Macro Definitons

Question 1

Accelerator effect

Answer 1

Where planned capital investment is linked positively to the past and expected growth
of consumer demand or national income

Question 2

Aggregate supply

shock

Answer 2

Either an inflation shock or a shock to potential national output; adverse aggregate
supply shocks of both types reduce output and can increase the rate of inflation

Question 3

Austerity

Answer 3

Economic policy aimed at reducing a government’s deficit (or borrowing). Austerity can
be achieved through increases in government revenues - primarily via tax rises - and/or
a reduction in government spending or future spending commitments.

Question 4

Budget deficit

Answer 4

Occurs when government spending is greater than tax revenues. Reducing the deficit
can be achieved by tax increases or cuts in government spending or a period of
economic growth which brings about a rise in direct and indirect tax revenues

Question 5

Claimant Count

Answer 5

The number of people claiming unemployment-related benefits

Question 6

Classical LRAS

Answer 6

The classical LRAS curve is drawn as vertical because classical economists argue that a country’s productive capacity is determined by factors other than price and demand
such as investment and innovation

Question 7

Consumer

confidence

Answer 7

Expectations about the future including interest rates, incomes and jobs

Question 8

Consumer price

index

Answer 8

The consumer price index (CPI) is the government’s preferred measure of inflation

Question 9

Cost push inflation

Answer 9

An increase in the price level caused by a sustained increase in firms’ costs of
production

Question 10

Current account

Answer 10

The overall balance of credits minus debits for trade in goods, trade in services,
investment income and transfers

Question 11

Cyclical

unemployment

Answer 11

Unemployment caused by a lack of aggregate demand for goods and services, where
national output < potential output leading to a negative output gap

Question 12

Deflation

Answer 12

A persistent fall in the general price level of goods and services

Question 13

Depression

Answer 13

Used to describe a severe recession which may become a prolonged downturn in the
economy and where a nation’s GDP falls by at least 10 per cent

Question 14

Discouraged

workers

Answer 14

People often out of work for a long time who give up on job search

Question 15

Economic cycle

Answer 15

Variations in the annual rate of growth of an economy over time

Question 16

Economic growth

Answer 16

An increase in the real value of goods and services produced in a country or area as
measured by the annual % change in real national output. Also a long-run increase in a
country’s productive capacity

Question 17

Economic shocks

Answer 17

Unpredictable events such as volatile prices for oil, gas and foodstuffs

Question 18

Economic stability

Answer 18

When indicators such as growth, prices and unemployment do not change much from
one year to another

Question 19

Exchange rate

Answer 19

The rate at which one currency can be exchanged for another.

Question 20

Expansionary

monetary policy

Answer 20

A relaxation of monetary policy means an attempt to use an expansionary monetary
policy to boost aggregate demand, output and jobs – includes lower interest rates

Question 21

Fiscal deficit

Answer 21

This happen when government expenditure is higher than the revenue from tax
receipts in a particular year

Question 22

Fiscal policy

Answer 22

A government’s policy regarding taxation and public spending. It can be loose (with the
emphasis on increased spending and lower tax revenue to boost economic activity,
with the acceptance of a wider fiscal deficit) or tight (with the emphasis on cutting
spending and boosting tax revenue, resulting in a slower economy

Question 23

Full employment

Answer 23

When there enough job vacancies for all the unemployed to take work

Question 24

Gross Domestic

Product per capita

Answer 24

National income per head of population, a baseline measure of living standards

Question 25

Immobility of labour

Answer 25

Barriers to the movement of people between areas and between jobs

Question 26

Inflation

Answer 26

A sustained increase in the general price level for goods and services

Question 27

Inflation target

Answer 27

The Bank of England has a CPI inflation target, which is currently 2 per cent

Question 28

Inflationary

pressures

Answer 28

Demand and supply-side pressures that can cause a rise in the general price level.
Demand-pull inflationary pressure is greatest when actual GDP exceeds potential GDP
causing a positive output gap. Cost-push inflationary pressure can arise from increases
in unit wage costs, rising import prices and an increase in the prices of raw materials,
fuel and components used in production

Question 29

Investment

Answer 29

Spending on capital goods including plant & machinery and infrastructure

Question 30

Macroeconomic

performance

Answer 30

Macroeconomic

performance

Question 31

Marginal propensity

to consume

Answer 31

The proportion of any change in income that is spent rather than saved

Question 32

Marginal propensity

to save

Answer 32

The change in total saving as a result of a change in income

Question 33

Multiplier effect

Answer 33

If there is an initial injection (e.g. a rise in exports) into the economy then the final
increase in aggregate demand and real GDP will be greater.

Question 34

Output gap

Answer 34

Difference between actual and potential national output. A negative output gap means
that an economy has a large margin of spare productive capacity

Question 35

Price stability

Answer 35

Price stability occurs when there is low inflation and the price changes that do occur
have little impact on day-to-day decisions of people

Question 36

Productivity

Answer 36

A measure of efficiency e.g. output per person employed or output per person-hour

Question 37

Propensity to save

Answer 37

Proportion of any change in income that is saved rather than spent

Question 38

Real disposable

income

Answer 38

Income after taxes and welfare benefits, adjusted for the effects of inflation

Question 39

Real income

Answer 39

Nominal income adjusted for price changes, expressed at constant prices

Question 40

Recession

Answer 40

A period of at least six months when an economy suffers a fall in output. Or a broadlybased contraction in output, employment, investment and confidence

Question 41

Recovery

Answer 41

A phase of the economic cycle, after a recession/depression, during which real GDP
starts to increase and unemployment begins to fall

Question 42

Retail Price Index

RPI

Answer 42

The RPI is broadly similar to the CPI but includes mortgage repayments and some taxes,
and excludes the top 4 per cent of earners. It is used to calculate annual changes in
wages, state benefits and pensions

Question 43

Saving ratio

Answer 43

The percentage of disposable income that is saved rather than spent

Question 44

Structural

unemployment

Answer 44

Unemployment that results from the decline in a particular industry which leaves
people unemployed because they do not have the skills needed by the industries that
are growing

Question 45

Under-employment

Answer 45

Workers are underemployed when they are willing to supply more hours of work than
their employers are prepared to offer.