Economics Key terms and definitions

Micro and Macro economics (AS) that you will need to know

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  • Created by: Jessica
  • Created on: 18-03-12 14:26


The study of how society allocates it's scarce/limmitted resources to meet the needs and wants of society.

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The economic problem

The concept: We have limited resources yet unlimited wants

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Economic cycle

measures the change in GDP over time

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2 consecutive quatres of negative economic growth

(quatres of a year - 3 months)

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very fast economic growth over a sustained period

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the cost of borrowing and the return on savings.

The sustained increase in the general price level

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Rate of inflation

The anual % change in inflation

(change in consumer prices)

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Monetary Policy

The manipulation of Interest rates in order to change GDP

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Fiscal Policy

The manipulation of Government spending and Taxation in order to manipulate GDP

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Keynes (fiscal policy)

he discovered that an economy sometimes needs governmental intervention.

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Direct Taxes (PICNIC)

P-etrolium revenue (net income of north sea field)

I-ncom tax

C-o-orperation tax



C-ontributions (paid by individuals to social secutrity)

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Indirect taxes (VAT)


A-lchohol duties

T-axes on tobacco

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Problems with fiscal policy (TIME DISC)

T-ime lag- it takes time to implement an appropriate policy response. Plans are subject to a three year spending review.

I-ncome-if government spending causes the increase in D for workers, and thus wages increases, it will not make a difference unless they spend thier extra money, without thier consumption the multiplier affect will not exsist.

M-onetary polict could cancel it out- if iterest rates don't follow fiscal, than it could erase the benefit created


D-ebt-Fiscal  policy creates an opportunity cost

I-ndustry dependance- although money will help industries cut costs and increase output, it might not create jobs - if they are capital intensive, it may not help

S-ize of tax- it has to be substantial enough to encourage spending and hence the multiplier effect

C-onsumer confidence- regardless of income, if a consumer feels poor (negative wealth affect) they aren't going to spend. some are worried about losing thier jobs, so don't spend - regardless of the expansionary incentives

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Ways of meauring GDP

standards of living

output method

expenditure method

income method

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critisisms of GDP as a reliable measurement of liv

WIDE NOSH - appologize for the acronym, please help me if you have any other suggestions! :)

W-hat is produced- if an economy A produces more capital goods (aid for manufacturing) than economy B which focuses consumer goods trends will illustrate GDP as higher for economy A in the short tun, but in the long run those capital goods will be used to produce consumer goods.

I-gnores goods which have no money value -i e barter economies

D-istribution of income is neglected. although Real GDP per capita is higher, it might have very rich individuals and a poor

E-valuating public services is difficult, may over and underestimate their value

N-egative externialities produced from economic bads

O-vertime price comparrison dates- for example, a man owns a fridge and a computer, yet now they are worth 1/20th of what he bought it in the first place, yet its not considered

S-tandards of living luxuries, holidays actually contribute to another economies wealth, and don't contribute to the circular flow diagram, but holidays illustrate good quality of life and saticefaction

H-idden economy-one of the easiest ones. The illegal black market don't declare their income, causing under estimation of GDP

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The purchase of a resource (good or service) in the country

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Determinants / factors affecting PED (SHIP BED)

S - substitutes and compliments available

H - habitual good

I - proportion of incomes the good takes up ( larger proportion = more elastic)

P - peak or off peak

B - breadth of definition - e.g. elasticity is different for 'cereal' as apposed to 'kellogs cornflakes'

E - elasticity

D - degree of a neccessity or luxury. N PED=<1 L PED=>1

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A really good set of notes, thanks :)

Just check again to make sure you've uploaded all of slide 15.

i can't seem to see all of it 



YOUR WELCOME! i will be updating them, and number 15 is now finished :)

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