Theme 2 Definitions MR STEEDS

Question 1

demand pull inflation

Answer 1

when demand for goods and services exceeds the available supply of those goods and services in the economy

Question 2

cost push inflation

Answer 2

inflation that results from higher production costs and rising prices of raw materials

Question 3

economic sustainability

Answer 3

growing the economy, using natural resources, without dimishing resources for the future

Question 4

circular flow of income

Answer 4

the money moving through the economy

Question 5

withdrawals

Answer 5

variables that leak out the circular flow of income

Question 6

injections

Answer 6

funds added to the circular flow of income

Question 7

aggregate demand

Answer 7

total expenditure on a country’s goods and services produced within an economy each time period

Question 8

consumption

Answer 8

what we buy everyday

Question 9

disposable income

Answer 9

income after all taxes are deducted from gross income

Question 10

gross income

Answer 10

an individuals total earnings throughout a given time period before any deductions are made

Question 11

discretionary income

Answer 11

amount of income left after taxes and personal necessities have been played

Question 12

marginal propensity to consume

Answer 12

amount of additional income that we spend

Question 13

marginal propensity to save

Answer 13

amount of additional income that we save

Question 14

wealth effect

Answer 14

as assets increase in value, spending increases

Question 15

investments

Answer 15

production of goods that will be used to produce other goods

Question 16

gross investments

Answer 16

total amount that an economy spends on new capital

Question 17

net investments

Answer 17

total amount of money that a company spends on capital assets, minus the depreciation of those assets

Question 18

accelerator effect

Answer 18

when an increase in GDP results in a larger rise in investment spending

Question 19

output gap

Answer 19

difference between the actual level of GDP and its estimated potential value

Question 20

positive output gap

Answer 20

situation where an economy is above its potential value

Question 21

negative output gap

Answer 21

situation where an economy is below its potential value

Question 22

fixed exchange rate

Answer 22

when exchange rate is pegged to another major currency

Question 23

free floated exchange rate

Answer 23

when exchange rates are determined by demand and supply

Question 24

multiplier effect

Answer 24

where an initial change in spending leads to a bigger change in total output

Question 25

positive multiplier effect

Answer 25

when an initial increase in injection leads to a greater final increase in level of real GDP

Question 26

negative multiplier effect

Answer 26

when an initial increase in withdrawals leads to greater final decrease in level of real GDP

Question 27

aggregate supply

Answer 27

total output of goods and services that firms in an economy are willing and able to supply at a given price level

Question 28

short run aggregate supply (SRAS)

Answer 28

relationship between GDP and general price level (one factor of production is fixed)

Question 29

long run aggregate supply (LRAS)

Answer 29

maximum output when all factors of production are fully and efficiently used

Question 30

supply shocks

Answer 30

unexpected event that suddenly changes the supply of a product

Question 31

Keynesian aggregate supply curve

Answer 31

when spare capacity is high, aggregate supply will be elastic

Question 32

fiscal policy

Answer 32

taxes and government spending goes in opposite directions

Question 33

expansionary/lose fiscal policy

Answer 33

government spending goes up and taxations goes down

Question 34

contractionary/tight/deflationary fiscal policy

Answer 34

government spending goes down and taxation goes up

Question 35

monetary policy

Answer 35

controlling the money supply

Question 36

monetary policy transmission mechanisms

Answer 36

changes of interest rates influence aggregate demand, output and prices

Question 37

lose monetary policy

Answer 37

aims to stimulate an economy by lowering interest rates

Question 38

tight monetary policy

Answer 38

aims to control inflation by raising interest rates

Question 39

quantitative easing

Answer 39

increasing the money supply and aims to prevent deflation during a recession

Question 40

quantitative tightening

Answer 40

decreasing the amount of money in the money supply in the economy

Question 41

privatisation

Answer 41

selling an industry to a private sector

Question 42

deregulation

Answer 42

opening up a state monopoly

Question 43

stagflation

Answer 43

high unemployment leads to high inflation

Question 44

labour immobility

Answer 44

difficulties that prevent workers from moving to jobs that offer the highest wages or where their skills are most in demand

Question 45

underemployed

Answer 45

situation where someone is working but their job doesn’t fully utilise their skills

Question 46

inflationary pressure

Answer 46

various economic factors that contribute to a sustainable inflation

Question 47

inflation target

Answer 47

monetary policy where the central bank publicly sets an inflation rate as its primary goal

Question 48

budget deficit

Answer 48

when an entity spends more money that it takes in as revenue (government spending < total revenue)

Question 49

budget surplus

Answer 49

when an entity has more income that expenses in a given period (government spending > total revenue)

Question 50

balanced government budget

Answer 50

total government expenditure = total revenue in a given fiscal year

Question 51

trade policy

Answer 51

the rules and actions that the government takes to manage international trade

Question 52

net trade

Answer 52

difference between a country’s exports and imports

Question 53

real income

Answer 53

measure of someone’s income (adjusted for inflation)

Question 54

nominal income

Answer 54

total amount of money a person earns in a given period of time

Question 55

macroeconomic impact

Answer 55

consequences of economic events on the overall performance of an economy

Question 56

microeconomic impact

Answer 56

effects of economic decisions made by individuals on specific markets

Question 57

economic policies

Answer 57

strategies used by the government to manage and steer the economy

Question 58

government policies

Answer 58

actions and strategies that a government implements to achieve specific objectives

Question 59

composite demand

Answer 59

situation where a single good or resource is demand for multiple uses

Question 60

joint demand

Answer 60

demand for two or more goods that are used or consumed together