Economics Keywords

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  • Created by: Alfel
  • Created on: 14-03-16 20:45
Market
A market is a any structure that allows buyers and sellers to exchange any types of goods, services and information.
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Transaction
The exchange of goods or services, with or without money.
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Balance of Payments
The total of all the money coming into a country from abroad less all of the money going out of the country during the same period. Increasing the rate of inflation will worsen Balance of Payments, and vice versa.
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Factors of Production
Factors of Production refer to an economic term to describe the inputs that are used in the production of goods or services in the attempt to make an economic profit. The factors of production include Land, Labour, Capital and Enterprise.
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Capital
Money or assets put to economic use. Economists describe capital as one of the four essential ingredients of economic activity, the factors of production, along with Land, Labour, and Enterprise.
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Land
In economics, land comprises all naturally occurring resources whose supply is inherently fixed. Examples are any and all particular geographical locations, mineral deposits, forests, fish stocks, atmospheric quality and geostationary orbits.
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Labour
Labor economics looks at the suppliers of labor services (workers), the demands of labor services (employers), and attempts to understand the resulting pattern of wages, employment, and income. Labor is a measure of the work done by humans.
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Enterprise
An entrepreneur is an individual who supplies products to a market to make a profit. Entrepreneurs will usually invest their own financial capital in a business and take on the risks. Their main reward is the profit made from running the business.
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Consumer Surplus
The difference between what a consumer would be willing to pay for a good or service and what that consumer actually has to pay. Added to PRODUCER SURPLUS, it provides a measure of the total economic benefit of a sale.
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Producer Surplus
The difference between what a supplier is paid for a good or service and what it cost to SUPPLY. Added to CONSUMER SURPLUS, it provides a measure of the total economic benefit of a sale.
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Consumer Confidence
How good consumers feel about their economic prospects.Measures of average consumer confidence can be a useful, though not infallible, indicators of how much consumers are likely to spend.
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Business Confidence
How the people who run companies feel about their organisations' prospects. In many countries, surveys measure average business confidence. These can provide useful signs about the current condition of the economy.
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Household
Group of people whose spending decisions are connected.
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Production
The Output of Goods and Services
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Scarcity
A situation where there are insufficient resources to meet all wants.
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Opportunity Cost
The cost of the next best alternative, which is forgone when the choice is made.
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Economic Growth
Change in the productive potential of an economy
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Productive potential/Maximum Output
The maximum output that an economy is capable of producing within a given time period
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Price System
A method of allocating resources by the free movement of prices
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Supply
The Quantity of a product that producers are willing and able to provide at different market prices over a period of time.
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Demand
The quantity of a product that consumers are willing and able to purchase at various prices over a period of time.
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Effective Demand
The willingness and ability to buy a product
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Ceteris Paribus
( Latin: other things being equal ) Assuming other variables remain unchanged
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Demand Curve
This shows the relationship between the quantity demanded and the price of a product.
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Disposable income
Income after taxes on income have been deducted and state benefits have been added.
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Real Disposable Income
Income after taxes on income have been deducted and state benefits have been added and the result has been adjusted to take into account changes in inflation
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Normal Goods
Goods for which an increase in income leads to an increase in demand for the product
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Inferior Goods
Goods for which an increase in income leads to a fall in demand for the product
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Superior Goods
Goods for which an increase in income leads to a disproportionately large increase in demand for the product
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Substitute Goods
Goods that compete with eachother for the same target market and have a positive cross elasticity of demand (eg. Coke, Pepsi)
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Complementary Goods
Goods that have joint demand in a market and a negative cross elasticity of demand (eg Hot Dogs and Hot Dog buns)
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Profit
The difference between the total revenue (sales revenue) of a producer and total cost.
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Supply Curve
This shows the relationship between the quantity supplied and the price of the product.
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Price
The amount of money that is paid for a given amount of particular good or service.
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Equilibrium Price
The price where demand and supply are equal.
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Equilibrium Quantity
The quantity that is demanded and supplied at the equilibrium price.
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Disequilibrium
Any position in the market where demand and supply are not equal.
