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  • Created by: Jack
  • Created on: 27-03-15 19:13
Define accelerator effect
Relation between change in new investment and rate of change of national income
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Define actual supply
The amount producers in fact produce. MAy differ from planned supply
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Define Aggregate demand and list the five components of AD
Total planne expenditure in the economy. five components are consumer spending investment gov spending imports and exports
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Define aggregate supply
Total value of goods and services supplied in an economy
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What is allocative efficency?
When it is not possible to make anyone better off without making someone worse off, same with goods too
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What is the balance of payments?
X-M or exports minus imports
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what is the balance of trade
visible X- visible M
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What is broad money?
Money held in banks or building societies but not immediately accessible
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What is a buffer stock scheme?
An intervention system where the government buys excess supply for a rainy day, where it is then resold in order to limit fluctuations in price and supply
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What are the factors of production
Land labour capital and enterprise, can be split in each into Quantitiy quality and cost
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What is the classicist view on economics and the long run?
All economies will return to equilibrium without the need for intervention
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What is a commodity?
Good that is traded but normally are raw materials or semi manufactured, and are traded in bulk.
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Define competition
A market situation where there are a large number of buyers and sellers of goods.
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What are complimentary goods?
Goods that are consumed together, an increase in supply of one good leads to an increase in demand for another.
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What is complete market failure?
Where a free market fails to provide a product at all eg. public goods
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What is composite demand?
A good that is demanded for more than one purpose, increase in demand for one good leads to an decrease in supply of the other good.
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What is a contractionary fiscal policy and what is it used for?
A contractionary fiscal policy is increasing levels of taxation and reducing government spending in order to control growth and even lower AD
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What is an expansionary fiscal policy and what is it used for?
An expansionary fiscal policy is where tax revenue is reduced and governments increase their spending. Used to stimulate growth in order to get out of a recession or an economic downturn
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Define cost push inflation
Increased costs of production result in either a leftward shift in the AS curve or the costs are passed on to consumers. Either way the general price level is higher
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What is CPI?
Consumer Price index. Used to measure the shopping basket to determine inflation, excluding house prices
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What is a credit crunch?
Where borrowing becomes very expensive or even unavailable.
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What is a current account equilibrium?
Where the current account exercises no effect on the domestic macroeconomy (X-M)=0
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How do people become cyclically unemployed?
Those that are cyclically unemployed are unemployed due to the fact that there have been downturns in the economy and they are made redundant or let off.
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What is deflation?
Where the general price level falls persistantly
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What is demand pull inflation?
Where AD exceeds AS leading to an increase in the level of prices
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What is a demerit good?
A good that is over consumed, and it brings less benefits to consumers than they realise
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Define deregulation
The process of removing government controls from a market.
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What is derived demand?
An increase in demand for one good results in an increase in demand for the raw material that made that specific good.
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What policy is used by governments to influence the economy?
Diescretionary fiscal policy
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What are diseconomies of scale?
Increase in the scale of production leads to increases in average total costs for firms.
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What is disposable income?
Income available to households after payment of income tax and national insurance contribution
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What is the division of labour?
Breaking the production process down into a sequence of tasks, SPECIALISATION
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What are economic goods?
Goods that are scarce and thus have an opportunity cost.
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Whta are economic indicators?
Statistics that provde info about expansions and contractions of business cycles
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Economic models are...
Used to show the essential characteristics of complicated economic conditions in order to analyse them and predict the result of changes of variables
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What are economies of scale?
Increase in the scale of production leads to reductions in average total costs for firms
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Effective demand is...
Demand supported by ability to pay for a good or service
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What are exports?
Goods or services sold abroad.
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What are externalities?
Costs or benefits that spill over onto third parties external to a market transaction
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What are fixed costs?
Costs of production that do not vary as output changes
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What are free goods?
Those that have no opportunity cost eg air
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Define frictional unemployment
those that are between jobs or searching for a job
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What is government failure?
Where government intervention in order to try and correct a market failure fails to reallocate resources or worsens the situation
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define gross domestic product
the total value of goods and services produced in an economy
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What are imports?
Goods or services purchased from abroad
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What is incidence of tax?
proportion of a tax that is passed on to consumers
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What is the income elasticity of demand and what is the equation to calculate it?
