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  • Created on: 29-05-10 13:11
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Economic growth - is an increase in the economy's potential level
of real output and an outward shift of the economy's PPF
Unemployment - a situation where people are out of work but are
and able to work.
Inflation - a sustained rise in the price level; the percentage increase in the
price level over a period of time.
Gross domestic product (GDP) - the total output of goods and
services produced in a country
Aggregate demand (AD) - the total demand for a country's goods
and services at a given price level and in a given time period.
Multiplier effect - the process by which any change in a component
of aggregate demand results in a greater final change in real GDP.
Supply-side policies - policies designed to increase aggregate
supply by improving the efficiency of labour and product markets.
Monetary policy - central bank and/or government decisions on
the rate of interest, the money supply and the exchange rate.
Fiscal policy - the taxation and spending decisions of a government.
Supply side policy ­ policies to increase aggregate supply by improving mobility of labour,
increasing competition.
Productivity ­measures the Output per unit an example is labour productivity is the output
per worker
Demand pull inflation ­ is a rising price level caused by an increase in
Aggregate demand
Cost push inflation ­ is a rising price level caused by an increase
in cost of production
Strong pound ­means imports are cheap and exports are dear
[Strong Pound Imports Cheap Exports Dear]
Weak pound ­ means imports are dear and exports are cheap
[Weak Pound Imports Dear Exports Cheap]

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Recession-is a fall in real output for 6 months or more
Consumption ­The total planned spending by household
on real output produced within the economy
Saving ­Income which is not spent
Wealth ­ A stock of assets or things that have value which
people own. E.g.…read more

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Government spending
Imports and exports
Consumer expenditure ­
real disposable income, this is the main influence on
consumer expenditure
Wealth, the more people have (savings and shares) the more they tend to spend
Consumer confidence, how optimistic consumers are about future economic prospects.
Investment ­
Investment Is defined as the total planned spending by firms on capital goods such as
machinery and raw materials. The determents of investment are.…read more

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Aggregate Supply (AS)
Shifts in AS:
Short run (SRAS) Long run (LRAS)
Changes in the costs of production Changes in the quantity and quality
of resources
Changes in the costs of raw materials Improvements in education and
Change in wages Advance in technology
Changes to producer taxes
The circular flow of income:
Producers and consumers: household expenditure (consumption) flows to firms to pay for
goods and services.…read more

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High employment and low unemployment.
Full employment, a situation where those wanting and able to work
can find employment at the going wage rate.
Having a higher proportion of economically active people should raise
the productive potential of the economy and reduce the cost of
state benefits.
Low and stable inflation, this can also be referred to as price stability.…read more

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The only way it can increase its output is to switch resources from making
consumer goods to making capital goods.
If economic growth is achieved in a way that is not sustainable, without
regard to controls on pollution, there will be damage to the environment.
There is also risk that economic growth may result in the depletion of
non-renewable resources.
Economic growth may reduce the quality of some people's lives.…read more

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Another difficulty of the claimant count is that it is not suitable for
international comparisons.
The causes of unemployment:
Cyclical unemployment, unemployment arising from a lack of AD.
Unemployment can also arise due to problems with the supply labour.
Structural unemployment, unemployment caused by the decline of certain
industries and occupations due to changes on demand and supply.
Technological unemployment, arises when workers lose their jobs because
of advances in technology.…read more

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A sustained rise in price level; the percentage increase in the price level over a period of time.
Measuring inflation:
Consumer price index (CPI), a measure of changes in the price of a
representative basket of consumer goods and services.
Retail price index (RPI), measure of inflation that is used for adjusting
pensions and other benefits to take account of changes in inflation and
frequently used in wage negotiations.…read more

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Uncertainty, if firms are uncertain about what their costs will be and what
prices they will receive from selling their products, they may be reluctant to
The benefits of inflation:
Workers also like rises in their pay, even if these are matched by higher
The ability that inflation gives firms too alter workers' real pay can help
labour markets operate more efficiently and reduce unemployment.
DEFLATION - a sustained fall in the general price level.…read more

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Net errors and omissions, is added to ensure that the balance of payments
does balance.
The causes of a deficit on the current account:
A deficit on the current occurs when the country's expenditure abroad
exceeds its revenue from abroad.
Main reasons why these happen, (1) because the country's inhabitants
have spent more on goods and services from abroad than overseas. (2)
Because there has been a net outflow of investment income.…read more


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