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Aggregate The total planned spending on real output
demand produced within an economy.
Consumption The total planned spending by households
on real output produced within the
Investment The total planed spending by firms on real
output produced within the economy.
Interest rate The rewards for saving or the cost of
Personal Savings The actual personal savings divided by the
Ratio personal disposable income.
Accelerator effect A change in the level of investment on
capital goods induced by a change in
Capital-Output The amount of capital a firm wants to keep
Ratio relative to the output it produces (assumed
firms keep this constant).
LRAS The economy's productive capacity.
Positive Businesses expect future sales and profits
expectation will increase due to factors such as increased
Negative Businesses expect future sales and profits
expectations will decrease due to factors such as falling
Supply-side shock Something that will increase or decrease
costs and hence the supply side of all firms in
the economy. E.g. a large rise in oil prices.
SIX determinants Wealth; consumer confidence; interest
of consumption rates; real disposable income; expectations
on income; availability of credit.
FOUR Expectations; Interest rates; the nature of
determinants of technological progress; relative price of
investment capital and labour.
FOUR factors Wages; cost of raw materials; corporation
affecting SRAS tax; interest rates.
FIVE factors Technology; Attitudes and enterprise;
affecting LRAS capital investment; labour productivity;
Macroeconomics The study of the whole economy at the
Circular Flow of A model of the economy which shows the
Income flow of goods, service and their payments
around the economy.
Recession When an economy is growing at less than its
long-term trend rate of growth; two
successive quarters of negative growth.
Closed Economy An economy in which there is no foreign
Savings A withdrawal from the circular flow- where
individuals of businesses store money.
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GDP A measure of national income which
excludes net income from abroad; larger
than GNP in developing countries.
Purchasing Power The exchange rate of one currency in terms
Parity of another. The exchange rate that equates
the price of a basket of identical traded
goods and services in two countries.
GNP A measure of national income that includes
net income from abroad; will be greater that
GDP in developed countries.…read more
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Policy Objective A target or goal that policy makers aim to
Policy Instrument A tool or set of tools which are used to try
and achieve the policy objective.
Policy indicator Provides information about what is
happening in the economy.
Central Bank The main bank in an economy that
implements monetary policy on behalf of
Commercial bank A bank that aims to make profit for their
owners from commercial banking activities
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Deregulation Removing previously imposed regulations
Marketisation Shifting provision of goods and services to
the market sector.
Privatisation The sale of government owned assets to
the private sector.
Trickle-down Income paid by the rich to the poorer
effect people they employ.
SIX examples of Incentives to work (income tax); Education
supply-side and training; Trade union reforms;
policies deregulation & privatisation; Encourage
entrepreneurship; Encourage capital