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Economics > Macro > Flashcards

Macro Flashcards

1
Q

Define actual economic growth

A

An increase in real GDP

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2
Q

Define aggregate demand

A

Aggregate demand is the total demand for final goods and services in the economy at a given time and price level. The components are C+I+G+(X-M)

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3
Q

Define aggregate supply

A

The total supply of goods and services produced within an economy at a given overall price level in a given time period.

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4
Q

Define appreciation

A

The rise in value of an asset, eg. one currency against another

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5
Q

Define austerity

A

Economic policy aimed at reducing a government’s deficit (or borrowing).

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6
Q

How can austerity be achieved?

A
  • Through increases in government revenues by, for example increasing tax
  • Reduction in government spending or future spending commitments
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7
Q

Define automatic stabilisers

A

Forms of government spending and taxation that dampen down the fluctuations without any deliberate changes in government policy

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8
Q

Define balance of payments

A

A record of a country’s financial inflows and outflows trade and investment with other countries

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9
Q

Define balanced budget

A

Government spending equals revenues (neither deficit nor surplus)

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10
Q

Define budget

A

A statement of a government’s spending and tax revenues for the next financial year

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11
Q

Define budget deficit

A

When government spending exceeds tax revenue

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12
Q

How can budget deficit be reduced?

A

Austerity measures or a period of economic growth

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13
Q

Define business confidence

A

Expectations about the future of the economy

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14
Q

Define capital utilisation

A

Measures how much an economy’s productive potential is being used. Utilisation falls during a recession.

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15
Q

What is the significance of business confidence?

A
  • vital in influencing business decisions about how much to spend on capital goods (investment)
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16
Q

Define claimant count

A

The number of people claiming unemployment-related benefits. One of the measures of unemployment.

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17
Q

Define consumer confidence

A

Expectations about the future based on interest rates, incomes and jobs which affect household expenditure

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18
Q

Define comparative advantage

A

The ability to produce a product at a lower opportunity cost than other countries, regions, firms or people

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19
Q

Define CPI (Consumer Price Index)

A

This is the preferred meaner of inflation which excludes housing costs but includes all households

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20
Q

Define circular flow of income

A

This is the flow of products/services and income between producers/firms and households/consumers

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21
Q

How is the CPI measured?

A

A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to their importance. Changes in CPI are used to assess price changes associated with the cost of living.

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22
Q

Define closed economy

A

An economy which is operating without imports or exports.

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23
Q

Define corporation tax

A

A tax on a firm’s profits

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24
Q

Define cost push inflation

A

Increases in the price level resulting from increases in the costs of prodction

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25
Q

Define current account balance

A

A record of a country’s trade in goods, trade in services, income and current transfers

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26
Q

Define cyclical trade deficit

A

A trade deficit which arises purely due to changes in the economy’s cycle, eg. many countries run a deficit when their economy is growing strongly as increased demand sucks in imports.

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27
Q

Define cyclical unemployment

A

Unemployment resulting from a lack of aggregate demand (demand deficient unemployment)

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28
Q

Define deflation

A

A sustained fall in the average price level

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29
Q

Define deflationary fiscal policy

A

Measures designed to reduce aggregate demand

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30
Q

Define demand management policies

A

This refers to the range of monetary and fiscal policies to influence the aggregate demand for goods or services in an economy

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31
Q

Define demand pull inflation

A

increases in the price level caused by increases in aggregate demand

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32
Q

Define depreciation

A

A fall in the value of an asset, eg one currency against another

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33
Q

Define deregulation

A

The removal of laws and regulations which restrict competition

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34
Q

Define developing economies

A

Economies which are generally lacking a high degree of industrialisation and/or other measures of development

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35
Q

Define direct taxes

A

Taxes on income and wealth of people and firms. Income and corporation taxes are direct taxes.

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36
Q

Define discretionary fiscal policy

A

Deliberate changes in government spending, borrowing and taxation to affect aggregate demand.

