U2 Macro Definitions

Question 1

Economic growth

Answer 1

increase in real GDP, can be actual and/or potential growth

Question 2

GDP

Answer 2

The total value of goods and services produced in an economy/total output/total income over a period of time.

Question 3

GNP

Answer 3

The total value of goods and services produced by domestic producers or capital.

Question 4

GNI

Answer 4

The total value of goods and services produced by a country over a period of time, plus net overseas interest payments and dividends. (factor income)

Question 5

GDP per capita

Answer 5

total value of output adjusted for inflation that accounts for its number of people

Question 6

Real GDP per capita

Answer 6

total value of output adjusted for inflation that accounts for its number of people

Question 7

Growth of real income

Answer 7

an increase in the total value of output/expenditure/ income adjusted for inflation

Question 8

Purchasing power parity

Answer 8

PPP measures the total amount of goods and services that a single unit of a country’s currency can buy in another country (2)
* _PPP adjusts for the cost of living in a country (1)
* _PPPs convert the cost of a basket of goods and services into a common currency (1)
* _PPPs eliminate price level differences across countries (1)
* _PPPs equalise the purchasing power of currencies (1)
* _When PPP is high a country’s currency can buy more, often indicating a higher standard of living (1)
* _Used to make a more accurate comparison of GDP/GNI between countries (1)

Question 9

Recession

Answer 9

two consecutive quarters of negative economic growth

Question 10

Inflation

Answer 10

a sustained increase in general price level

Question 11

Deflation

Answer 11

a sustained decrease in general price level

Question 12

Disinflation

Answer 12

price level increases at a decreasing rate

Question 13

Aggregate demand

Answer 13

total spending of goods and services of a country. AD=C+I+G+(X-M)

Question 14

Aggregate supply

Answer 14

total output of a country/ productive potential of a country.

Question 15

Consumer price index

Answer 15

It uses a weighed basket of goods and service to calculate inflation rate. An annual survey of household spending is used to set the weights/the contents of the basket. The weights are in proportion to the amount of money spent on each item

Question 16

Underemployment

Answer 16

situation of people at working age with part-time jobs when they would rather work full time, or with jobs that do not make full use of their skills and education.

Question 17

Current account

Answer 17

an account in BOP, recording money inflow and outflow of trading in goods, trading in services, investment income and current transfer.

Question 18

Balance of payment

Answer 18

records all money inflows and money outflows of a country

Question 19

Balance of trade

Answer 19

value of exports - value of imports

Question 20

Trade surplus

Answer 20

the value of imports is smaller than the value of exports

Question 21

Trade deficit

Answer 21

the value of imports is greater than the value of exports

Question 22

Availability of credit

Answer 22

increase in capital stock / Increase in willingness for banks to lend

Question 23

Consumption

Answer 23

spending on consumer goods

Question 24

Investment

Answer 24

spending on capital goods

Question 25

Tax relief on investment

Answer 25

where firms are charged a lower rate of taxation to encourage investment.

Question 26

Exchange rate

Answer 26

value/price of one currency in terms of another

Question 27

Positive economic growth rate

Answer 27

shows the percentage increase in real GDP over a given period of time

Question 28

Output gap

Answer 28

difference between actual economic growth and potential economic growth

Question 29

Base interest rate

Answer 29

cost of borrowing / Return received for saving money that the central bank charges / pays commercial banks

Question 30

Circular flow of income

Answer 30

a model showing how money flows between households and firms in an economy.

Question 31

Income

Answer 31

rent, interest, wages and profits earned from wealth owned by economic actors.

Question 32

Injection

Answer 32

spending that is not generated by households, including investment, government spending and exports.

Question 33

Withdrawal

Answer 33

spending by households that does not flow back to domestic firms, including savings, taxes and imports.

Question 34

Phillips Curve

Answer 34

a short run trade off between inflation rate and unemployment rate

Question 35

Fiscal policy

Answer 35

a demand-side policy, including taxation and government spending

Question 36

Monetary policy

Answer 36

a demand-side policy, including interest rate, money supply and exchange rate

Question 37

Supply side policy

Answer 37

policies used by the government to increase LRAS/ productive potential

Question 38

Free market policies

Answer 38

policies aim to increase productive potential without government intervention.

Question 39

Interventionist policies

Answer 39

involves government intervention to boost LRAS

Question 40

Foreign direct investment

Answer 40

The transfer of funds from one country to another to purchase physical capital

Question 41

Expansionary/reflationary policy

Answer 41

policies aim to increase AD

Question 42

Contractionary/deflationary policy

Answer 42

policies aim to decrease AD