Theme 2 – The UK Economy, Performance and Policies

Question 1

Actual growth

Answer 1

Economic growth measured by changes in real GDP

Question 2

Aggregate demand (AD)

Answer 2

The total level of demand in an economy at any given price at a moment in time

Question 3

Aggregate supply (AS)

Answer 3

The total amount of output in the economy at any given price at a moment in time

Question 4

Animal spirits

Answer 4

The level of confidence of business owners

Question 5

Balance of payments

Answer 5

A record of all financial dealings over a period of time between economic agents of one country and another

Question 6

Boom

Answer 6

The peak of the business cycle, when growth is high

Question 7

Budget deficit

Answer 7

When the government spends more money than it receives

Question 8

Budget surplus

Answer 8

When the government receives more money than it spends

Question 9

Circular flow

Answer 9

A model of the economy which shows the flow of goods and services, the factors of production and money around the economy

Question 10

Claimant count

Answer 10

A measure of unemployment; the number of people receiving benefits for being unemployed

Question 11

Consumer Price Index (CPI)

Answer 11

Official measure used to calculate the rate of inflation, using a weighted basket of goods

Question 12

Cost push inflation

Answer 12

Inflation caused by a decrease in AS

Question 13

Current account

Answer 13

A record of the payments for the purchase and sale of goods and services, as well as income and transfers

Question 14

Current account deficit

Answer 14

When more money leaves the country than enters, so the current account is negative

Question 15

Current account surplus

Answer 15

When more money enters the country than leaves, so the current account is positive

Question 16

Deflation

Answer 16

A persistent fall in prices of goods and services

Question 17

Deflationary policy

Answer 17

Fiscal or monetary policy which is aimed at reducing AD

Question 18

Demand pull inflation

Answer 18

Inflation caused by an increase in AD

Question 19

Direct tax

Answer 19

Taxes paid straight to the government by the individual taxpayer

Question 20

Disinflation

Answer 20

A reduction in the rate of inflation

Question 21

Disposable income

Answer 21

The money consumers have left to spend, after taxes have been taken away and benefits added

Question 22

Economic growth

Answer 22

An increase in the long term productive potential in the economy; an increase in the amount of goods and services which are produced, measured by an increase in real GDP

Question 23

Expansionary policy

Answer 23

Fiscal or monetary policy which is aimed at increasing AD

Question 24

Fiscal policy

Answer 24

The use of borrowing, government spending and taxation to manipulate the level of AD and improve macroeconomic performance

Question 25

Frictional unemployment

Answer 25

Unemployment caused when people move between jobs and enter the job market

Question 26

Gross Domestic Product (GDP)

Answer 26

The value of goods and services produced in a country over a given period of time

Question 27

GDP per capita

Answer 27

Total GDP divided by the population

Question 28

Gross National Income (GNI)

Answer 28

The value of goods and services produced by a country over a period of time plus net overseas interest payments and dividends

Question 29

Gross National Product (GNP)

Answer 29

The value of goods and services produced by citizens of a country, whether they live in the country or not

Question 30

Indirect tax

Answer 30

Tax where the person charged with paying the money to the government is able to pass on the cost to someone else

Question 31

Inflation

Answer 31

The general rise in prices of goods and services that erodes the purchasing power of money

Question 32

Injection

Answer 32

Spending power entering the circular flow of income resulting from investment, government spending and exports

Question 33

Interventionist supply side policies

Answer 33

Policies designed to correct market failure, where the government intervenes in the market

Question 34

Long run aggregate supply (LRAS)

Answer 34

The total output an economy can produce when operating at full output

Question 35

Marginal propensity to consume

Answer 35

The proportion of an increase in income spent on consumption Change in consumption / change in income

Question 36

Marginal propensity to import

Answer 36

The proportion of an increase in income spent on imports

Question 37

Marginal propensity to save

Answer 37

The proportion of an increase in income that is saved

Question 38

Marginal propensity to tac

Answer 38

The proportion of an increase in income that is taken away in tac

Question 39

Monetary policy

Answer 39

The attempts of the central bank/regulatory authority to control the level of AD by altering base interest rates or the amount of money in the economy

Question 40

Monetary supply

Answer 40

Stock of money in the economy

Question 41

Multiplier

Answer 41

An increase in an injection will lead to an even greater increase of national income 1 / (1-MPC) = 1 / MPW

Question 42

National expenditure

Answer 42

The value of spending by households on goods and services

Question 43

National income

Answer 43

The value of income paid by firms to households in return for land, labour, capital and enterprise

Question 44

Net exports

Answer 44

Exports - imports

Question 45

Potential growth

Answer 45

A change in the productive potential of the economy

Question 46

Purchasing power parity

Answer 46

Exchange rate of one currency to another that compares the cost of living in different countries through comparing a typical basket of goods

Question 47

Quantitative easing

Answer 47

When the central banks buy assets in exchange for money in an attempt to increase the money supply

Question 48

Real GDP

Answer 48

GDP which strips out the effect of inflation

Question 49

Recession

Answer 49

The trough of the business cycle, when growth is low

Question 50

Seasonal unemployment

Answer 50

Unemployment cause when an industry only operates during certain times of they year

Question 51

Short run aggregate supply (SRAS)

Answer 51

Aggregate supply when at least one factor of production is fixed

Question 52

Short run Phillips curve

Answer 52

Shows the relationship between unemployment and inflation: higher levels of unemployment lead to lower levels of inflation

Question 53

Structural unemployment

Answer 53

Unemployment caused by the long-term decline of an industry

Question 54

Supply-side policies

Answer 54

Government policies aimed at increasing the productive potential of the economy and shifting LRAS to the right

Question 55

Total GDP

Answer 55

The GDP of the whole country