Unit 2 Definitions

Question 0

Aggregate supply

Answer 0

Total amount of output in an economy

Question 1

Aggregate demand

Answer 1

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

Question 2

Balance of payments

Answer 2

Record of a countries transactions with the world

Question 3

Base year

Answer 3

Year chosen as a good comparison in a series of data when holding an index

Question 4

Bottlenecks

Answer 4

Constraint on the supply side of the economy which causes costs of AS to rise as the economy grows e.g qualified builders for Olympics making costs rise in the area

Question 5

Business cycle

Answer 5

Tendency of economic activity to rise above and below the trend rate of economic growth

Question 6

Budget

Answer 6

Annual statement by the gov of its intentions to tax and spend in future years. Comes out in March

Question 7

Budget surplus

Answer 7

Amount by which tax revenue exceeds gov spending

Question 8

Budget deficit

Answer 8

Amount by which gov spending exceeds tax revenue

Question 9

Claimant count

Answer 9

A measure of those claiming unemployment benefits

Question 10

Circular flow of income

Answer 10

Simple model of the economy which shows the movement of goods and services between households and firms and their payments in terms of money

Question 11

Constant prices

Answer 11

Where the effects of inflation have been taken out

Question 12

Consumer price index (CPI)

Answer 12

Measures average price levels. Increases in CPI are known as inflation and this is used as a target for monetary policy.

Question 13

Consumption

Answer 13

Total planner household spending.

Question 14

Cost of living

Answer 14

Measure of how much money will buy. Measure by comparing the price of the basket of goods

Question 15

Current account of the balance of payments

Answer 15

Record of a countries trade in goods, trade in services, current transfers and investment income

Question 16

Current prices

Answer 16

The effects of inflation have been left in

Question 17

Demand side policies

Answer 17

Policies used by the gov to shift AD. Main ones are monetary policy and fiscal policy.

Question 18

Economic growth

Answer 18

Measure of the increase in real GDP or potential GDP

Question 19

Equilibrium national income

Answer 19

Level of income or output at which AD equals AS

Question 20

Exchange rate

Answer 20

The price of one currency in terms of another

Question 21

Exports

Answer 21

Value of goods and services sold abroad. Shown in circular flow of income as an injection

Question 22

Flow

Answer 22

Movement of products or the money used to pay for them over a time period

Question 23

Fiscal deficit

Answer 23

Inflationary fiscal policy where gov spending is more than tax receipts

Question 24

Fiscal policy

Answer 24

Governments manipulation of its spending and taxation in order to shift AD

Question 25

Fiscal surplus

Answer 25

Deflationary fiscal policy where gov spending is less than tax receipts

Question 26

Government expenditure

Answer 26

Spending by central and local government

Question 27

Gross domestic product

Answer 27

GDP - total output in an economy measure by total production by firms, total incomes by the factors of production or by total spending

Question 28

Hot money

Answer 28

Short term speculative flows of money between countries. Nah distort exchange rates so they don’t reflect the real purchasing power parity. Motivation for these movements is changes in IR

Question 29

Human development index (HDI)

Answer 29

Measurement of economic development. 3 parts equally weighted index numbers. Health, education and GDP per capita

Question 30

International Labour Organisation (ILO)

Answer 30

Measure of unemployment used in most rich countries. 51,000 households (101,000 people) by phone 
Questions are;
Got job?
Looking for one in last 4 weeks?
Ready start in next 2 weeks?

Question 31

Imports

Answer 31

Value of products bought from abroad. Shown in circular flow of income as withdrawals

Question 32

Income

Answer 32

Reward paid for the use of a factor of production: rent wages interest or profit

Question 33

Income inequality

Answer 33

Measures the gap between the incomes e.g lowest and highest decile might have a difference of 90%

Question 34

Index

Answer 34

Simple way to compare data with a base year

Question 35

Inflation

Answer 35

General and persistent increase in the price level

Question 36

Inflation targeting

Answer 36

Narrowly focused monetary policy which seeks to keep rate of inflation within a certain band

Question 37

Injections

Answer 37

When money flows into the circular flow of income. Investment, gov spending and exports

Question 38

Interest rate

Answer 38

Cost of borrowing

Reward for saving

Question 39

Investment

Answer 39

Increase in capital stock. Determined by interest rates, confidence and the availability of credit

Question 40

Labour productivity

Answer 40

Output per worker or output per hour worked

Question 41

Monetary policy

Answer 41

Decisions made using monetary policy instruments such as the interest rates