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37
Q

Define discretionary income

A

Income after the deduction of direct taxes and essential bills and the addition of state benefits

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38
Q

Define disequilibrium

A

A situation of imbalance

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39
Q

Define disposable income

A

Income after the deduction of direct taxes and the addition of state benefits

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40
Q

Define dividends

A

A share in the profits of firms which is distributed to shareholders

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41
Q

Define domestic trade

A

The exchange of products within an economy

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42
Q

Define dumping

A

When a producer in one country exports a product to another country at a price below that which it charges in its home country or below the cost of supply

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43
Q

Define economic cycle

A

Variations in the annual rate of growth of an economy over time. The stages of the cycle include recovery, boom, slow down and recession

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44
Q

Define economic growth

A

The growth in the value of output of an economy and, in the long run, an increase in productive capacity

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45
Q

Define economic stability

A

The avoidance of volatility in economic growth rates, inflation, unemployment and exchange rates.

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46
Q

Define economically inactive

A

Those who are of working age but are neither in work nor actively seeking work

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47
Q

Define exchange rate

A

The price of a currency in terms of another currency or currencies.

48
Q

Define expansionary monetary policy

A

Changes in the money supply (increase), rate of interest (cut) and/or exchange rate (lower) which are designed to stimulate aggregate demand

49
Q

Define expectiations

A

How we anticipate the future to unfold. This can have powerful effects on the decisions of households, firms and governments.

50
Q

Define fiscal drag

A

The reduction in disposable income that occurs if tax bands are not adjusted in line with inflation

51
Q

Define fiscal policy

A

A government’s policy regarding taxation and public spending. It can be loose/expansionary or tight/deflationary.

52
Q

Define fiscal stimulus

A

Government measures, normally involving increased public spending and lower tax, which is aimed at giving a jolt to the economy

53
Q

Define foreign direct investment

A

When trade is allowed to occur without any form of restriction such as a tariff or quota

54
Q

Define frictional unemployment

A

Unemployment arising when people are between jobs

55
Q

Define full employment

A

A condition of the national economy where all, or nearly all, persons willing and able to work at the prevailing wages and working conditions are able to do so.

56
Q

Define GDP

A

The total value of goods and services produced by factors of production based in an economy. It can measured by the output, income and expenditure methods.

57
Q

Define GDP per capita

A

The total value of goods and services produced by factors of production based in an economy divided by the population

58
Q

Define geographical mobility

A

The movement of an economic resource (eg labour) from one area to another

59
Q

Define golden rule

A

Says that borrowing on state provided goods and services should be zero over the course of on economic cycle. Borrowing is allowed when it finances capital investment.

60
Q

Define hot money flows

A

Flows of short-term finance that moves around the world to take advantages of differences in interest rates and possibly exchange rates

61
Q

Define household wealth

A

The value of the stock of assets

  • including property
  • shares
  • savings
  • pension funds
62
Q

Define human capital

A

The knowledge and skills that workers acquire through education, training and experience

63
Q

Define hyperinflation

A

A very high rate of inflation which causes serious economic problems and political instability

64
Q

Define hysteresis

A

Unemployment generating unemployment by reducing the confidence and relevance of the skills of unemployed people

65
Q

Define imports

A

Products brought from abroad

66
Q

Define immobility of labour

A

Barriers to the movement of people between areas (geographical) and jobs (occupational)

67
Q

Define income distribution

A

The extent of which different groups and households share in the total income of the country

68
Q

Define income elasticity of demand

A

The responsiveness of demand to changes in real incomes of consumers

69
Q

Define indirect taxes

A

Taxes and levies on goods and services

70
Q

Define inflation

A

A steady and continuous rise in average price levels

71
Q

Define inflationary noise

A

The distortionary effect inflation can have on price signals

72
Q

Define inflationary pressures

A

Demand and supply-side pressures that can cause a rise in the general price level

73
Q

Define inflation target

A

The rate of inflation that a government attempts to steer towards

74
Q

Define infrastructure

A

The transport links, communications networks, sewage systems, energy plants and other facilities necessary for the efficient running of a country

75
Q

Define injections

A

Spending on domestic output from outside the circular flow, ie. government spending, investment and exports.