proportion to which demand changes when there is a change in income %change in q demanded over %change in income
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What are index numbers?
a weighted average of a group of items compared to a given base value of 100.
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What is indirect tax and give an example of it?
A tax on spending, and VAT
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What are inferior goods?
goods or services that see a fall in demand when income rises.
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Define inflation
A PERSISTANT increase in the level of prices
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What are inflationary pressures?
Occurences that are likely to lead to increased prices
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What are interest rates used for?
Set by the MPC as a way of controlling the cost of borrowing or the reward for saving.
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Define joint supply
When the production of one good leads to an increase in the production of another. D of one good up leads to S of another good up.
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What is the keynesian view on the Long run aggregate supply?
That there needs to be intervention in a market in order to correct market failure and to efficently allocate resources.
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Define the marginal external benefit
Spillover benefit to third parties of an economic transaction
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Define marginal external cost
The spillover cost to third parties of an economic transaction
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Define marginal private benefit
benefit to an individual or firm of an economic transaction
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Define marginal private cost
cost to an individual or firm of an economic transaction
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Define marginal social benefit
The full benefit to society opf an economic transaction, MPB+MEB
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Define marginal social cost
the full cost to society of an economic transaction, MPC+MEC
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What is market failure?
Where the market fails to produce what consumers require at the lowest possible cost
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What is the market mechanism?
The interaction of the forces of supply and demand, leading to an equilibrium price and quantity for a product.
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Where is a price ceiling set on a diagram?
Below the equlibrium level
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Where is a price floor set?
Above the equilibrium level
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What is a merit good?
A good that would be under consumed in a free market as individuals dont understand the benfit the good has in the long term eg education.
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What is monetary policy?
the controlling of interest rates and the rate of quantitive easing by the MPC
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What is a monopoly?
a market structure dominated by a single seller of a good.
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What is the multiplier effect and how does it work?
where an injection of money leads to a greater increase in national income, as money is gone through different hands the amount becomes greater.
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What are negative externalities?
Costs imposed on a third party not involved with the consumption or production of a product.
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What are normal goods?
goods or servicres that see an increase in demand as incomes rise.
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What are normative statements?
Opinions that require value judgements to be made.
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What is the opportunity cost?
The next best alternative forgone when an economic decision is made. IT IS ONLY THE NEXT BEST ALTERNATIVE
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What are pollution permits and why are they introduced?
Permits sold to firms by governments in order to allow them to pollute up to certain limit. Used to control externalities
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What are positive statements?
Statements that can be tested against real world data.
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Define price elasticity
the responsiveness of demand to a change in the price level. The formula is percentage change in quanitity demanded divded by the percentage change in price.
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What is a private good?
A good that is both excludable and rival in consumption
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Define privatisation
sale of government assets to the prviate sector/
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What is the production possibility boundary?
PPB indicates the max possible output that can be acheived given a fixed set of resources and tech in a particular time period.
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what is a public good?
A good that possesses the characteristics of non excludability and non rivalry in consumption
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What are quasi public goods?
A good that possesses qualities of a public good but can be rivalrous and excludable
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What is the difference between real and nominal GDP?
Real GDP accounts for inflation
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How is a recession defined?
When an economies GDP shrinks in two successive quarters
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What is the difference between CPI and RPI?
RPI accounts for housing prices
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Define structural unemployment
Those out of work due to changes in infrastructure or demand in an economy.
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What are subsidies?
Payments by governments to firms in order to encourage production of a good or service.
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What are substitutes?
goods that are an alternative to another good
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Give an example of what the government can alter to affect supply side fiscal policy
Corporation tax or increase subsidies
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Define Supply side policies
a range of measures designed to increase AS and hence the potential output of an economy.
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Define transmission mechanism of monetary policy
Changes in base rate of interest will affect the components of AD
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What is unemployment?
Those out of work but are looking for a new job.
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What are variable costs?
Costs of production that vary with output.
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What is voluntary unemployment?
Thouse that choose to be out of work
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Other cards in this set

Card 2


Define actual supply


The amount producers in fact produce. MAy differ from planned supply

Card 3


Define Aggregate demand and list the five components of AD


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Card 4


Define aggregate supply


Preview of the front of card 4

Card 5


What is allocative efficency?


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