Macroeconomics Bookely Three

Question 1

Anticipated inflation

Answer 1

Inflation which economics agents are expecting and for which they have planned

Question 2

Automatic stabiliser

Answer 2

When a change in one variable automatically leads to an opposing change in another

Question 3

Balanced budget

Answer 3

A situation where the government’s spending for a given period equals its receipts

Question 4

Bank Rate or base rate

Answer 4

Interest rate set by the Bank of England which influences other interest rates across the U.K economy

Question 5

Benign deflation

Answer 5

A fall in the general price level which is caused by falling costs and which acts as a boost to real incomes

Question 6

Budget surplus

Answer 6

A situation where the government receives more in tax revenue than it spends

Question 7

Classical or real-wage unemployment

Answer 7

Unemployment caused by real wages being too high (i.e. above the market-clearing wage rate)

Question 8

Contractionary policy

Answer 8

Government policy designed to reduce aggregate demand usually to combat demand-pull inflation

Question 9

Core inflation

Answer 9

The rate of inflation excluding price changes from more volatile items such as fuel and food

Question 10

Cost-push inflation

Answer 10

Inflation caused by rising costs of production (shifting SRAS to the left)

Question 11

Counter-cyclical policy

Answer 11

Macroeconomics policy designed to work against the business cycle (i.e. expansionary policy during a recession or contractionary policy during an economic boom)

Question 12

Current account deficit

Answer 12

When the currency outflows from a country’s current account exceed the current inflows

Question 13

Current account surplus

Answer 13

When the currency inflows into a country’s current account exceed the currency outflows

Question 14

Cyclical unemployment

Answer 14

Unemployment caused by a lack of aggregate demand

Question 15

Deflation

Answer 15

A sustained decrease in the general level of prices

Question 16

Demand-pull inflation

Answer 16

Inflation caused by an increase in aggregate demand

Question 17

Direct tax

Answer 17

A tax on income such as wages/salaries on profit

Question 18

Discretionary fiscal policy

Answer 18

A conscious decision by the government to change its fiscal policy, e.g. by cutting income tax or reducing government spending on defence

Question 19

Disinflation

Answer 19

A fall in the rate of inflation

Question 20

Economically active

Answer 20

People who are willing to work at the current wage rate

Question 21

Economically inactive

Answer 21

People who are unwilling to work at the current wage rate or unable to

Question 22

Exchange rate

Answer 22

The value of one currency expressed in terms of another currency

Question 23

Expansionary policy

Answer 23

Government policy designed to promote economic growth by increasing aggregate demand

Question 24

External shock

Answer 24

An unexpected event with origins outside of a country

Question 25

Fiscal loosening

Answer 25

Expansionary fiscal policy

Question 26

Fiscal policy

Answer 26

Macroeconomics policy based on the control of taxation and government spending

Question 27

Fiscal tightening

Answer 27

Contractionary fiscal policy

Question 28

Fixed interest rates

Answer 28

Interest rates which do not change for the duration of a loan

Question 29

Free-market supply-side policies

Answer 29

Policies designed to increase the economy’s productive capacity by reducing government involvement

Question 30

Frictional unemployment

Answer 30

Workers who are currently between jobs due to the time taken to find a suitable vacancy

Question 31

Geographical immobility of labour

Answer 31

When workers find it difficult to relocate e.g. due to family and social ties or the housing market

Question 32

Hyperinflation

Answer 32

A very high rate of inflation, typically in excess of 100% per year

Question 33

Indirect tax

Answer 33

A tax on expenditure, levied on goods and services

Question 34

Inflation

Answer 34

A sustained increase in the general level of prices

Question 35

Interest

Answer 35

The reward for saving and the cost of borrowing

Question 36

Interest rate

Answer 36

The return of savings or borrowing expressed as a percentage

Question 37

Inter-generational equity

Answer 37

Fairness between different generations

Question 38

Internal shocks

Answer 38

An unexpected event with origins within a country

Question 39

Interventionist supply-side policies

Answer 39

Policies designed to increase the economy’s productive capacity through greater government intervention

Question 40

Long-run economic growth

Answer 40

An increase in an economy’s real gross domestic product caused by an increase in productive capacity

Question 41

Malign deflation

Answer 41

A fall in the general price level caused by falling aggregate demand

Question 42

Monetary policy

Answer 42

Macroeconomics policy based on the control of interest rates, the money supply (e.g. quantitative easing) and exchange rates

Question 43

National debt

Answer 43

The stock of outstanding debt owed by a country’s government

Question 44

Occupational immobility of labour

Answer 44

The difficulty workers have in changing jobs due to a lack of transferable skills

Question 45

Output gap

Answer 45

The difference between the current level of output in an economy and its long run productive capacity

Question 46

Pro-cyclical policy

Answer 46

Macroeconomics policy designed to work in line with the business cycle (i.e. expansionary policy during a period of growth or contractionary policy during a period of recession

Question 47

Progressive tax

Answer 47

A tax that will take a higher proportion of high earners’ income

Question 48

Proportionate tax

Answer 48

A tax that will take an equal proportion of everybody’s income