section 2 definitions

Question 1

What is economic growth?

Answer 1

An expansion of the productive potential in the economy

Economic growth indicates an increase in the economy’s capacity to produce goods and services.

Question 2

Define the economic cycle.

Answer 2

The tendency of economic growth to rise and fall above and below the trend rate of economic growth, causing booms and busts

The economic cycle reflects fluctuations in economic activity over time.

Question 3

What does Gross Domestic Product (GDP) measure?

Answer 3

The value of goods and services produced in a country over a given period of time

GDP is a key indicator of economic performance.

Question 4

What is GDP per capita?

Answer 4

Total GDP divided by the population of the country

GDP per capita provides a per-person measure of economic output.

Question 5

Define nominal GDP.

Answer 5

The value of GDP without being adjusted for inflation

Nominal GDP reflects current market prices.

Question 6

What is real GDP?

Answer 6

The value of GDP adjusted for inflation

Real GDP provides a more accurate reflection of an economy’s size and how it’s growing over time.

Question 7

What is meant by short run growth?

Answer 7

Calculated annually by the percentage change in real GDP

Short run growth focuses on immediate economic performance.

Question 8

Define long run growth.

Answer 8

An increase in the productive capacity of the economy

Long run growth reflects sustainable economic expansion.

Question 9

What is the actual rate of growth?

Answer 9

Economic growth measured by change in real GDP

This rate indicates the real change in economic output.

Question 10

Define trend rates of growth.

Answer 10

The average sustainable rate of average growth over a period of time

Trend rates help identify long-term economic performance.

Question 11

What does economic development refer to?

Answer 11

An increase in living standards, freedom and life expectancy

Economic development encompasses broader improvements in quality of life.

Question 12

What is the structure of an economy?

Answer 12

How the economy is made up in terms of what proportion of output comes from the different economic sectors

The structure indicates the distribution of economic activity.

Question 13

Define the primary sector.

Answer 13

The part of the economy focussed on raw materials, such as farming or mining

The primary sector is essential for providing basic resources.

Question 14

What is the secondary sector?

Answer 14

The sector which transforms raw materials into goods for consumers, the manufacturing industry

The secondary sector adds value to raw materials.

Question 15

Define the tertiary sector.

Answer 15

The part of the economy concerned with the supply of services

The tertiary sector plays a crucial role in service delivery.

Question 16

What is sustainable development?

Answer 16

Development that occurs to meet the needs of the people of today without preventing future generations from meeting their needs

Sustainable development emphasizes environmental and resource conservation.

Question 17

What does the Human Development Index (HDI) measure?

Answer 17

Measures an economy’s development based on income, health and education

HDI provides a composite measure of development.

Question 18

Define the Genuine Progress Indicator.

Answer 18

A measure of development calculated from 26 different indicators looking at economic, environmental and social factors

This indicator offers a broader view of progress than GDP alone.

Question 19

What is the Measuring National Wellbeing programme?

Answer 19

A report which measures how lives are improving; asks four key questions about life satisfaction, anxiety, happiness and worthwhileness

This program aims to assess overall societal wellbeing.

Question 20

What is aid in economic terms?

Answer 20

When a country voluntarily transfers resources to another or gives loans on a concessionary basis

Aid can support development and humanitarian efforts.

Question 21

Define remittances.

Answer 21

A sum of money sent back to the domestic economy of a migrant

Remittances can significantly impact the economy of the recipient country.

Question 22

What does employment refer to?

Answer 22

Those with a job

Employment is a key indicator of economic health.

Question 23

Define unemployment.

Answer 23

Those able and willing to work, but are not employed

Unemployment reflects inefficiencies in the labor market.

Question 24

What is the Labour Force Survey?

Answer 24

A measure of unemployment which surveys people to class them as unemployed, employed or inactive under the ILO definitions

This survey provides comprehensive labor market data.

Question 25

What does the **claimant count** measure?

Answer 25

The number of people receiving benefits for being unemployed ## Footnote This measure provides a snapshot of unemployment levels.

Question 26

Define **inflation**.