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Excess Demand
Excess demand is created when price is set below the equilibrium price. Because the price is so low, too many consumers want the good while producers are not making enough of it.
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Excess Supply
When the quantity of a good or service supplied is more than the quantity demanded, and the price is above the equilibrium level determined by supply and demand
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Elasticity
The extent to which buyers and sellers respond to a change in market conditions.
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Price Elasticity of Demand
The responsiveness of the quantity demanded to a change in the price of the product. = %change in QD / % change in P
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Price Elastic
Where the % change in the QD is sensitive to a change in price.
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Price Inelastic
Where the % change in the QD is not sensitive to a change in price
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Price Elasticity of Demand Values
PED >1 = Elastic PED
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Income elasticity of Demand
The responsiveness of demand to a change in income. % change in QD / %change in Income
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Income Inelastic
Goods for which a change in income produces a less that proportionate change in demand.
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Income Elastic
Goods for which a change in income produces a greater proportionate change in demand.
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Cross Elasticity of Demand (XED)
The responsiveness of demand for one product in relation to a change in the price of another product. %change in QD of product A / % change in Price of Product B
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(XED) Values
Positive = Substitutes Negative = Compliments 0 = No Particular Relationship --> The size indicates the strength.
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Price Elasticity of Supply (PES)
The responsiveness of the quantity supplied to a change in the price of the product. It indicates how much additional supply a producer is willing to provide for the market following a change in price of the product.
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(PES) Values
Between 0 and 1 = Inelastic, supply not responsive to change price. ^ than 1 = Elastic, producersrespond with a large change in supply if price rises. Equal to 1 = A change in price causes an exactly proportional change in quantity supplied.
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Efficiency
Where the best use of resources is made for the benefit of consumers.
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Allocative Efficiency
Where consumer satisfaction is maximised.
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Market Failure
Where the free market mechanism fails to achieve economic efficiency.
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Productive efficiency
Where production takes place using the least amount of scarce resources
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Economic Efficiency
Where both Allocative and Productive efficiency are achieved.
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Free Market Mechanism
The system by which the market forces of demand and supply determine prices and the decisions made my consumers and firms.
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Information Failure
A lack of information resulting in consumers and producers making decisions that do not maximise welfare.
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Asymmetric Information
Information not equally shared between two parties.
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Externality
An effect whereby those not directly involved in taking a decision are affected by the actions of others.
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Third Party
Those not directly involved in making a decision.
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Private costs
A negative effect on members of the transaction caused by a particular action.
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Private Benefits
A positive effect on members of the transaction caused by a particular action.
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External Costs/Negative Externalities
Negative effects incurred on third parties caused by a particular action.
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External Benefits/Positive Externalities
Positive effects incurred on third parties caused by a particular action.
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Social Costs
Private costs plus negative externalities - the total costs of a particular action.
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Social benefits
Private benefits plus positive externalities - the total benefits of a particular action
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Merit Goods
These have more benefits than their consumers actually realise, due to information failure.
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Demerit goods
These have more costs than their consumers actually realise, due to information failure.
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Public Goods
Goods that are collectively consumed and have the characteristics of non-expandability and non-rivalry.
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Quasi-Public Goods
Goods that have either characteristic non-rivalry or non-excludability, but not both.
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Non-excludability
Situation existing where individual consumers cannot be excluded from consumption.
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Free Rider
Someone who directly benefits from the consumption of a public good but who does not contribute towards it's provision.
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Non-Rivalry
Situation existing where consumption by one person does not effect the consumption of all others.
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Direct Tax
One that taxes the income of people and firms and that cannot be avoided.
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Indirect Tax
A tax levied on Goods and Services.
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Polluter Pays Principle
Any measure, such as a green tax, whereby the polluter pays explicitly for the pollution caused.
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Subsidy
A payment, usually from government, to encourage production or consumption.
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Tradable permit
A permit that allows the owner to emit a certain amount of pollution and that, if unused or only partially used, can be sold to another polluter.
