ECON 4

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Recession
Negative economic growth over two successive quarters
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Economic growth
An increase in the real output of the economy.
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Long-term growth rate
the average rate of econ growth sustained over a period of time
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Real GDP per capita
total output of the economy in a year, divided by the population, adjusted for inflation
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PPB
Diagram showing the max. combination that can be produced given max productive efficiency.
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Actual growth
an increase in the productive potential of the economy matched by an increase in demand
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Potential growth
an increase in the productive potential of the economy, not necessarily matched by demand
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output gap
the difference between actual and potential growth.
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Trend rate of econ. growth
the long run average increase in GDP
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economic cycle
the cycle pattern of short term fluctuations in gdp from year to year
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Supply side policies
a range of measures designed to increase AS
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Participation rate
the proportion of a population of working age in a job or actuvely seeking work
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occupational immobility
the difficulties faced by workers wishing to change occupations due to not having the required skills or qualifications
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Labour productivity
output per worker per hour
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GNP
GDP plus net property income from abroad
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NI
Output produced in the UK, plus net property income from abroad, minus depreciation of the nation's capital equipment.
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Non-monetised
valuable economic activity where no money changes hands
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Purchasing power parity
exchange rates that take into account how much a typical basket of goods in one country costs compared to another
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HDI
a measure of economic welfare based on the average of 3 indicators - standard of living, life expectancy and educational attainment
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HPI
a measure of econ welfare based on 4 basic dimensions of human life - longevity, knowledge, econ provisionin and social inclusion
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Measure of domestic progress
a measure of economic welfare designed to reflect progress in life and towards a sustainable economy by factoring in the social and environmental costs of grwoth, and benefits of unpaid work such as household labour.
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Misery index
a measure of econ. welfare constructed by adding unemployment rate to inflation rate
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Sustainability (of growth)
econ. growth which does not impose costs on future generations
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Balance of payments
a record of the financial transactions over a period of time between a country and its trading partners
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inventory investment/ stock-building
investment by firms in stocks of raw materials and stocks of finished goods ready to be sold
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CPI
the headline measure of inflation, derived from movements in a weighted basket of consumer goods over a 12-month period
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Living costs and food survey
a representative monthly survey of UK household expenditure used to derive changes in CPI
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Indirect taxes
tax levied on spending on g/s
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wage-price spiral
the process whereby increases in costs, such as wages, lead to increases in prices, which in turn lead to firms' costs increasing and so on
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quantity theory of money
the theory that increases in money supply will lead to increases in price level
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velocity of circulation
the no. of times the money supply changes hands in a year
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hyperinflation
very large, rapid increases in the general price level
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Anticipated inflation
where economic agents correctly predict the future rate of inflation
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Unanticipated inflation
where economic agents do not accurately predict the future rate of inflation
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Shoe-leather costs
the time and money spent 'shopping around' by consumers to find the best deals when prices are rising throughout the economy
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fiscal drag
increases in the burden of taxation, when tax allowances are not increased in line with inflation
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money illusion
when economic agents fail to realise that changes in money values are not the same as changes in real values
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Benign deflation
falling prices resulting from tech advances across the country
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Malevolent deflation
falling prices resulting from a significant downturn in the economy
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equilbrium unemployment
when AD for labour = AS
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geographical immobility
the inability of a factor of production to move to where jobs exist
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replacement ratio
unemployment benefits divided by the income an unemployed worker could receive if in work.
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Casual unemployment
kind of frictional unemployment when workers are laid off on short term basis.
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Seasonal unemployment
casual unemployment resulting from seasonal fluctuations in demand.
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deindustrialisations
fall in proportion of national output accounted by the maunfactuing sector of the economy
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Technological unemployment
unemployment due to introduction of labour-saving technology.
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Involuntary unemployment
when a worker is willing to accept a job at the going wage rate but is not offered one.
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Classical or real-wage
results from real wages being above their market-clearing level, creating an excess supply of labour.
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Natural rate of unemployment
unemployment that exists when aggregate demand for labour equals aggregate supply, that is voluntary, frictional unemployment.
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Hysteresis
tendency for a variable not to return to its original value or state when changed; eg unemployment can lead to higher unempoyment.
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Phillips curve
economic model that shows a trade-ff between inflation and unemployment.
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Stagflation
coexistence of high levels of inflation and unempoyment.
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Adaptive expectations
Where decisions about the future are based upon past information.
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NAIRU
non-accelerating inflation rate of unemployment, that is, the level of unemployment at which there is no tendency for inflation to accelerate.
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Globalisation
world wide growth of multinational companies, international integration, the spread of free markets and policies of liberalisation and free trade,
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Direct taxes
taxes levied directly on the income of an individual or organisation.
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Canons of taxation
the characteristics of a good tax, after adam smith
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Principles of taxation
a modern list of characteristics of a good tax system
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horizontal equity
when people or firms with the same income and financial circumstances pay the same amount of tax
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vertical equity
when the amount that people and firm pay is based on their ability to pay
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hypothecation
when taxes are earmarked for a specific purpose
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benefit principle
the argument that taxes should be linked to the benefits received by taxpayers
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The Budget
The govts annual announcement of changes to its planned levels of spending and taxation
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Progressive tax
where the proportion of a persons income paid in tax increases as income increases
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regressive tax
where the proportion paid in tax falls as income increases
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Proportional tax