Answer 26

The general rise in prices that erodes the purchasing power of money ## Footnote Inflation impacts consumers and the economy significantly.

Question 27

What is **deflation**?

Answer 27

The opposite of inflation, where the average price level in the economy falls ## Footnote Deflation can lead to reduced economic activity.

Question 28

Define **disinflation**.

Answer 28

A falling rate of inflation; prices are still rising but by not as much ## Footnote Disinflation indicates a slowing of price increases.

Question 29

What is **hyperinflation**?

Answer 29

When the rate of inflation is high and accelerating, to the extent that it is out of control ## Footnote Hyperinflation can destabilize economies.

Question 30

What does the **Consumer Price Index** measure?

Answer 30

Official measure used to calculate the rate of inflation, using a weighted basket of goods ## Footnote The CPI is a key economic indicator.

Question 31

Define the **Retail Price Index**.

Answer 31

An old measure of inflation which has lost its national statistic status ## Footnote The RPI is less commonly used today compared to the CPI.

Question 32

What is the **balance of payments**?

Answer 32

A record of all financial dealings over a period of time between economic agents of one country and another ## Footnote The balance of payments is crucial for understanding a country's economic position.

Question 33

Define the **current account**.

Answer 33

A record of the payments for the purchase and sale of goods and services, as well as income and transfers ## Footnote The current account reflects trade and income flows.

Question 34

What is the **marginal propensity to import (MPM)**?

Answer 34

The proportion of an increase in income spent on imports ## Footnote MPM indicates how income changes affect import levels.

Question 35

Define the **capital account**.

Answer 35

A part of the balance of payments; involves transfers of the ownership of fixed assets ## Footnote The capital account tracks investment flows.

Question 36

What does the **financial account** record?

Answer 36

A part of the balance of payments; records FDI, portfolio investment and the transfer of gold and currency reserves ## Footnote The financial account provides insights into investment trends.

Question 37

What are **income and current transfers**?

Answer 37

Net earnings on foreign investment, net cash transfers and transfers that have no return such as aid and grants ## Footnote These transfers can significantly impact national income.

Question 38

Define **income distribution**.

Answer 38

How the flow of assets is spread throughout the economy ## Footnote Income distribution affects economic equality.

Question 39

What is **income inequality**?

Answer 39

When income is unevenly distributed across a nation ## Footnote Income inequality can lead to social and economic issues.

Question 40

Define **wealth distribution**.

Answer 40

How the stock of assets is spread across the economy ## Footnote Wealth distribution is often more unequal than income distribution.

Question 41

What is **wealth inequality**?

Answer 41

When wealth is unevenly distributed across the economy ## Footnote Wealth inequality can exacerbate social tensions.

Question 42

Define **absolute poverty**.

Answer 42

When people are unable to afford sufficient necessities to maintain life; those on less than $1.90 a day ## Footnote Absolute poverty is a critical measure of economic hardship.

Question 43

What is **relative poverty**?

Answer 43

When income falls below an average income threshold ## Footnote In the UK, this is those on less than 60% of median household income.

Question 44

What does the **Gini coefficient** measure?

Answer 44

A measure of income inequality; the ratio of the area between the 45 degree line (the line of perfect equality) and the Lorenz curve and the whole area under the 45 degree line ## Footnote The Gini coefficient quantifies income distribution.

Question 45

Define the **Lorenz curve**.

Answer 45

The cumulative percentage of population plotted against the cumulative percentage of income that those people have ## Footnote The Lorenz curve visually represents income inequality.

Question 46

What does the **Phillips Curve** show?

Answer 46

Shows the trade-off between the level of unemployment and the inflation rate ## Footnote The Phillips Curve illustrates the inverse relationship between inflation and unemployment.

Question 47

What is the **natural (non-accelerating inflation) rate of unemployment**?

Answer 47

The unemployment rate when the labour market is at equilibrium, when there is no demand deficient unemployment and unemployment is only caused by supply side factors ## Footnote This rate reflects a healthy labor market.

Question 48

Define **regressive taxation**.