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Economic Problem
How to allocate scarce resources among alternative uses. The fact that resources are scarce in relation to wants which are unlimited. Meaning that choices have to be made.
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Depression
A period when there is a particularly deep and long fall in output.
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Recession
A period when growth in output falls or becomes negative. The technical definition now used by governments is that a recession occurs when growth in output is negative for two successive quarters (6 months).
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Circular Flow Of Income
A model of the economy which shows the flow of goods, services and factors and their payments around the economy.
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Closed Economy
An economy where there is no foreign trade.
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Open Economy
An economy where there is trade with other countries.
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Hidden/Black/Informal Economy
Economic activity where trade and exchange take place, but which goes unreported to the tax authorities and those collecting national income statistics. Workers in the hidden economy are usually motivated by the desire to evade paying taxes.
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Injections
In the circular flow of income, spending which is not generated by households including investment, government spending and exports.
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National Income
The value of the output, expenditure or income of an economy over a period of time.
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Purchasing Power Parities
An exchange rate of one currency for another which compares how much a typical basket of goods in one country costs compared to that of another country.
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Transfer Payments
Income for which there is no corresponding output, such as unemployment benefits or pension payments.
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Wealth
A stock of assets which can be used to generate a flow of production or income. For example, physical wealth such as factories and machines is used to make goods and services.
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Withdrawals/Leakages
In the circular flow of income, spending by households which does not flow back to domestic firms. It includes savings, taxes and imports.
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Boom
A period of time when the economy is growing strongly and is operating around its productive potential.
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Business/Economic/Trade Cycle
Regular fluctuations in the level of economic activity around the productive potential of the economy.
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Economic Growth
Growth in the productive potential of the economy – an increase in a country’s National Income.
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Economic Recovery
The movement back from where the economy is operating below its productive potential to a point where it is at its productive potential.
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Output Gap
The difference between the actual level of GDP and the productive potential of the economy.
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Positive Output Gap
When actual GDP is above the productive potential of the economy and it is in boom.
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Negative Output Gap
When actual GDP is below the productive potential of the economy.
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Sustainable Growth
Growth in the productive potential of the economy today which does not lead to a fall in the productive potential of the economy for future generations
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The Economics Of Happiness
Investigates exactly what contributes to welfare and attempts to put values on some of these factors.
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Activity/Participation Rates
The percentage or proportion of any given population in the labour force.
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Net Migration
Immigration minus emigration
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Cyclical Unemployment
When there is insufficient demand in the economy for all workers who wish to work at current wage rates to obtain a job.
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Frictional Unemployment
When workers are unemployed for short lengths of time between jobs.
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Seasonal Unemployment
When workers are unemployed at certain times of the year, such as building workers or agricultural workers in winter.
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Structural Unemployment
When the pattern of demand and production changes, leaving workers unemployed in labour markets where demand has shrunk. Examples of structural unemployment are regional, sectoral or technological unemployment.
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Consumer Price Index (CPI)
A measure of the price level used across the EU and used by the Bank of England to measure inflation against its target
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Cost-push Inflation
Inflation caused by increases in the costs of production in the economy.
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Demand-pull Inflation
Inflation which is caused by excess demand in the economy.
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Creeping Inflation
Small rises in the price level over a long period of time.
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Deflation
A fall in the price level.
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Headline Rate Of Inflation
The increase in consumer prices including all housing costs. This is the RPI in the UK.
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Hyper-inflation
Large increases in the price level.
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Indexation
Adjusting the value of economic variables such as wages or the rate of interest in line with inflation.
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Inflation
A sustained rise in the general price level over time.
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Price Level
The average price of goods and services in the economy.
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Retail Price Index (RPI)
A measure of the price level, which has been calculated in the UK for over 60 years and is used in a variety of contexts such as by the government to index welfare benefits.
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Underlying Rate Of Inflation
The RPIX, the increase in consumer prices excluding changes in mortgage costs, or the RPIY, which also excludes indirect taxes.
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Balance Of Payments Account
A record of all financial dealing over a period of time between economic agents of one country and all other countries.