where the proportion of income paid in tax stays the same as income increases
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Fiscal stance
whether the govt is seeking to increase/ decrease AD using fiscal policy
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Neutral fiscal stance
where the govt runs a balanced budget
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Demand management
use of macroeconomic policy to manipulate the level of AD in the economy
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cyclical budget deficit
a deficit resulting from fluctuations in the economic cycle
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Automatic stabilisers
features of govt spending/ taxation that minimise econ fluctuations
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structural budget deficit
a deficit resulting from fundamental changes in the structure of the economy
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Public sector net cash requirement
the difference between govt spending and revenue
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netional debt
borrowings of the govt over successive years
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crowding out
where a public sector deficit deters private sector investment and consumption
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Golden rule
The UK govts fiscal rule that net govt borrowing should only be to fund infrastructure projects
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sustainable investment rule
over the econ cycle, public sector debt should not exceed 40% of gdp
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'stealth' taxes
a negative term coined by govt critics to describe taxes designed to go unnoticed
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FDI
investments in the domestic economy in new manufacturing plants by foreign multinational companies
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Laffer curve
a model that shows the theoretical relationship between tax rates and tax revenue
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'welfare to work'
a series of politicies designed to increase incentives to gain employment
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Liquidity
the degree to which financial assets can be easily converted into money
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Base rate
the interest rate a bank sets to determine its lending and borrowing rates. It will tend to offer interest rates below the base rate to savers, whilst charging rates above the base rate for borrowers
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Monetary base control and reserve asset ratios
Restrictions imposed by the BOE on the ability of high street banks to supply credit and bank deposits
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Open Market Operations (OMOs)
the buying and selling of govt bonds in exchange for money to either increase/ decrease the money supply
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Eurozone
the countries in the EU that have adopted the Euro
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Transmission mechanism of monetary policy
the process by which a change in interest rates affects AD and inflation
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Semi-manufactures
products beyond the raw material stage that are used in the production of finished goods e.g. stones and metals
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Absolute advantage
where a country using a given resource input is able to produce more than other countries with the same input
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Comparative advantage
The oc of producing the good is less in a country than elswhere
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Ricardian theory
By David Ricardo - outlines the theory of comparative advantage
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strategic value
of extreme importance to a country - may be required during wars e.g armaments
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trade embargoes
prohibition of the export and import of certain types of products
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Marshall-Lerner condition
Devaluation or depreciation of a currency will lead to an overall improvement in the current account as long as the combined price elasticities of demand or exports and imports exceed one.
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Specific tax
a tax levied at a fixed rate per unit
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Ad-volorem
a tax which is a % of the price of the unit
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Current account
the part of the balance of payments that primarily records trade in g/s
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capital and financial account
records capital flows in/ out of the country
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Balance of trade in goods
visible exports - visible imports
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balance of trade in services
invisible exports - invisible imports
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net income flows
the difference between inward and outward flows of interest, profits and dividends.
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net current transfers
mainly govt transfers to and from overseas organisations
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direct investment
the aquisition of productive assets e.g. factories and offices
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portfolio investment
the aquisition of financial assets e.g. shares
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expenditure-reducing policies
policies used to correct current account imbalances by reduces consumer spending power
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Expenditure-switching policies
policies used to correct current account imbalances by encouraging consumers to purchase domestically produced output rather than imports
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marginal propensity to import
the proportion of an increase in income spent on imports
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direct control
controls on imports such as tariffs and quotas
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devaluation
reducing the value of a currency in a fixed or semi-fixed exchange rate system
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depreciation
in relation to currencies, reducing the value of a currency in a free-floating exchange rate system
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J-curve effect
in the ST, a devaluation/ depreciation will lead to a deterioration of the current account before it starts to improve.
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revaluation
increasing the value of a currency in a fixed or semi-fixed exchange rate system
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appreciation
increasing the value of a currency in a free-floating exchange rate system
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exchange controls
restrictions on the ability to trade foreign currencies to a country's central bank
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Adjustable peg
value of the fixed exchange rate can be changed as circumstances require
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crawling peg
frequent changes in the value of a fixed exchange rate
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IMF
a multinational institution set up in 1947 to operate the adjustable peg exchange rate system
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dirty float
manipulation of a floating rate to gain advantages over trading partners
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The Euro
the currency adopted by the member of the Economic and Monetary Union (EMU)
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Single market
removal of obstacles such as customs checking, to allow the free movement of g/s, capital and persons through the area
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EMU
a group of countries that have adopted the euro and have their monetary policy controlled by the ECB
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Trade deflection
redirection of international trade due to the formation of a free trade area
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rules of origin
stipulation that a product must be manufactured from locally sourced components
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intra-area trade
trade between the members of a trading agreement
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trade creation
an increase in international trade that results from a decrease in tariff barriers
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social dumping
where goods are produced by a low wage labour usually without expense by employers on workers' social benefits
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Anglo-saxon neo-liberalisation
economic reform aimed at boosting the dynamism of economies - in contrast to the social model which stresses social objectives
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FOREX market
abbreviation of foreign exchange markets
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Eurosclerosis
high unemployment and slow job creation despite econ. growth
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Card 2

Front

An increase in the real output of the economy.

Back

Economic growth

Card 3

Front

the average rate of econ growth sustained over a period of time

Back

Preview of the back of card 3

Card 4

Front

total output of the economy in a year, divided by the population, adjusted for inflation

Back

Preview of the back of card 4

Card 5

Front

Diagram showing the max. combination that can be produced given max productive efficiency.

Back

Preview of the back of card 5
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