Macroeconomics Definitions ✅

Question 1

Define inflation.

Answer 1

The sustained increase in the general price level of goods and services over a period time

Question 2

Define deflation.

Answer 2

The sustained decrease in the general price level of goods and services over a period of time

Question 3

Define economic growth.

Answer 3

An increase in the real value of output in an economy measured by an increase in GDP over time

Question 4

Define GDP.

Answer 4

The total money value of all finals goods and services produced in an economy (regardless of who owns the FOP) in a given time period, usually one year.

Question 5

Define GNI.

Answer 5

The total money value of all final goods and services produced in an economy over a year (regardless of where the factors are located) plus net property income from abroad (interest, rent, dividends, profit).

Question 6

Define unemployment.

Answer 6

People who are eligible for work and are actively looking for work, but are without a paid job

Question 7

Define seasonal unemployment.

Answer 7

Equilibrium unemployment that occurs when people are out of work because the demand for their usual job changes on a seasonal basis, e.g. ski instructor in the summer.

Question 8

Define frictional unemployment.

Answer 8

Equilibrium unemployment that occurs when people are between jobs, e.g. in the process of searching for another job/fresh graduates

Question 9

Define structural unemployment

Answer 9

Equilibrium unemployment that occurs when the pattern of demand and production methods change in the long-term, so there is a permanent fall in the demand for a particular type of labor. There is mismatch between skills and the jobs available, e.g. changes in technology, geographical location

Question 10

Define cyclical unemployment.

Answer 10

Disequilibrium unemployment that occurs when there is insufficient demand in the economy and wages do not fall to compensate for this.

Question 11

Define absolute poverty.

Answer 11

People who live with income level less than the extreme poverty line, where basic physical needs cannot be met, e.g. food and shelter

Question 12

Define relative poverty.

Answer 12

Comparative measure of poverty that compares the income of individuals with median incomes (e.g. lower than 50% of the average earnings for the country)

Question 13

Define monetary policy.

Answer 13

A demand-side policy that uses changes in the money supply or interest rates to achieve economic objectives relating to inflation and unemployment.

Question 14

Define fiscal policy.

Answer 14

A demand-side policy using changes in government spending and direct taxation to influence aggregate demand and achieve economic objectives relating to inflation and unemployment.

Question 15

Define interventionist supply-side policies.

Answer 15

Relies on government intervention to stimulate aggregate supply, imposes policies to increase the quantity/quality of capital

Question 16

Define market supply-side policies.

Answer 16

Policies to stimulate aggregate demand by reducing government intervention, using policies to encourage competition, labor market reforms, and incentive-related policies

Question 17

Define aggregate demand.

Answer 17

The total spending in an economy consisting of consumption, investment, government expenditure, and net exports.

Question 18

Define aggregate supply.

Answer 18

The total amount of domestic goods and services supplied by businesses and the government, including consumers goods and capital goods.

Question 19

Define balance of payments

Answer 19

Record of the value of all the transactions between the residents of a country with the residents of all other countries over a given period of time.

Question 20

Define balance of trade-in goods.

Answer 20

A measure of the revenue received from the exports of tangible (physical) goods minus the expenditure on the imports of tangible goods over a given period of time

Question 21

Define balance of trade-in services.

Answer 21

A measure of the revenue received from the exports of services minus the expenditure on the imports of services over a given period of time.

Question 22

Define budget deficit.

Answer 22

When planned government spending exceeds planned government revenue.

Question 23

Define business cycle.

Answer 23

Shows the periodic/cyclical fluctuations in economic activity. The business cycle shows that economics typically move through a pattern of economic growth with the phases: recovery, boom, slowdown, recession.

Question 24

Define capital.

Answer 24

The factor of production that comes from investment in physical and human capital. Physical: stock of manufactured resources e.g. roads; Human: value of the workforce e.g. education

Question 25

Define capital account.

Answer 25

A measure of the buying and selling of assets between countries. Assets include those that represent ownership and lending.

Question 26

Define capital transfers.

Answer 26

A measure of net monetary movements gained or lost through actions such as the transfer of goods and financial assets by migrants entering or leaving the country, or transfers relating to the sale of gift taxes, inheritance taxes, and death duties.

Question 27

Define current account.

Answer 27

A measure of the flow of funds from trade-in goods and services, plus net investment income flows (profit, interest, dividends) and net transfer of money (foreign aid, grants, remittances).

Question 28

Define current account deficit.

Answer 28

When revenue from the exports of goods and services and income flows is less than the expenditure on the import of goods and services and income flows in a given year.

Question 29

Define current account surplus.

Answer 29

When revenue from the export of goods and services and income flows is greater than the expenditure on the import of goods and services and income flows in a given year.

Question 30

Define current transfers.

Answer 30

These are recorded in the balance of payments whenever an economy receives goods, services, income, or financial items without something in return. All transfers not considered to be capital are current.

Question 31

Define deflationary/recessionary gap.

Answer 31

When total spending (AD) is less than the full employment level of output (LRAS), thus causing unemployment.

Question 32

Define deregulation.

Answer 32

A type of market-based supply-side policy where the government reduces the number or type of regulations governing the behavior of firms.

Question 33

Define government (national) debt.

Answer 33

The total outstanding borrowing of a government, made up of internal debt (owing to national creditors) and external debt (owing to foreign creditors).

Question 34

Define indirect taxes.

Answer 34

Taxes on expenditure that are added to the selling price of a good or service

Question 35

Define inflationary gap.

Answer 35

When total spending (AD) is greater than the full employment level of output (LRAS), causing inflation.

Question 36

Define LRAS.

Answer 36

Aggregate supply that is dependent upon the resources in the economy, and can only be increased by improvements in the quantity/quality of FOP.

Question 37

Define natural rate of unemployment.

Answer 37

The rate of unemployment that is consistent with a stable rate of inflation, including frictional, seasonal, and structural.

Question 38

Define privatization.

Answer 38

A type of market-based supply-side policy where the government sells public assets to the private sector.

Question 39

Define real GDP.

Answer 39

The total money value of all final goods and services produced in an economy in a given time period, usually one year, adjusted for inflation.

Question 40

Define remittances.

Answer 40

The transfer of money by foreign workers to individuals, often family members, in their home country

Question 41

Define SRAS.

Answer 41

Aggregate supply that varies with the level of demand for goods and services, shifted by changes in the costs of FOP.

Question 42

Define supply-side policies.

Answer 42

Government policies designed to shift the LRAS to the right, thus increasing potential output in the economy.