76
Q

Define international trade

A

The exchange of goods and services across national boundaries

77
Q

Define investment

A

Spending on capital goods including equipment and infrastructure. Injection into the circular flow of income

78
Q

Define Keynesian economics

A

Belief that market failure is a significant problem and that government intervention can improve the situation

79
Q

Define macro-economic equilibrium

A

A situation where aggregate demand equals aggregate supply and so there are no forces to change the price level and output

80
Q

Define labour force survey

A

This measures unemployment based on the ILO’s (International Labour Force) definition of unemployment, ie. all those who are actively seeking work and are available to start work, whether or not they are claiming benefits

81
Q

Define labour supply

A

The number of people able, available and willing to work at prevailing wage rates

82
Q

Define the marginal propensity to consume (MPC)

A

the proportion of any additional income which is spent rather than saved

83
Q

Define the marginal propensity to save

A

The proportion of any additional income which is saved rather than spent

84
Q

Define market failure

A

Under or overconsumption of a product or service at a given price level.

85
Q

Define menu costs

A

Costs involved in having to change prices as a result of inflation

86
Q

Define monetarists

A

People who believe that the only cause of inflation is the money supply growing faster than output

87
Q

Define monetary policy

A

govt policy which determines changes in the money supply, rate of interest and exchange rate

88
Q

What is the Monetary Policy Committee?

A

The committee that determines the rate of interest with the objective of meeting the inflation target

89
Q

Define money supply

A

The entire quantity of a country’s commercial bills, coins, loans and credit

90
Q

Define mortgages

A

loans for house purchases

91
Q

Define potential economic growth

A

Increases in the ability of a country to produce goods and services

92
Q

Define productivity

A

Output per worker per period of time

93
Q

Define progressive taxes

A

Taxes which take a greater percentage of the income of rich people than poor people

94
Q

Define Public Sector Net Cash Requirement

A

This is the amount that government sector needs to borrow, over and above the tax revenue collected, to finance planned government spending in a given year. It includes borrowing by public corporations and local governments as well as central government.

95
Q

Define rate of interest

A

The cost of borrowing and return to savers

96
Q

Define rate of unemployment

A

The number of people who are willing and able to work but are not in work as a percentage of the labour force

97
Q

Define rate of inflation

A

A steady and continuous rise in average price levels expressed as a percentage

98
Q

Define real GDP

A

GDP adjusted for inflation, ie. at constant prices

99
Q

Define reflationary fiscal policy

A

Measures designed to increase aggregate demand

100
Q

Define regional policy

A

Government measures designed to influence incomes, population and the number of firms in a particular area.

101
Q

Define regional unemployment

A

People who are willing and able to work but do not have work while there are job vacancies in another area

102
Q

Define regressive taxes

A

Taxes which take a greater percentage of the income of poor people than that of rich people, eg. VAT

103
Q

Define retail price index

A

A weighted measure of changes in consumer prices (CPI)

104
Q

Define shoe leather costs

A
  • Costs involved in moving money around during a period of inflation in a bid to maintain its real value
  • Costs incurred in searching for a cheaper supplier
105
Q

Define structural unemployment

A

unemployment resulting from industrial reorganization, typically due to technological change, rather than fluctuations in supply or demand.

106
Q

Define supply-side policies

A

Policies designed to increase the economy’s long-term potential growth

107
Q

Define sustainable economic growth

A

Economic growth achieved in a way that does not endanger the country’s ability to achieve economic growth in future.

108
Q

Define tariffs

A

Taxes on imports.

109
Q

Define transfer payments

A

Money transferred from one group to another not in return for providing a good or service. Such payments can’t be included in calculating GDP

110
Q

Define transmission mechanism

A

This is the process through which monetary policy decisions affect the economy in general and the price level in particular.

  • Characterised by long, variable and uncertain time lags.
  • Difficult to predict the precise effect of monetary policy actions on the economy and price level.
111
Q

Define trend growth

A

The long-term growth path of an economy. This is extrapolated from the preceding long-term average.

112
Q

Define unemployment

A

When people are willing and able to work but who are currently not in paid employment

113
Q

Define the ‘unemployment trap’

A

A situation where some people are financially better off living on unemployment benefits than working.

114
Q

Define wealth distribution

A

The extent to which different groups of households share in the total wealth of the country

115
Q

Define withdrawals

A

Parts of income which are not passed on in circular flow of income (aka leakages), ie. savings, tax and imports.

Economics (2 decks)

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