Unit 2 Macroeconomics

Question 1

aggregate demand

Answer 1

total spending in the economy, made up of consumption, investment, government spending and net export spending

Question 2

aggregate supply

Answer 2

total amount of domestic goods and services supplied by businesses and the government, including both consumer goods and capital goods

Question 3

business cycle

Answer 3

diagram showing the cyclical fluctuations in economic activity; the business cycle shows that economies typically move through a pattern of economic growth with the phases: recovery, boom, recession, trough

Question 4

central bank

Answer 4

government’s bank; institution that is responsible for an economy’s monetary policy

Question 5

circular flow of income model

Answer 5

simplified model of the economy that shows the flow of money through the economy

Question 6

consumer price index

Answer 6

measure of the average rate of inflation which calculates the change in the price of a representative basket of goods and services purchased by the ‘average’ consumer

Question 7

consumption

Answer 7

spending by households on consumer goods and services

Question 8

cost-push inflation

Answer 8

persistent increase in the average price level that comes about as a result of increases in the costs of production and a decrease in aggregate supply

Question 9

cyclical unemployment

Answer 9

unemployment that exists when there is insufficient aggregate demand in the economy and wages do not fall to compensate for this; it is usually associated with a recession

Question 10

deflation

Answer 10

persistent fall in the average price level

Question 11

demand-pull inflation

Answer 11

persistent increase in the average price level that comes about as a result of increases in aggregate demand

Question 12

demand-side policies

Answer 12

policies to change the level of aggregate demand in the economy in order to achieve macroeconomic goals

Question 13

direct taxation

Answer 13

taxation imposed on people’s income or wealth, and on firm’s profits

Question 14

distribution of income

Answer 14

concerned with how much of an economy’s total income different individuals receive

Question 15

economic growth

Answer 15

growth of real output in an economy over time, usually measured as growth in GDP

Question 16

fiscal policy

Answer 16

government policies concerning its taxation and expenditure; fiscal policy may be used to manage the level of aggregate demand and may be expansionary or contractionary

Question 17

frictional unemployment

Answer 17

unemployment that occurs when people entering the workforce after leaving education, or people who have left one job and are searching for a new job

Question 18

full employment

Answer 18

exists when the number of jobs available in an economy is equal to or greater than the number of people actively seeking work

Question 19

GDP

Answer 19

total money value of all final goods and services produced in an economy in one year

Question 20

GDP per capita

Answer 20

total money value of all final goods and services produced in an economy in one year per head of population

Question 21

Gini coefficient

Answer 21

coefficient that measures the income inequality; it is the ratio of the area between the Lorenz curve and the line of absolute equality to the total area under the line of equality; the higher the figure, the more unequal the income distribution

Question 22

GNP/GNI

Answer 22

total money value of all final goods and services produced in an economy in one year, plus net property income from abroad

Question 23

government spending

Answer 23

spending by governments on goods and services

Question 24

green GDP

Answer 24

a measure of the total output of an economy having taken into account the environmental consequences (externalities) involved in the production of that output

Question 25

indirect taxation

Answer 25

tax on expenditure; it is added to the selling price of a good or service

Question 26

inflation

Answer 26

persistent increase in the average price level

Question 27

inflationary gap

Answer 27

gap that occurs when macroeconomic equilibrium occurs at a level that is above the full employment level of output

Question 28

infrastructure

Answer 28

capital typically provided by the government to make economic activity possible; basic facilities, services, and installations needed for the functioning of a community or society, such as transportation and communications systems, water and power lines, and public institutions including schools

Question 29

injections

Answer 29

investment, government spending and export revenues that add spending to the circular flow of income

Question 30

interest rate

Answer 30

price of credit or borrowed money

Question 31

investment

Answer 31

spending by firms in capital goods

Question 32

Keynesian AS model

Answer 32

model showing the LRAS curve has three distinct phases; macroeconomic equilibrium may occur at a level of output that is less than full employment, and suggests that the economy remains at this level of output when there is no government intervention

Question 33

labour union

Answer 33

organization of workers whose goals include the improvement of working conditions and payments to workers

Question 34

leakages

Answer 34

savings, taxes and import spending that remove spending from the circular flow of income

Question 35

long-run aggregate supply

Answer 35

As that is dependent upon the resources in the economy and that can only be increased by improvements in the quantity or quality of factors of production

Question 36

Lorenz curve

Answer 36

curve illustrating the distribution of income in an economy; the further the curve is from the line of absolute equality, the more unequal is the distribution of income

Question 37

monetary policy

Answer 37

government policies concerning an economy’s official interest rate and money supply; monetary policy may be used to manage the level of aggregate demand and may be expansionary or contractionary

Question 38

natural rate of unemployment

Answer 38

rate of unemployment that is exists when the economy is at full employment level of output

Question 39

neo classical AS model

Answer 39

model showing that the LRAS curve is vertical at the full employment level of output

Question 40

NNP

Answer 40

GNP minus depreciation (capital consumption)

Question 41

nominal GDP

Answer 41

GDP, not adjusted for inflation

Question 42

privatisation

Answer 42

type of supply-side policy where the government sells public assets to the private sector

Question 43

progressive taxation

Answer 43

system of direct taxation where as income increases, the fraction of income paid as taxes increases

Question 44

proportional taxation

Answer 44

system of direct taxation where as income increases, the fraction of income paid as taxes remains constant

Question 45

real GDP

Answer 45

GDP, adjusted for inflation

Question 46

real wage unemployment

Answer 46

unemployment that exists when real wages in the economy get pushed up above their equilibrium, either by the government or by trade unions

Question 47

recessionary gap

Answer 47

gap that occurs when macroeconomic equilibrium occurs at a level that is less than the full employment level of output

Question 48

regressive taxation

Answer 48

system of direct taxation where as income increases, the fraction of income paid as taxes decreases

Question 49

savings

Answer 49

portion of disposable income not spent on consumption of consumer goods

Question 50

seasonal unemployment

Answer 50

unemployment that exists when people are out of work because their usual job is out of season, e.g. ski instructor in summer

Question 51

short-run aggregate supply

Answer 51

AS that varies with the level of demand for goods and services and that is shifted by changes in the costs of factors of production

Question 52

structural unemployment

Answer 52

unemployment that exists when in the long term the pattern of demand and production methods change and there is a permanent fall in the demand for a particular type of labour

Question 53

supply-side policies

Answer 53

policies to shift the long-run aggregate supply curve to the right, thus increasing potential output in the economy

Question 54

transfer payments

Answer 54

payment from the government that is received when there is no good or service exchanged, e.g. unemployment benefits; transfer payments are a means of redistributing income in an economy

Question 55

underemployment

Answer 55

exists when workers are carrying out jobs for which they are overqualified or when workers are employed part-time, even though they are available for full-time employment

Question 56

unemployment rate

Answer 56

number of unemployed workers expressed as a percentage of the total workforce

Question 57

unemployment

Answer 57

state of being without work, but wiling and able to work, and actively looking for a job