ECON 2 definitions AQA

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  • Created on: 20-05-14 15:11
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Aggregate demand
Total demand in the economy made up of consumption, investment, government
expenditure and net exports. C + I + G + (X ­ M)
Aggregate Supply
The total value of goods and services supplied in the economy.
Economic growth
The capacity of the economy to produce more goods and services over time.
Gross domestic product
The total value of goods and services produced in the economy.
Negative output gap
Where the economy is producing less than its trend output.
Positive output gap
When actual GDP exceeds trend GDP increasing inflationary pressure.
Trade- off
Where one macro-economic objective has to be curtailed in favour of another objective.
Goods or services purchased from abroad.
Goods or services sold abroad.
Where labour is actively engaged in a productive activity usually in exchange for payments
such as wages.
Those without a job but who are seeking work at current wage rates.
The sale of goods or services to a foreign country- generates income for the home country.

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The purchase of goods and services from abroad- leads to expenditure for the home
Economic indicators
Economic statistics that provide information about the expansions and contractions of
business cycles.
Nominal GDP/ nominal national income/ nominal output
GDP /income /output figures not adjusted for inflation.
Real GDP/ real national income/ real output
GDP /income /output figures adjusted for inflation.
GDP per capita
GDP divided by the population- a measure of living standards.…read more

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A quantity measured at a particular point in time.
Money that originates outside the circular flow and so will increase national income /output
Any money not passed on in the circular flow and has the effect of reducing national income
/output /expenditure.
Investment (I)
Spending by firms on buildings, machinery and improving the skills of the labour force.
Savings (S)
A withdrawal from the circular flow.
Income induced
Will increase as income increases and decrease as income decreases.…read more

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Businesses expect future sales and profits to be less due to factors like falling aggregate
Accelerator effect
The relation between the change in new investment and the rate of change of national
Sale of government- owned assets to the private sector.
The view of John Maynard Keynes, a very influential UK economist (1883 -1946) who
suggested how governments could cure mass unemployment.
Classical view
Economists who believed that recessions and slumps would cure themselves.…read more

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The government using macroeconomic tools to stimulate and then contract the economy.
Total factor productivity
The overall productivity of inputs used by a firm in producing a particular level of output.
A situation where prices persistently fall.
Credit crunch
Where borrowing becomes more expensive or unavailable.
Participation rates
Proportion of the country's population that makes up the country's labour force.
Demand pull inflation
Where aggregate demand exceeds aggregate supply leading to an increase in the level of
prices.…read more

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Workers who are not prepared to take a job at current wage levels.
Discouraged workers
Workers who leave the labour market because despite numerous attempts they are unable
to find a job.
Exports or imports that are tangible, that you can see and touch as they cross international
Intangibles such as the provision of insurance or banking services.
Balance of trade
Visible exports minus visible imports.…read more

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The money rate of interest minus the rate of inflation.
Transmission mechanism of monetary policy
How changes in the base interest rate influence the components of aggregate demand.
A measure of the price level that excludes payments to service mortgage interest from the
Retail Price Index measure. Used as the target measure for inflation by the government and
MPC until the end of 2003.…read more

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Government spending to improve the productive capacity of the nation, including
infrastructure, schools and hospitals.
Transfer payments
Government payments to individuals for which no service is given in return, e.g. state
Balanced budget
Where government receipts equal government spending in a financial year.
Budget deficit
Where government spending exceeds government receipts in a financial year (PSNCR).
Budget surplus
Where government receipts exceed government spending in a financial year (PSDR).…read more

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Where individuals receive more in benefit payments that they would be paid if they were in a
Supply- side policies
A range of measures designed to increase aggregate supply and hence the potential output
of the economy, though many improvements may come from the private sector.
Labour market
An example of a factor market, in this case where labour is bought and sold.…read more


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