Macro definitions

Question 1

Macroeconomic equilibrium

Answer 1

a situation where aggregate demand = aggregate supply and GDP is constant. Or where injections = leakages in the circular flow, leaving GDP unchanged.

Question 2

Economic stability

Answer 2

a situation in which the main macroeconomic variables are not changing rapidly e.g. when economic growth is steady and sustainable and when inflation is around 2%

Question 3

Unemployment

Answer 3

occurs when labour is out of work, willing and able to work and actively seeking work.

Question 4

Unemployment rate

Answer 4

the percentage of the labour force that is willing and able to work, actively seeking work but not currently in work

Question 5

Labour force survey

Answer 5

the internationally recognised method of calculating the unemployment rate, measured by sampling the number of workers out of work, willing and able to work and actively seeking work.

Question 6

Claimant Count

Answer 6

the narrow measure of calculating the unemployment total that includes only those who are out of work, willing and able to work, actively seeking work AND in receipt of unemployment benefit.

Question 7

Inflation

Answer 7

a sustained rise in the price level over time as measured by changes in the Consumer Price Index

Question 8

Inflation rate

Answer 8

the percentage increase in the price level measured over the course of one year when prices are rising on a sustained basis

Question 9

Injections

Answer 9

any money that adds to consumer spending in the circular flow in the form of investment, government spending or exports

Question 10

Leakages

Answer 10

any money that is withdrawn from the circular flow in the form of saving, taxes or import spending

Question 11

Consumer spending

Answer 11

spending by households or individuals on goods and services in order to get utility

Question 12

Investment

Answer 12

spending by firms on capital in the form of plant, equipment or machinery

Question 13

Government spending

Answer 13

any injection of funds into the circular flow by the public sector

Question 14

Net exports

Answer 14

the difference between the value of exports and imports (X-M)

Question 15

Aggregate demand

Answer 15

total expenditure on goods and services at any given price level in the form of C +I+G+X-M

Question 16

Aggregate supply

Answer 16

the total output of all goods and services at any given price level

Question 17

GDP

Answer 17

the total value of output produced by an economy in one year

Question 18

GDP per capita

Answer 18

the total value of output produced by an economy in one year divided by the population

Question 19

Exports

Answer 19

any goods or services sold to other nations that results in an inflow of income into the circular flow

Question 20

Imports

Answer 20

any purchase of foreign goods and services that leads to an outflow of money from the domestic economy

Question 21

Balance of payments/Balance of trade/Current account balance

Answer 21

the record of the inflows and outflows of currency across a nation’s borders in the form of trade flows for goods, services and capital movements.

Question 22

Current account surplus

Answer 22

when there is a net inflow of earnings resulting from international trade (X>M)

Question 23

Current account deficit

Answer 23

when there is a net outflow of money resulting from international trade (M>X)

Question 24

Protectionism

Answer 24

any attempt to restrict the free trade of goods and services across international borders e.g. by imposing tariffs or quotas on imports

Question 25

Free trade

Answer 25

the unrestricted movement of goods and services across international borders due to an absence of any protectionism

Question 26

Tariffs

Answer 26

taxes placed on foreign imports as they enter the home country that are designed to raise their market price

Question 27

Export subsidies

Answer 27

grants given to UK firms by the government designed to lower the cost and the price of the goods/services sold abroad.

Question 28

Quota

Answer 28

a physical limit on the quantity of imports allowed into a country in a given period of time

Question 29

Economic growth

Answer 29

an increase in the value of GDP over one year

Question 30

Economic growth rate

Answer 30

the percentage increase in the value of GDP over time

Question 31

Recession

Answer 31

When there are two consecutive quarters of falling GDP

Question 32

Budget surplus

Answer 32

when the government collect more tax revenue than it spends, enabling it to repay part of the National Debt

Question 33

National debt

Answer 33

the running total of all previous budget deficits that have not yet been repaid

Question 34

Budget deficit

Answer 34

when the government is spending more than it collects in tax revenue thereby adding to the National Debt

Question 35

Government borrowing

Answer 35

the amount of money required by the government when it has a budget deficit, financed by selling bonds

Question 36

Fiscal policy

Answer 36

the manipulation of tax rates, government spending and borrowing to achieve macroeconomic objectives

Question 37

Monetary policy

Answer 37

the manipulation of interest rates, the exchange rate or the money supply in order to achieve macroeconomic objectives

Question 38

Supply side policies

Answer 38

any policy designed to increase the productive potential of an economy by shifting the aggregate supply curve to the right

Question 39

Expansionary policy

Answer 39

any measure designed to increase the level of economic activity in an economy often by boosting aggregate demand

Question 40

Contractionary policy

Answer 40

any measure designed to reduce the level of economic activity in an economy by reducing aggregate demand, usually to reduce inflation

Question 41

Deflation

Answer 41

a fall in the average price level over time

Question 42

Dis-inflation

Answer 42

a fall in the inflation rate (a fall in the rate of increase of prices) i.e. rising prices at a slowing rate

Question 43

Rate of interest

Answer 43

the cost of borrowing or the reward for saving

Question 44

Exchange rate

Answer 44

the price of one currency expressed in terms of another

Question 45

Currency appreciation

Answer 45

a rise in the value of one currency against another

Question 46

Currency depreciation

Answer 46

a fall in the value of one currency against another

Question 47

De-regulation

Answer 47

a supply side policy that abolishes rules or laws that force firms to behave in a particular way

Question 48

Corporation tax

Answer 48

a direct tax levied on a firm’s profits by the government

Question 49

Economic growth

Answer 49

how fast a country’s GDP is rising. GDP is the value of all of the output made in a country in one year.

Question 50

Recession

Answer 50

A country is in recession if its GDP is falling i.e. if GDP growth is negative.

Question 51

Unemployment

Answer 51

Unemployment is a measure of the percentage of the labour force that is not in work.

Question 52

Inflation

Answer 52

Inflation is a measure of how quickly prices are rising.

Question 53

Deflation

Answer 53

Deflation occurs when the average level of prices is actually falling.

Question 54

Current account balance

Answer 54

The current account balance is an indicator of our trade performance in selling exports and buying imports. A current account deficit means we are spending more on foreign imports than we are earning by selling our exports.

Question 55

Budget

Answer 55

The budget measures the difference between how much the government spends and how much it collects in tax revenue. A budget deficit means that the government has to borrow because it is spending more than it receives in tax.

Question 56

Interest rates

Answer 56

Interest rates are the cost of borrowing money or the reward for saving money.

Question 57

Exchange rates

Answer 57

Exchange rates are the cost of one currency expressed in terms of another currency e.g £1 = $1.25.