Macroeconomics Year 1 Key Words

Question 1

Accelerator

Answer 1

A change in the level of new capital goods is induced by a change in the rate of growth of national income or aggregate demand.

Question 2

Actual output

Answer 2

Level of real output produced in the economy in a particular year, not to be confused with the trend level of output. The trend level of output is what the economy is capable of producing when working at full capacity. Actual output differs from the trend level of output when there are output gaps.

Question 3

Aggregate demand

Answer 3

The total planned spending on real output produced within the economy.

Question 4

Aggregate supply

Answer 4

The level of real national output that producers are prepared to supply at different average level price levels.

Question 5

Availability of credit

Answer 5

Funds available for households and firms to borrow.

Question 6

Balance of payments

Answer 6

A record of all the currency flows into and out of a country in a particular time period.

Question 7

Balance of payments equilibrium (or current account equilibrium)

Answer 7

Occurs when the current account more or less balances over period of years.

Question 8

Balance of trade

Answer 8

The difference between the money value of a country0s imports and its exports. Balance of trade is the largest component of a country’s balance of payments on current account.

Question 9

Balance of trade in goods

Answer 9

The part of the current account measuring payments for exports and imports of goods. the difference between the total value of exports and the total value of imports of goods is sometimes called the ‘balance of visible trade’.

Question 10

Balance of trade in services

Answer 10

Is part of the current account and is the difference between the payments for the exports of services and the payments for the imports of services.

Question 11

Balance of trade surplus

Answer 11

The money value of a country’s exports exceeds the money value of its imports.

Question 12

Balance budget

Answer 12

Achieved when government spending equals government revenue. (G=T)

Question 13

Bank of England

Answer 13

The central bank in the UK economy which is in charge of monetary policy.

Question 14

Bank Rate

Answer 14

The rate of interest the Bank of England pays to commercial banks on their deposits held at the Bank of England.

Question 15

Budget deficit

Answer 15

Occurs when government spending exceeds government (G>T). This represents a net injection of demand into the circus¡lar flow of income and hence a budget deficit is expansionary.

Question 16

Budget surplus

Answer 16

Occurs when government spending is less than government revenue (G

Question 17

Central bank

Answer 17

Controls the banking system and implements monetary policy on behalf of the government.

Question 18

Certainty

Answer 18

One of the principles of taxation. Tax payers should be reasonably certain of the amount of tax they will be expected to pay.

Question 19

Claimant count

Answer 19

The method of measuring unemployment according to those people who are claiming unemployment-related benefits (Jobseeker’s Allowance).

Question 20

Closed economy

Answer 20

An economy with no international trade.

Question 21

Consumer price index (CPI)

Answer 21

The official measure used to calculate the rate of consumer price inflation in the UK. The CPI calculates the average price increase of a basket of 700 different consumer goods and services.

Question 22

Consumption

Answer 22

Total planned spending by households on consumer goods and services produced within an economy.

Question 23

Contractionary fiscal policy

Answer 23

Uses fiscal policy to decrease aggregate demand and to shift the AD curve to the left.

Question 24

Convenience

Answer 24

The principle of taxation which requires a tax to be convenient for taxpayers to pay.

Question 25

Cost-push inflation (cost inflation)

Answer 25

A rising price level caused by an increase in the costs of production, shown by a shift of the SRAS curve to the left.

Question 26

Credit crunch

Answer 26

Occurs when there is a lack of funds available in the credit market, making it difficult for borrowers to obtain financing, and leads to a rise in the cost of borrowing.

Question 27

Crowding out

Answer 27

A situation in which an increase in government or public sector spending displaces private sector spending, with little or no increase in aggregate demand.

Question 28

Current account deficit

Answer 28

Occurs when currency outflows in the current account exceed currency inflows. It’s often shortened to ‘exports less than imports’.

Question 29

Current account of the balance of payments

Answer 29

Measures all the currency flows into and out of a country in a particular time period in payment for exports and imports, together with income and transfer flows (primary income and secondary income flows).

Question 30

Current account surplus

Answer 30

Occurs when currency inflows in the current account exceed currency outflows. It’s often shortened to ‘exports greater than imports’.

Question 31

Cyclical budget deficit

Answer 31

The part of the budget deficit which rises in the downing of the economic cycle and falls in the upswing of the cycle-

Question 32

Cyclical budget surplus

Answer 32

If the structural deficit were zero, a cyclical surplus would probably emerge in the upswing of the economic cycle.

Question 33

Cyclical unemployment (Keynesian unemployment and demand-deficient unemployment)

Answer 33

It’s unemployment caused by a lack of aggregate demand in the economy and occurs when the economy and occurs when the economy goes into a recession or depression.

Question 34

Deficit financing

Answer 34

deliberately running a budget deficit and borrowing to finance the deficit.

Question 35

Deflation

Answer 35

A persistent or continuing fall in the average price level.

Question 36

Deindustrialisation

Answer 36

The decline of manufacturing industries, together with coal mining.

Question 37

Demand-side

Answer 37

Relates to the impact of changes in aggregate demand on the economy. Associated with Keynesian economics.

Question 38

Demand-pull inflation (demand inflation)

Answer 38

A rising price level caused by an increase in aggregate demand, shown by a short of the AD curve to the right.

Question 39

Demand-side fiscal policy

Answer 39

Used to increase or decrease the level of aggregate demand (and to shift the AD curve right or left) through changes in government spending, taxation and the budget balance.