Macroeconomics terms

Question 1

national output

Answer 1

total output of the economy

Question 2

potential output

Answer 2

long-term growth trend of GDP, full employment GDP

Question 3

recession

Answer 3

economic contraction that lasts for longer than six months

Question 4

natural rate of unemployment

Answer 4

unemployment that occurs when the economy is producing at its full employment level of output, equal to sum of structural, frictional and seasonal uenmployment

Question 5

aggregate demand

Answer 5

total amount of real output (real GDP) that consumers, firms, the government and foreigners want to buy at each possible price level, over a particular time period

Question 6

consumer confidence

Answer 6

measure of how optimistic consumers are about their future income and future of the economy

Question 7

wealth

Answer 7

value of all assets that people own minus debt to banks and other financial institutions

Question 8

income taxes

Answer 8

taxes paid by households on their income

Question 9

business confidence

Answer 9

measure of how optimistic firms are about their future sales and economic activity

Question 10

corporate indebtness

Answer 10

the degree to which firms have debts

Question 11

aggregate supply

Answer 11

the total quantity of goods and services produced in an economy over a particular time period at different price levels

Question 12

SRAS curve

Answer 12

relationship between the price level and the quantity of the real output produced by firms when resource prices do not change, ceteris paribus

Question 13

LRAS curve

Answer 13

relationship between real GDP and the price level when resource prices change to reflect changes in price level, ceteris paribus

Question 14

deflationary gap

Answer 14

short-run equilibrium position where real GDP is less than potential GDP

Question 15

inflationary gap

Answer 15

long-run equilibrium position where real GDP is greater than potential GDP

Question 16

structural unemployment

Answer 16

unemployment that occurs as a result of technological changes, changing patterns of demand, market rigidities, and changes in geographical location of the jobs

Question 17

frictional unemployment

Answer 17

unemployment that occurs when workers are in between jobs

Question 18

seasonal unemployment

Answer 18

unemployment that occurs when the demand for labour in certain industries changes on a seasonal bases

Question 19

cyclical unemployment

Answer 19

occurs when the economy is in a recessionary gap, demand-deficient unemployment

Question 20

inflation

Answer 20

sustained increase in general price level

Question 21

deflation

Answer 21

sustained decrease in general price level

Question 22

disinflation

Answer 22

fall in the inflation rate

Question 23

weighted price index

Answer 23

price index that weights the various goods and services according to their relative importance

Question 24

demand-pull inflation

Answer 24

caused by an increase in aggregate demand

Question 25

cost-push inflation

Answer 25

caused by a fall in aggregate supply due to increased production costs

Question 26

deferred consumption

Answer 26

consumer postponing their spendings

Question 27

Phillips curve

Answer 27

curve showing relationship between unemployment and inflation

Question 28

government debt

Answer 28

national debt, amount of money government owes to lenders outside the government itself

Question 29

sustainable debt

Answer 29

level of debt where the government has enough revenues to meet its debt obligations (repayment+interest)

Question 30

debt servicing

Answer 30

necessary payments to repay the principal plus interest payment

Question 31

demand-side policies

Answer 31

policies that attempt to change aggregate demand to achieve goals of price stability, full employment, and economic growth, and minimize the severity of the business life cycle

Question 32

supply-side policies

Answer 32

policies that focus on aggregate supply, namely on factors aiming to increase long-run aggregate supply to achieve long-term economic growth

Question 33

monetary policy

Answer 33

policy carried out by the central bank, aiming to change the interest rates in order to influence the aggregate demand

Question 34

commercial banks

Answer 34

finantial institutions whose main functions are to hold deposits, make loans, transfer funds by check, buy government bonds, their customers are firms and individual consumers (banker to individual consumers and firms)

Question 35

central bank

Answer 35

financial institution responsible for the country's financial system and commercial banks, and carrying out monetary policy (banker to commercial banks and to the government

Question 36

inflation targeting

Answer 36

monetary policy focused on achieving a particular inflation target instead of goals of low rate of inflation and unemployment

Question 37

money creation

Answer 37

process in which commercial banks create new money by making loans

Question 38

open market operations

Answer 38

tool of monetary policy whereby the central bank buys and sells bonds to commercial banks to influence the money supply and interest rate

Question 39

minimum lending rate

Answer 39

interest rate charged by the central bank when it lends funds to commercial banks

Question 40

quantitative easing

Answer 40

tool used by central banks which involves buying bonds and other types of financial assets on a large scale to increase the money supply in the economy as part of expansionary monetary policy

Question 41

real rate of interest

Answer 41

nominal interset rate minus rate of inflation

Question 42

expansionary monetary policy

Answer 42

policy pursued in economic contraction, involving a decrease in interest rates to increase investment and consumption spending

Question 43

contractionary monetary policy

Answer 43

policy usually pursued when the economy is in an inflationary gap, involving an increase in interest rates to decrease investment and consumption spending

Question 44

fiscal policy

Answer 44

manipulations by the government of its own expenditures and taxes in order to influence the level of aggregate demand

Question 45

expansionary fiscal policy

Answer 45

policy usually pursued in economic contraction, involving an increase in government spending or decrease in taxes or both to increase aggregate demand

Question 46

contractionary fiscal policy

Answer 46

policy usually pursued when the economy is in inflationary gap, involving a decrease in government spending and increase in taxes or both to decrease aggregate demand

Question 47

crowding out

Answer 47

phenomenon in which government spending financed by borrowing might result in higher interest rates which could reduce private sector spending thus reversing the impact of the expansionary fiscal policy

Question 48

automatic stabilisers

Answer 48

factors that automatically, without any action by the government, work towards stabilising the economy by reducing short term fluctuations of the business cycle

Question 49

Keynesian multiplier

Answer 49

ratio of change in real GDP divided by the initial change in expenditure

Question 50

MPC

Answer 50

marginal prosperity to consume, a fraction of income households spend on consumption

Question 51

market-based supply-side policies

Answer 51

policies based on promoting well-functioning, competitive markets in order to increase potential output and achieve long-term economic grwoth

Question 52

privatisation

Answer 52

transfer of ownership of firm from the public to the private sector

Question 53

deregulation

Answer 53

elimination or reduction of government regulation of private sector activities

Question 54

incentive-related policies

Answer 54

policies involving reduction of various types of taxes to change the incentives faced by the taxpayers

Question 55

interventionist supply-side policies

Answer 55

policy based on government intervention in the market to increase the potential output and achieve long-term economic growth

Question 56

industrial policies

Answer 56

policies designed to support the growth of the industrial sector of the economy