Economic policy

Question 1

Advanced Vocabulary/Concept

Answer 1

Definition/Example

Question 2

Fiscal Policy

Answer 2

Government decisions regarding taxation and spending to influence the economy.

Question 3

Monetary Policy

Answer 3

Central bank actions, such as interest rate adjustments, to control money supply and influence economic conditions.

Question 4

Austerity

Answer 4

Government policies aimed at reducing public sector debt by cutting spending and increasing taxes.

Question 5

Quantitative Easing (QE)

Answer 5

A monetary policy tool used by central banks to stimulate the economy by purchasing government securities.

Question 6

Supply-Side Economics

Answer 6

A theory that emphasizes policies to increase production, such as tax cuts and deregulation, as a means to promote economic growth.

Question 7

Demand-Side Economics

Answer 7

A theory that focuses on increasing demand for goods and services as the primary driver of economic growth, often through government spending.

Question 8

Public Goods

Answer 8

Goods that are non-excludable and non-rivalrous, meaning they can be consumed by many without diminishing availability.

Question 9

Externalities

Answer 9

Costs or benefits of an economic activity that affect third parties (e.g., pollution as a negative externality).

Question 10

Crowding Out

Answer 10

The idea that increased government spending may reduce private sector investment due to higher interest rates or competition for resources.

Question 11

Keynesian Economics

Answer 11

An economic theory that advocates for active government intervention, especially fiscal policy, to manage economic cycles.

Question 12

Neoliberalism

Answer 12

A policy model that emphasizes free-market capitalism, deregulation, and reduction in government spending.

Question 13

Inflation Targeting

Answer 13

A central banking policy that aims to maintain a specific inflation rate as the primary goal of monetary policy.

Question 14

Deflation

Answer 14

A decrease in the general price level of goods and services, signaling economic stagnation or contraction.

Question 15

Stagflation

Answer 15

A combination of stagnant economic growth and high inflation, usually coupled with high unemployment.

Question 16

Automatic Stabilizers

Answer 16

Economic policies and programs (e.g., unemployment benefits) that automatically adjust with economic conditions.

Question 17

Structural Adjustment Programs (SAPs)

Answer 17

Economic policies imposed by international financial institutions to promote fiscal discipline in exchange for loans.

Question 18

Protectionism

Answer 18

The economic policy of restricting imports, typically through tariffs or quotas, to protect domestic industries.

Question 19

Laffer Curve

Answer 19

A concept illustrating the relationship between tax rates and tax revenue, suggesting an optimal tax rate for maximum revenue.

Question 20

Multiplier Effect

Answer 20

The proportional increase or decrease in final income that results from an injection or withdrawal of spending.

Question 21

Phillips Curve

Answer 21

A concept showing the inverse relationship between inflation and unemployment.

Question 22

Moral Hazard

Answer 22

When one party engages in risky behavior, knowing another party will bear the cost.

Question 23

Trade-Off

Answer 23

Sacrificing one goal to achieve another, often seen in policy decisions like between inflation control and unemployment.

Question 24

Privatization

Answer 24

The transfer of ownership of businesses or services from the public sector to the private sector.

Question 25

Bailout

Answer 25

Financial assistance provided to a company or country facing potential collapse.

Question 26

Economic Stimulus

Answer 26

Government policy aimed at boosting economic activity, often through public spending or tax cuts.

Question 27

Hyperinflation

Answer 27

Extremely high and typically accelerating inflation that rapidly erodes the real value of a currency.

Question 28

Recession

Answer 28

A significant decline in economic activity across the economy, lasting for an extended period.

Question 29

Depression

Answer 29

A prolonged and severe recession.

Question 30

Supply Shock

Answer 30

An unexpected event that suddenly changes the supply of a product or commodity, affecting prices.

Question 31

Trade Deficit

Answer 31

Occurs when a country's imports exceed its exports.

Question 32

Current Account

Answer 32

A record of a country's transactions with the rest of the world, including trade balance and income from abroad.

Question 33

Capital Flight

Answer 33

The large-scale exodus of financial assets and capital from a country due to economic or political instability.

Question 34

Sovereign Debt

Answer 34

Debt incurred by the government of a country.

Question 35

Tariffs

Answer 35

Taxes imposed on imported goods to protect domestic industries or generate revenue.

Question 36

Subsidies

Answer 36

Government financial support to industries or businesses to promote economic and social policy.

Question 37

Balance of Payments

Answer 37

A record of all financial transactions between a country and the rest of the world over a specific period.

Question 38

Exchange Rate

Answer 38

The value of one currency for the purpose of conversion to another.

Question 39

Floating Exchange Rate

Answer 39

A system where the value of a currency is allowed to fluctuate according to the foreign exchange market.

Question 40

Fixed Exchange Rate

Answer 40

A system where the value of a currency is pegged to another currency or a basket of currencies.

Question 41

Foreign Direct Investment (FDI)

Answer 41

Investment made by a firm or individual in one country into business interests located in another country.

Question 42

Capital Controls

Answer 42

Measures taken by a government to regulate the flow of foreign capital into and out of the domestic economy.

Question 43

Fiscal Deficit

Answer 43

Occurs when a government's total expenditures exceed the revenue it generates, excluding money from borrowings.

Question 44

Trade Liberalization

Answer 44

The removal or reduction of trade barriers, such as tariffs, to encourage international trade.

Question 45

Inflationary Spiral

Answer 45

A situation where inflation drives wage increases, which in turn causes more inflation.

Question 46

Debt Ceiling

Answer 46

The maximum amount of debt that a government is allowed to incur.

Question 47

Gini Coefficient

Answer 47

A measure of income inequality within a population, ranging from 0 (perfect equality) to 1 (maximum inequality).

Question 48

Paradox of Thrift

Answer 48

A situation where individuals attempt to save more during an economic recession, leading to a fall in aggregate demand and worsening the recession.

Question 49

Progressive Taxation

Answer 49

A tax system where the tax rate increases as the taxable amount increases.

Question 50

Regressive Taxation

Answer 50

A tax system where the tax rate decreases as the taxable amount increases.

Question 51

Fiscal Cliff

Answer 51

A situation in which a series of fiscal measures, such as tax increases or spending cuts, are set to take effect simultaneously, potentially harming the economy.