Economics Vocabulary Quiz
12 multiple-choice questions on core economics terms: supply and demand, inflation, GDP, recession and monetary policy. B1–B2 level.
Economics Vocabulary — FAQ
Fiscal policy is the government's use of spending and taxation to influence the economy. Monetary policy is the central bank's control of interest rates and the money supply. Fiscal policy is decided by the government (the Treasury), while monetary policy is usually set by an independent central bank such as the Bank of England.
GDP stands for Gross Domestic Product. It measures the total market value of all final goods and services produced within a country during a given period, usually a year. Economists use GDP growth as a key indicator of how well an economy is performing.
Inflation is a general and sustained rise in the prices of goods and services over time, which reduces the purchasing power of money. Moderate inflation is normal, but very high or very low inflation can both cause economic problems. It is measured by price indices such as the CPI.
A recession is a period of declining economic activity, typically defined as two consecutive quarters of falling GDP. A depression is a much deeper and longer-lasting downturn with severe unemployment and falling output. All depressions are recessions, but only the most extreme recessions become depressions.
Supply is the quantity of a good producers are willing to sell at each price; demand is the quantity consumers want to buy at each price. The interaction of the two determines the market price. When demand exceeds supply, prices tend to rise; when supply exceeds demand, prices tend to fall.
A tariff is a tax imposed by a government on imported goods. Governments use tariffs to raise revenue and to protect domestic industries by making foreign products more expensive. Tariffs are a common tool in trade policy and can lead to trade disputes between countries.
A monopoly exists when a single seller controls the entire supply of a product or service with no close competitors. Because there is no competition, a monopolist can often set higher prices and produce less than would occur in a competitive market, which is why many governments regulate monopolies.
A country has a trade surplus when the value of its exports is greater than the value of its imports. It has a trade deficit when imports exceed exports. The difference between exports and imports is part of a country's balance of trade.
Substitute goods satisfy the same need, so a rise in the price of one increases demand for the other (for example tea and coffee). Complementary goods are used together, so a rise in the price of one reduces demand for both (for example cars and petrol).
The unemployment rate is the percentage of the labour force that is without work but actively seeking and available for employment. It is one of the main indicators economists use to judge the health of an economy and the effectiveness of economic policy.