Economics Class Quiz

The extent to which firms use their capital goods, such as machinery and buildings, in their production process.

A tax levied on companies' profits.

Profits retained by a company for investment rather than being distributed to shareholders as dividends.

The average cost of producing a single unit of output.

A theory that states that an increase in national income or demand for consumer goods leads to a proportionally larger increase in investment.

Factors that influence government spending, including the perceived level of market failure, the level of economic activity, the desire to please voters, and the threats of war, terrorism, or crime.

Factors that influence net exports, including real disposable income at home, real disposable income abroad, exchange rates, tastes and preferences, and protectionism.

An economic situation where all those who are willing and able to work at the prevailing wage rate can find jobs.

Increases in the price level caused by increases in aggregate demand (AD).

Increases in the price level caused by increases in the costs of production.

Output measured in current prices, not adjusted for inflation.

Output measured in current prices adjusted for inflation.

A low and consistent rate of inflation, typically around 2-3%.

The difference between a country's exports and imports of goods and services, including income from investment and current transfers.

A situation where a country's imports are greater than its exports.

A situation where a country's exports are greater than its imports.

A fall in the exchange rate makes exports cheaper and imports more expensive, potentially boosting a country's exports and reducing imports. This can improve a country's trade balance (the difference between exports and imports) and contribute to economic growth.

When a currency weakens, imports become more expensive, potentially leading to higher costs for businesses and consumers. Also, imported raw materials get pricier, increasing production costs for domestic firms.

A weaker local currency can stimulate demand for a country's exports, as they become more affordable for international buyers. This increased demand can lead to higher production, job creation, and economic growth.

A depreciation of the currency can lead to higher prices for imported goods and raw materials, potentially increasing production costs and putting upward pressure on inflation.

Lowering direct taxes like income tax can encourage firms to invest more, workers to be more productive, and unemployed individuals to seek jobs, leading to increased aggregate demand and supply.

A National Minimum Wage (NMW) can potentially increase labor supply by making work more attractive, but it could also reduce efficiency if businesses find it difficult to hire at the mandated wage.

Reducing unemployment benefits can incentivize unemployed individuals to seek work at lower wages, but it could also worsen income inequality and lead to a decrease in aggregate demand if the unemployment is cyclical.

A reduction in trade union power can potentially increase the efficiency of labor markets by allowing companies more flexibility in hiring and firing decisions. However, it could also lead to less worker protection and lower wages.

Supply-side policies aim to increase the productive capacity of the economy by influencing factors like labor supply, technology, and investment.

The price of one currency expressed in terms of another currency. For example, if the exchange rate is £1 = $1.50, then one British pound can be exchanged for 1.50 US dollars.

An international organization that helps coordinate the global monetary system and provides financial assistance to countries facing economic difficulties. It works to ensure stability in the international financial system.

An international organization that promotes free trade between countries. It sets rules for international trade and resolves disputes between trading partners.

A committee of the Bank of England responsible for setting the interest rate in the UK to meet the government's inflation target.

This index measures the value of the British pound against a basket of other currencies, taking into account each country's trade volume with the UK, both in goods and services. It helps the MPC assess the impact of currency fluctuations on the UK economy.

A situation where a country produces more of a good or service than it can sell, causing a decline in prices and potential job losses.

The ability of a country's products to compete in the international market. Competitive products are priced well, have high quality, and meet consumer demand.

The total amount of income earned by people in a country. Higher incomes abroad can lead to increased demand for exports from that country.

Individuals or institutions who buy and sell currencies in the hope of profiting from changes in exchange rates or interest rates. They can influence currency movements.