Answer 48

Where the proportion of income paid in tax falls whilst the income of the taxpayer increases; those on lower incomes pay a higher percentage of their income on tax ## Footnote Regressive taxation can increase income inequality.

Question 49

What are **automatic stabilisers**?

Answer 49

Mechanisms which reduce the impact of changes in the economy on national income ## Footnote Automatic stabilisers help smooth economic fluctuations.

Question 50

Define **discretionary fiscal policy**.

Answer 50

Deliberate manipulation of government expenditure and taxes to influence the economy; expansionary and deflationary fiscal policy ## Footnote Discretionary fiscal policy is used to manage economic cycles.

Question 51

What is a **balanced budget**?

Answer 51

When government spending equals tax revenue ## Footnote A balanced budget indicates fiscal responsibility.

Question 52

Define **budget deficit**.

Answer 52

When the government spends more money than it receives ## Footnote A budget deficit can lead to increased national debt.

Question 53

What does **budget position/fiscal stance** refer to?

Answer 53

The impact that taxes and government spending has on the future economy ## Footnote The fiscal stance influences economic growth and stability.

Question 54

What is the **budget position on current expenditure**?

Answer 54

The flow of cash during one period of time ## Footnote Current expenditure reflects short-term financial health.

Question 55

Define **budget surplus**.

Answer 55

When the government receives more money than it spends ## Footnote A budget surplus can be used for debt repayment or investment.

Question 56

What is **current government expenditure**?

Answer 56

Spending on goods and services which are consumed and last for a short time ## Footnote Current expenditure is essential for day-to-day operations.

Question 57

Define **capital government expenditure**.

Answer 57

Government spending on investment goods such as new roads, schools and hospitals, which will be consumed in over a year ## Footnote Capital expenditure supports long-term economic growth.

Question 58

What is a **cyclical budget position**?

Answer 58

A temporary budget position, which is related to the business cycle ## Footnote Cyclical positions fluctuate with economic conditions.

Question 59

Define **structural budget position**.

Answer 59

Budget which is either in a deficit or surplus due to an imbalance in revenue and expenditure of the government, as it exists at every point in the business cycle ## Footnote Structural positions indicate long-term fiscal health.

Question 60

What is the **overall budget position**?

Answer 60

An accumulation of deficits and surpluses over time to give the overall budget ## Footnote The overall budget position reflects the government's financial history.

Question 61

Define **national debt**.

Answer 61

The sum of government debts built up over many years ## Footnote National debt can impact future fiscal policy.

Question 62

What does **crowding out** refer to?

Answer 62

When government borrowing discourages private sector investment or when government provision of a good or service prevents it being provided by the private sector ## Footnote Crowding out can hinder economic growth.

Question 63

Define **crowding in**.

Answer 63

When government borrowing leads to an increase in private investment ## Footnote Crowding in can stimulate economic activity.

Question 64

What is the **Laffer curve**?

Answer 64

Shows that a rise in tax rates does not necessarily lead to a rise in tax revenue, due to the impact on incentives and work ## Footnote The Laffer curve illustrates the relationship between tax rates and tax revenue.

Question 65

Define **average tax rates**.

Answer 65

The amount of tax paid as a proportion of income ## Footnote Average tax rates provide insight into the tax burden on individuals.

Question 66

What is the **marginal rate of tax**?

Answer 66

The rate of tax applied to the next unit of currency in income e.g. the rate of tax on the next pound earnt in the UK ## Footnote The marginal rate affects economic behavior and decisions.

Question 67

What is **monetary policy**?

Answer 67

The attempts of the central bank/regulatory authority to control the level of AD by altering base interest rates or the amount of money in the economy ## Footnote Monetary policy is a key tool for managing economic stability.

Question 68

Define **money supply**.

Answer 68

Stock of money in the economy ## Footnote The money supply influences inflation and economic activity.

Question 69

What are **interest rates**?

Answer 69

The price of money ## Footnote Interest rates affect borrowing and spending decisions.

Question 70

What is **symmetric inflation targeting**?

Answer 70

When the Central Bank intervenes when inflation is too high or too low ## Footnote This approach aims to stabilize inflation around a target rate.