Topic 2: Key Words

Question 1

Macroeconomic

Answer 1

The ‘big picture’, looking at the economy as a whole and setting objectives to effect the whole economy, such as taxation, inflation, national employment, etc.

Question 2

Microeconomic

Answer 2

Looking at effecting local economies or specific industries by targeted action, such as tax incentives to attract companies to specific regions, or actions to boost certain types of companies.

Question 3

Inflation

Answer 3

The rise in prices of goods and services over time.

Question 4

Disinflation

Answer 4

Prices rise over a period, but at a lower rate than before.

Question 5

Deflation

Answer 5

Prices fall over a period of time.

Question 6

Gross domestic product (GDP)

Answer 6

A measure of a country’s economic activity, used to show the size and health of the economy. It is calculated as the total market value of all goods and services produced by that country during a specific period.

Question 7

Recession

Answer 7

A country’s gross domestic product (GDP) falls in two consecutive quarters.

Question 8

Money supply

Answer 8

A measure of the total amount of money in the economy at a specific time – it includes notes, coins, bank operational balances at the Bank of England and private sector deposit accounts.

Question 9

Monetary policy

Answer 9

Controlling the supply of money in a country to manage inflation, mainly through interest rates. Less money in the economy will restrict spending to reduce inflation. Increasing the amount of money available will increase spending and inflation.

Question 10

Fiscal policy

Answer 10

The use of taxation and government borrowing and spending to affect economic activity, and can also influence the money supply, although monetary policy is the main tool for money supply.

Question 11

Consumer prices index

Answer 11

a measure of the change in price of a basket of consumer goods and services over a period. Basket items are reviewed regularly to prove an accurate reflection of consumer spending.

Question 12

HICP

Answer 12

Harmonised Index of Consumer Prices is used within the eurozone

Question 13

Bank rate

Answer 13

the rate at which the Bank of England lends to other financial institutions. Also know as base rate

Question 14

Inflation target

Answer 14

in the UK the inflation target is 2 per cent, as measured by the CPI, with a 1 per cent maximum divergence either way

Question 15

Direct taxes

Answer 15

apply to individuals and their assets (income tax, capital gains tax, inheritance tax, national insurance)

Question 16

Indirect taxes

Answer 16

applied to goods and services at the time they are purchased (e.g. VAT, stamp duty)

Question 17

Public sector net cash requirement

Answer 17

a government that has a deficit must borrow to finance it. PSNCR is a cash measure of the public sector’s short-term net financing requirement

Question 18

The Single Supervisory Mechanism

Answer 18

name for the mechanism by the European Central Bank holds responsibility for the supervision and monitoring of banks in the EU member states

Question 19

PRA

Answer 19

Prudential Regulation Authority

Question 20

FCA

Answer 20

Financial Conduct Authority