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

Answer 2

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

Question 3

Aggregate supply

Answer 3

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

Question 4

Balance of payments

Answer 4

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

Question 5

Animal spirits

Answer 5

The level of confidence of business owners

Question 6

Base year

Answer 6

A year chosen as a good comparison in series of data when building an
index; it is automatically given an index figure of 100

Question 7

Budget deficit

Budget surplus

Answer 7

When the government spends more money than it receives

When the government receives more money than it spends

Question 8

Circular flow

Answer 8

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

Question 9

Claimant count

Answer 9

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

Question 10

Consumer Price
Index (CPI)

Answer 10

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

Question 11

Consumption

Answer 11

Consumer spending on goods and services

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

Current account
surplus

Answer 14

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

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

Question 15

Deflationary policy

Answer 15

Fiscal or monetary policy which is aimed at reducing AD

Question 16

Direct tax

Answer 16

Taxes paid straight to the government by the individual taxpayer

Question 17

Disposable income

Answer 17

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

Question 18

Economic growth

Answer 18

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 19

Expansionary policy

Answer 19

Fiscal or monetary policy which is aimed at increasing AD

Question 20

Export-led growth

Answer 20

Economic growth arising from an increase in exports

Question 21

Fiscal policy

Answer 21

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

Question 22

Frictional
unemployment

Answer 22

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

Question 23

Gross Domestic
Product (GDP)

GDP per capita

Answer 23

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

… divided by population

Question 24

Gross investment

Answer 24

Investment both to replace old machinery that has depreciated and to create/buy new ones

Question 25

Gross National Income (GNI)

Answer 25

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

Question 26

Gross National Product (GNP)

Answer 26

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

Question 27

Income

Answer 27

a flow of assets

Question 28

Index number

Answer 28

Numbers allowing accurate comparisons over time to be made. The base year value is typically 100

Question 29

Indirect tax

Answer 29

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

Question 30

Interventionist supply side policies

Answer 30

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

Question 31

Investment

Answer 31

injection into the circular flow or Spending by businesses on capital goods, which leads to the creation of real goods

Question 32

Living standards

Answer 32

The quality of life enjoyed by people in a country

Question 33

Long run

Answer 33

When all factors of production are variable

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 tax

Answer 38

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

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 Policy Committee (MPC)

Answer 40

economists who meet monthly to set the Bank rate as well as other monetary instruments

Question 41

Multiplier

Answer 41

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

National output

Answer 44

The value of the flow of goods and services from firms to households

Question 45

Negative output gap

Answer 45

When GDP is lower than predicted; the economy is producing below full output

Question 46

Net exports

Answer 46

Exports minus imports

Question 47

Output gap

Answer 47

The difference between the long term trend rate of growth and actual growth

Question 47

Net investment

Answer 47

Investment adjusted for depreciation

Question 48

Potential growth

Answer 48

A change in the productive potential of the economy

Question 48

Positive output gap

Answer 48

When GDP is higher than predicted; the economy is producing above full output

Question 49

Purchasing power parity

Answer 49

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

Question 50

Quantitative easing

Answer 50

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

Question 51

Retail Price Index (RPI)

Answer 51

An old measure of inflation which has lost its national statistic status

Question 52

Savings

Answer 52

postponing consumption

Question 53

Short run

Answer 53

When at least one factor of production is fixed

Question 54

Short run aggregate supply (SRAS)

Answer 54

Aggregate supply when at least one factor of production is fixed

Question 55

Structural unemployment

Answer 55

Unemployment caused by the long-term decline of an industry

Question 56

Short run Phillips curve

Answer 56

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

Question 57

Value of GDP Volume of GDP

Answer 57

Nominal values of GDP; GDP at current prices Real values of GDP; the size of the basket of goods

Question 58

Wealth

Answer 58

a stock of assets