🔑 10 Super Key Terms for A-Level Economics (Macroe)

Question 1

Hysteresis 🧠

Answer 1

→ The long-term scarring effect on an economy from short-term unemployment, where skills are lost and workers become detached from the labor force.

Question 2

Liquidity Trap 🕳️

Answer 2

→ A situation where interest rates are so low that monetary policy becomes ineffective, as people hoard money instead of spending or investing.

Question 3

Ricardian Equivalence 🧾

Answer 3

→ The theory that consumers anticipate future taxation to pay for government spending, so they save instead of spending, neutralizing fiscal policy.

Question 4

Marshall-Lerner Condition 📉📈

Answer 4

→ The condition under which a depreciation will improve the current account balance, assuming the sum of the price elasticities of exports and imports > 1.

Question 5

J-Curve Effect 📉➡️📈

Answer 5

→ Following a currency depreciation, the trade balance initially worsens before improving over time due to delayed volume effects.

Question 6

Time Inconsistency Problem ⏳⚖️

Answer 6

→ When economic agents doubt a government’s long-term policy promises (e.g., inflation targets) due to short-term political incentives.

Question 7

Natural Rate of Unemployment 📉🏃‍♂️

Answer 7

→ The level of unemployment that exists even when the economy is at full output, due to structural and frictional factors.

Question 8

Crowding Out 🚫📉

Answer 8

→ When increased government borrowing leads to higher interest rates, reducing private sector investment.

Question 9

Animal Spirits 🐂🐻

Answer 9

→ Keynesian term for the psychological and emotional factors driving consumer and investor confidence.

Question 10

Transmission Mechanism of Monetary Policy 📡💸

Answer 10

→ The process by which interest rate changes affect aggregate demand through consumption, investment, exchange rates, and expectations.