Key Economic Terms

A list of all the Economic terms you need to know for AQA Units 1 and 2.

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  • Created on: 16-05-12 14:39
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Key Economic Terms
Economic Term Definition
Accelerator effect The relationship between the change in new investment and the
rate of change of national income
Actual supply The amount that producers in fact produce. This may differ from
planned supply for a variety of reasons such as breakdowns in
production, staff absences etc.
Aggregate demand Total planned expenditure in the economy, shown by the equation:
(AD) AD = C + I + G + (X - M)
Aggregate Supply The total value of goods and services supplied in the economy
Allocative efficiency When it is not possible to make anyone better off, without making
someone else worse off, or you cannot produce more of one good
without making less of another
Balance of payments Exports minus imports (X ­ M) ­ a deficit means more is imported
than exported
Balance of trade Visible exports minus visible imports
Balanced budget Where government receipts are equal to government spending
Boom/bust policy The government using macroeconomic tools to stimulate and then
contract the economy
Broad money Money that is held in banks and building societies but that is not
immediately accessible
Budget deficit Where government spending > government receipts
Budget surplus Where government receipts > government spending
Capital spending Government spending to improve the productive capacity of the
nation, including: infrastructure, hospitals and schools
Central bank The financial institution in a country or group of countries typically
responsible for issuing notes and coins and setting short-term
interest rates (Bank of England, Federal Reserve)
Classical view Economists who believed that recessions and slumps would cure
Commodity A good that is traded, but usually refers to raw materials or
semi-manufactured goods that are traded in bulk, such as tea, iron
ore, oil and wheat. Often they are unbranded goods (homogenous)
where all firms' products are very similar and undistinguishable
from each other e.g. bananas
Competition A market situation in which there are a large number of buyers and
Complementary Goods that are consumer together, e.g. DVD players and DVDs,
products and bread and butter
Complete market Where the free market fails to provide a product at all, i.e. the case
failure of public goods
Composite demand A good that is demanded for more than one purpose so that an
increase in demand for one purpose reduces the available supply
for the other purpose, typically leading to higher process, e.g. milk
is used in butter and cheese
Contraction in supply When the amount offered for sale is reduced because the price
level has fallen

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Contractionary fiscal Increasing levels of tax revenue relative to government spending,
policy appropriate during a boom in economic activity
Contractions in A fall in the quantity demanded caused by rises in prices
Cost push inflation Where increased costs of production result in firms increasing their
prices leading to an increase in the general price level
Consumer price index A measure of the price level similar to the HICP (Harmonised Index
(CPI) of Consumer Prices) used widely in the Eurozone.…read more

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Economic indicators Economic statistics that provide information about the expansions
and contractions of business cycles
Economic models These are used to show the essential characteristics of complicated
economic conditions in order to analyse them and predict the result
of changes of variables
Economic welfare Refers to the benefit or satisfaction an individual or society gets
from the allocation of resources. We can attempt to measure the
welfare of individuals but really we want to understand the overall
effects on society as a whole.…read more

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Free-rider problem Where some consumers benefit from other consumers purchasing
a good, particularly in the case of public goods
Frictional/search People between jobs
GDP per capita GDP divided by the population ­ a measure of living standards
Geographical Where workers find it difficult to move to where employment
immobility opportunities may be, due to family ties and differences in housing
Globalisation The ability to produce goods anywhere in the world and sell them
in any country
Goods and services Goods are considered to…read more

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Joint supply When the production of one good also results in the production of
Keynesian The view of John Maynard Keynes, a very influential UK economist
(1883 ­ 1946) who suggested how governments could cure mass
Labour market An example of a factor market, in this case where labour is bought
and sold
Law of unintended When the actions of consumers, producers and governments have
consequences effects that are unanticipated
Long-run aggregate The economy's productive capacity
supply (LRAS)
Marginal external The spillover benefit…read more

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Negative Costs imposed on 3rd party not involved with the consumption or
externalities production of the good
Negative output gap Where the economy is producing less than its trend output
Net government The difference between government spending and taxation
Nominal GDP/nominal GDP/income/output figures not adjusted for inflation
Normal goods Goods or services that will see an increase in demand when
incomes rise
Normative Opinions that require value judgments to be made
Occupational As patterns are demanding employment change, many workers…read more

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Productivity A measure of efficiency, measuring the ratio of inputs to outputs;
the most common measure is labour productivity, which is the
output per worker
Profit When total income already knew for a firm is greater than total
Public good A good possesses the characteristics of non-excludability and
non-rivalry in consumption
Quasi-public good A good that has some of the qualities of a public good but does not
fully possessed the 2 required characteristics of non-rivalry and
Real GDP/real GDP/income/output figures adjusted for…read more

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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
Supply-side shock Something that'll increase or reduce the costs, hence supply-side
of all firms in the economy, e.g.…read more


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