Macroeconomic terms

Question 1

Actual output

Answer 1

level of output produced in the economy in a particular year - not to be confused with the trend level of output, which is what the economy is capable of producing when working at full capacity.

Question 2

GDP

Answer 2

The sum of all goods and services, or level of output, produced in the economy over a period of time e.g. one year.

Question 3

Real GDP

Answer 3

A measure of all the goods and services produced in an economy, adjusted for inflation.

Question 4

Nominal GDP

Answer 4

GDP measures the current market prices, without removing the effects of inflation.

Question 5

Economic cycle

Answer 5

Upswing and downswing in aggregate economic activity taking place over 4 to 12 years.

Question 6

Negative output gap

Answer 6

the level of actual real output in the economy is lower than the trend output level.

Question 7

Positive output gap

Answer 7

The level of actual real output in the economy is greater than the trend output level.

Question 8

Recession

Answer 8

in the UK and Many other countries, a recession is defined as six months or more of negative economic growth or declining real national output.

Question 9

Saving

Answer 9

Income which is not spent

Question 10

Inflation

Answer 10

the persistent or continuing rise in the average price level.

Question 11

Trend growth rate

Answer 11

the rate at which output can grow, on a sustained basis, without putting upward or downward pressure on inflation. It reflects the annual average percentage increase in the productive capacity of the economy.

Question 12

Short-run economic growth

Answer 12

growth of real output resulting from using idle resources, including labour, thereby taking up the slack in the economy.

Question 13

Long run economic growth

Answer 13

an increase in the economy’s potential level of real output (capacity), and an outward movement of the economy’s production possibility frontier.

Question 14

Investment

Answer 14

total planned spending by firms on capital goods produced within the economy.

Question 15

Consumption

Answer 15

total planned spending by households on consumer goods and services produced within the economy.

Question 16

Index number

Answer 16

A number used in an index (e.g. the consumer price index) to enable accurate comparisons over time to be made.

Question 17

Injection

Answer 17

spending entering the circular flow of income as a result of investment, government spending and exports.

Question 18

Withdrawal

Answer 18

A leakage of spending power out of the circular flow of income into savings, taxation or imports.

Question 19

Output gaps

Answer 19

They show the level of actual real output in the economy either higher or lower than the trend output level.

Question 20

Keynesian economists

Answer 20

Followers of the economist John Maynard Keynes, who generally believe that governments should manage the economy, particularly through the use of fiscal policy.