Macroeconomics Booklet 3

Question 1

Bank rate / base rate

Answer 1

The intrest rate set by the bank of England.

Question 2

Contractionary policy

Answer 2

Gov policy designed to reduce AD.
Typically, to combat demand-pull inflation.

Question 3

Core inflation

Answer 3

The rate of inflation excluding volatile prices like food and fuel.

Question 4

Benign deflation

Answer 4

Fall in general price level caused by falling costs that boosts real incomes.

Question 5

Classical / Real wage unemployment

Answer 5

Unemployment caused by real wages being too high.

Question 6

Cost-push inflation

Answer 6

Inflation caused by a rise in costs to production. (Shifts SRAS left)

Question 7

Counter-cyclical policy

Answer 7

Policy, designed to work against the business cycle.

Expansionary in recession.
Contractionary in boom.

Question 8

Cyclical / keynesian / demand-deficient unemployment

Answer 8

Unemployment caused by a lack of AD

Question 9

Deflation

Answer 9

A sustained decrease in the general level of prices.

Question 10

Demand-pull inflation

Answer 10

Inflation, caused by an increase in AD.

Question 11

Direct tax

Answer 11

Tax on incomes (wages / salaries).

Question 12

Disinflation

Answer 12

Fall in the rate of inflation.

Question 13

Economically active

Answer 13

People who are willing to work at the current wage rate (employed or unemployed).

Question 14

Economically inactive

Answer 14

People who are unable or unwilling to work at the current wage rate.

Question 15

Exchange rate

Answer 15

Value of one currency expressed in terms of another currency.

Question 16

Expansionary policy

Answer 16

Gov policy (fiscal or monetary) designed to increase AD.

Question 17

Fiscal policy

Answer 17

Policy based on taxation and government spending.

Question 18

Fixed intrest rates

Answer 18

Intrest rates that do not change for the duration of a loan.

Question 19

Free-market supply-side policies

Answer 19

Policies designed to increase AD countries’ productive capacity by reducing gov involvement.

Question 20

Frictional unemployment

Answer 20

Workers who are between jobs due to the time taken to find a suitable vacancy.

Question 21

Geographical mobility of labour

Answer 21

When workers find it difficult to relocate.

Question 22

Hyperinflation

Answer 22

Very high rate of inflation. Typically 100%.

Question 23

Indirect tax

Answer 23

Tax on expenditure, levied on goods or services.

Question 24

Inflation

Answer 24

A sustained increase in the general level of prices across an economy over a period of time ( typically a year).

Question 25

Interest

Answer 25

Reward for saving and the cost of borrowing.

Question 26

Interventionist supply-side policies

Answer 26

Policies designed to increase the productive capacity of an economy through greater gov intervention.

Question 27

Malign deflation

Answer 27

Fall in the general price level caused by a decrease in AD.

Question 28

Marginal rate of taxation

Answer 28

The rate at which the last/next pound is taxed.

Question 29

Monetary policy

Answer 29

Policy based on **interest rates** and **money supply.**

Question 30

Occupational immobility of labour

Answer 30

Difficulty workers have in changing jobs due to a lack of transferable skills.

Question 31

Pro-cyclical policy

Answer 31

Policy designed to work with the business cycle. Expansionary growth Contractionary recession

Question 32

Progressive tax

Answer 32

A tax that will take a higher proportion of high earners' income and a lover proportion of low earners' incomes.

Question 33

Proportionate tax

Answer 33

A tax that will take an equal proportion of everybody's income.

Question 34

Real G.D.P per capita

Answer 34

Real national output/income per person (adjusted for inflation)

Question 35

Regressive tax

Answer 35

A tax that will take a higher proportion of low earners income and a lower proportion of high earners income.

Question 36

Seasonal unemployment

Answer 36

When workers are unemployed only at certain times of the year.

Question 37

Short-run economic growth

Answer 37

An increase in an economy's Real Gross Domestic Product caused by increased use of its productive capacity.

Question 38

Structural unemployment

Answer 38

Unemployment caused by a change in the structure of the economy.

Question 39

Supply-side policies

Answer 39

Policies designed to increase LRAS and increase the productivity capacity of an economy.

Question 40

Technological unemployment

Answer 40

Caused by workers being replaced by machinery. (Section of structural unemployment)

Question 41

Unemployment

Answer 41

People actively seek work at the prevailing wage rate but are unable to find it.

Question 42

Variable intrest rates

Answer 42

Intrest rates that change.

Question 43

Wage-price spiral

Answer 43

Rising inflation leads to workers demanding pay rises, which increases costs and further inflation.