Answer 16

govt spending on g/s

Question 17

indirect tax

Answer 17

expenditure

Question 18

interventionist supply side policy

Answer 18

govt intervenes to stimulate AS

Question 19

liquify trap

Answer 19

when interest rates can fall no further and monetary policy connot influence AD

Question 20

Market bases supply side policies

Answer 20

rely on markets working more freely
provide incentive for enterprise

Question 21

money as medium of exchange

Answer 21

enables transactions to take place

Question 22

money as standard of deferred payment

Answer 22

payment at future date to be agreed

Question 23

money as store of value

Answer 23

enables it to be used in future transactions

Question 24

money as unit of account

Answer 24

allows value of g/s to be compared

Question 25

output gap

Answer 25

difference between actual output and potential output

Question 26

progressive tax

Answer 26

rises with income

Question 27

proportional tax

Answer 27

proportional to income

Question 28

stagflation

Answer 28

where both unemployment and inflation are high at the same time

Question 29

trade off

Answer 29

gain in one item results in loss of another item