Theme 2 Economics

Question 1

Real Values

Answer 1

Values that have adjusted to remove the effects of inflation. The effects are removed using an index number that represents the changes in prices and the results are called constant values

Question 2

Nominal Values

Answer 2

Values that are measured in money terms. Nominal figures are the unadjusted, current values

Question 3

Inflation

Answer 3

A general and sustained increase in prices, measured by a change in a weighted index of prices such as the CPI

Question 4

Deflation

Answer 4

A fall in the general level of prices, ie negative inflation

Question 5

Disinflation

Answer 5

A fall in the rate of inflation, ie prices are rising more slowly

Question 6

Retail Price Index (RPI)

Answer 6

An index used to measure inflation that includes housing costs such as mortgage interest repayments

Question 7

Demand-Pull Inflation

Answer 7

An increase in the general level of prices caused by increased consumption, investment, government spending or net exports

Question 8

Cost-Push Inflation

Answer 8

An increase in the general level of prices caused by increased production costs such as a rise in wages or a fall in the exchange rate (imports expensive)

Question 9

Money Supply

Answer 9

The amount of spending power in an economy. It includes cash and bank deposits. Monetarists believe that an increase in the money supply has a direct relationship with inflation

Question 10

Workforce

Answer 10

A measure of people of working age who are willing and able to work

Question 11

Claimant Count

Answer 11

A measure of unemployment using the number of claimants of JSA

Question 12

Labour Force Survey

Answer 12

A measure of unemployment of those out of work in the last 4 weeks and ready to start in the next 2 weeks

Question 13

Underemployment

Answer 13

A situation in which a worker is employed but wants to work more hours

Question 14

Unemployment

Answer 14

A situation in which someone is willing and available to work, but is not currently employed

Question 15

Inactivity

Answer 15

A measure of people of working age who are either unwilling or unable to work

Question 16

Real Wage Unemployment

Answer 16

A measure of people who are unwilling to work at the going wage rate. Classical economists believe that wages that are kept artificially above the market-clearing wage are a main cause of unemployment

Question 17

Demand-Deficit Unemployment

Answer 17

Also known as cyclical unemployment, this is caused by a lack of aggregate demand in an economy such as during a recession.

Question 18

Structural Unemployment

Answer 18

A measure of workers who lose jobs in a declining industry and do not have the skills to join other industries

Question 19

Frictional Unemployment

Answer 19

A measure of people who are between jobs

Question 20

Seasonal Unemployment

Answer 20

A measure of people who have jobs only at certain times of the year such as skiing instructors

Question 21

Investment Income

Answer 21

The reward for investments in other countries. It comprises interest, profit and dividends

Question 22

Current Transfers

Answer 22

The payment of money across international boundaries that has no corresponding output

Question 23

Current Account Surplus

Answer 23

Where inflows on the current account of the balance of payments are greater than outflows

Question 24

Current Account Deficit

Answer 24

Where outflows on the current account on the balance of payments are greater than inflows

Question 25

Aggreggate Demand (AD)

Answer 25

The total planned expenditure on goods and services produced in the UK

Question 26

Aggreggate Supply (AS)

Answer 26

The total planned output of goods and services in the UK

Question 27

Animal Spirits

Answer 27

The forces that make markets move in large booms and busts, as people buy and sell impulsively rather than calmly, using purely rational behaviour

Question 28

Trade Cycle

Answer 28

The pattern of economic growth which changes from booms to recessions for slow growth in a fairly regular pattern

Question 29

Fiscal Policy

Answer 29

The deliberate manipulation of government spending and taxation in order to influence the level of AD in the economy

Question 30

Bottlenecks

Answer 30

Where restrictions in the capacity to increase production occur, meaning that prices will start to rise as output rises

Question 31

Wealth Effect

Answer 31

The effect on incomes or spending when assets values change

Question 32

Injections

Answer 32

Flows into the circular flow of income comprising investment, government spending and exports

Question 33

Withdrawals

Answer 33

Flows out of the circular flow of income comprising savings, tax and imports

Question 34

Marginal Propensity to Withdraw (MPW)

Answer 34

A measure of how much of any extra pound earned is saved, taxed or spent outside the economy on imports

Question 35

Marginal Propensity to Consume (MPC)

Answer 35

A measure of how much of any extra pound earned is spent within the economy

Question 36

Actual Economic Growth

Answer 36

An increase in real GDP

Question 37

Potential Economic Growth

Answer 37

An increase in capacity in the economy

Question 38

Export-Led Growth

Answer 38

The economic growth caused by rises in net exports. It has the benign effect of stimulating the domestic economy while improving the trade balance

Question 39

Output Gap

Answer 39

The difference between actual and potential GDP growth in GDP

Question 40

Quantitative Easing (QE)

Answer 40

The purchase of gilts and other illiquid assets as a means of making credit easier to access

Question 41

Budget (or Fiscal) Deficit

Answer 41

The amount by which government spending exceeds revenues. The UK has run a budget deficit since 2001

Question 42

Budget (or Fiscal) Surplus

Answer 42

The amount by which tax revenues exceed government spending. The next budget surplus in the UK is expected in 2018

Question 43

Stagflation

Answer 43

A stagnant (not growing) economy that is also suffering from inflation

Question 44

Deregulation

Answer 44

The process of reducing government rules and restrictions on businesses

Question 45

Infrastructure

Answer 45

The physical and organisational framework needed for an economy to operate efficiently

Question 46

Trade Unions

Answer 46

Organisations of workers that exist to promote the welfare of their members

Question 47

Phillips Curve

Answer 47

An observation of a trade-off between unemployment and inflation

Question 48

Trade-Off

Answer 48

When one factor can only improve at the expense of another

Question 49

Fiscal Stance

Answer 49

The position that the government takes on fiscal policy