ECON2 Definitions

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  • Created by: nath77mot
  • Created on: 29-04-15 21:02

Balance of Payments

In a current account, it is the difference in value between imports and exports

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Unemployment

The number of people who are willing and able to work, who are actively seeking employment

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Growth

An increase in the total value of all goods/services produced in an economy, over a given period of time

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Inflation

A sustained increase in general price levels

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The Economic Cycle

The natural fluctuation of the level of GDP, moving an economy between economic booms and recessions in a continuous cycle

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Aggregate Demand

The total number of people within an economy that have the willingness and ability to consume a good/service, at any given price, over a given period of time

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Short Run Aggregate Supply

The total willingness and ability of producers to supply goods/services within an economy, at any given price, over a given period of time

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Long Run Aggregate Supply

The productive capacity within an economy

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Government Spending

Spending by central and local government on goods/services

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Consumption

The number of people who are purchasing good/services

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Investment

When firms invest their profits into purchasing capital equipment

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Net Exports

The value of all goods/services exported minus the value of all goods/services imorted

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Circular Flow of Income

Model that shows how money flows between households and firms.

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Multiplier Effect

An effect which causes repeated increases in aggregate demand, orginally caused by an increase in consumption

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Average propensity to consume

The proportion of disposable income spent. It is consumer expenditure / disposable income

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Average propensity to save

The proportion of disposable income saved. It is saving / disposable income 

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Positive Output Gap

When actual GDP is greater than trend/potential GDP

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Negative Output Gap

When actual GDP is less than trend/potential GDP

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Cyclical Unemployment

Unemployed due to the stage of the economic cycle that the economy is at

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Frictional Unemployment

Unemployed due to being between jobs

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Structural Unemployment

Unemployed due to not having the necessary skills to carry out the job

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Seasonal Unemployment

Unemployment due to the time of year that it is

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Demand Pull Inflation

Inflation caused by an increase in aggregate demand

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Cost Pull Inflation

Inflation caused by a decrease in short run aggregate supply

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Accelerator Effect

An effect which causes repeated increases in aggregate demand, orginally caused by an increase in investment

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Fiscal Policy

The use of tax levels and government spending in order to control aggregate demand

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Monetary Policy

The use of interest rates and money supply in order to control aggregate demand

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Quantitive Easing

The way that the Bank of England increases the money supply, by buying large sums of government debt, in the form of government bonds

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Supply Side Policies

Policies that the government use, over a long period of time, in order to increase long run aggregate supply and therefore economic growth

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Exchange Rates

The price of one currency in terms of another

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