Theme 2: The UK economy - performance and policies

Question 1

inflation

Answer 1

a sustained increase in the general price level

Question 2

deflation

Answer 2

a sustained fall in the general price level

Question 3

UK inflation target

Answer 3

2%

Question 4

disinflation

Answer 4

a fall in the rate of inflation

Question 5

demand-pull inflation

Answer 5

inflation caused by excess aggregate demand in an economy

Question 6

cost-push inflation

Answer 6

inflation caused by increases in the costs of production for producers

Question 7

unemployment

Answer 7

those who are not working but actively seeking work

Question 8

underemployment

Answer 8

those who are working but want to work more hours or are working in a job that requires lower skills than what they have

Question 9

structural unemployment

Answer 9

occurs when there is a mismatch between jobs and skills in an economy

Question 10

cyclical unemployment (demand deficient unemployment)

Answer 10

unemployment cause by a fall in aggregate demand in an economy

Question 11

seasonal unemployment

Answer 11

occurs when certain seasons come to an end and labour is no longer required until next season

Question 12

frictional unemployment

Answer 12

occurs when people are between jobs or when they first enter the job market

Question 13

balance of payments

Answer 13

a record of a country’s financial transactions with the rest of the world

Question 14

consumer price index (CPI)

Answer 14

a measure that tracks changes in the average price level using a weighted basket of goods and services purchased by the average household

Question 15

gross domestic product (GDP)

Answer 15

the value of all goods and services produced in an economy over a period of time

Question 16

nominal GDP

Answer 16

the actual value of all goods and services produced in an economy which does not take inflation into account

Question 17

real GDP

Answer 17

the value of all goods and services produced in an economy over a period of time and has been adjusted for inflation

Question 18

disposable income

Answer 18

amount of money households have available after direct taxes

Question 19

aggregate demand

Answer 19

the total demand for a country’s goods and services produced in the economy at any given price level

Question 20

AD formula

Answer 20

AD = C + I + G + (X - M)

Question 21

investment

Answer 21

spending on capital goods by firms

Question 22

gross investment

Answer 22

total investment to replace old capital goods which have depreciated and to buy new capital goods

Question 23

net investment

Answer 23

investment that has been adjusted for depreciation
(net investment = gross investment - depreciation)