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Balance Of Trade
Visible exports minus visible imports
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Capital And Financial Accounts
The part of the balance of payments account where flows of savings, investment and currency are recorded.
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Current Account
That part of the balance of payments account where payments for the purchase and sale of goods and services are recorded.
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Current Balance
The difference between total exports (visible and invisible) and total imports. It can also be calculated by adding the balance of trade to the balance on invisible trade.
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Current Account Deficit
When imports are greater than exports.
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Current Account Surplus
When exports are greater than imports.
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Invisibles
Trade in services, transfers of income and other payments or receipts.
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Visibles
Trade in goods.
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Average Propensity To Consume
The proportion of total income spent. It is calculated by C ÷ Y.
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Average Propensity To Save
The proportion of a total income which is saved. It is calculated by S ÷ Y.
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Consumption
Total expenditure by households on goods and services over a period of time.
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Consumption Function
The relationship between the consumption of households and the factors which determine it.
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Disposable Income
Household income over a period of time.
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Durable Goods
Goods which are consumed over a long period of time, such as a television set or a car.
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Marginal Propensity To Consume
The proportion of a change in income which is spent. It is calculated by ∆C ÷ ∆Y.
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Marginal Propensity To Save
The proportion of a change in income which is saved. It is calculated by ∆S ÷ ∆Y.
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Non-durable Goods
Goods which are consumed almost immediately like an ice-cream or a packet of washing powder.
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Permanent Income
The income a household could spend over its lifetime without reducing the value of its assets. This approximates to the average income of a household over its lifetime.
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Savings Function
The relationship between the saving of households and the factors which determine it.
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Saving (Personal)
The portion of households’ disposable income which is not spent over a period of time.
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Wealth Effect
The change in consumption following a change in wealth.
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Investment
The addition to the capital stock of the economy – when a firm spends money with the aim of increased future profits.
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Retained Profit
Profit kept back by a firm for its own use which is not distributed to shareholders or used to pay taxation.
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Aggregate
The sum or total.
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Aggregate Demand
The total of all demands or expenditures in the economy at any given price.
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Aggregate Demand Curve
Shows the relationship between the price level and equilibrium National Income. As the price level rises, the equilibrium level of National Income falls.
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Domestic Economy
The economy of a single country.
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Multiplier Effect
An increase in investment or any other autonomous expenditure leading to an even greater increase in income.
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Aggregate Supply Curve
The relationship between the average level of prices in the economy and the level of total output.
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Full Capacity
The level of output where no extra production can take place in the long-run with existing resources. The full capacity level of output for an economy is shown by the classical long-run aggregate supply curve.
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Long-run Aggregate Supply Curve
The aggregate supply curve which assumes that wage rates are variable, both upward and downwards. Classical or supply side economists assume that wage rates are flexible. Keynesian economists assume that wage rates may be ‘sticky downwards’ and hence
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Long-run Aggregate Supply Curve (cont.)
the economy may operate at less than full employment even in the long-run.
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Short-run Aggregate Supply Curve
The upward sloping aggregate supply curve which assumes that money wage rates are fixed.
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Supply Side Shocks
Factors such as changes in wage rates, or commodity prices which cause the short-run aggregate supply curve to shift.
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Budget
A statement of the spending and income plans of an individual, firm or government. The budget is the yearly statement on government spending and taxation plans in the UK.
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Budget Deficit
Arises when government spending is greater than revenue. Government therefore has to borrow money to finance the difference.
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Budget Surplus
Arises when government spending is less than revenue. Government can use the difference to repay any national debt.
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Demand Side Policies
Government use of fiscal and other policies to manipulate the level of aggregate demand in the economy.
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Fiscal Policy
The decisions made about the spending, taxes and borrowing of the government used to control aggregate demand in the economy.
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National Debt
The accumulated borrowings of government.
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Over-heating
The economy over-heats if aggregate demand is increased when the economy is already at its full productive potential. The result is increases in inflation with little or no increase in output.
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Public Sector Net Cash Requirement (PSNCR)
The official name given to the difference between government spending and revenue in the UK.
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Bottleneck
A supply side constraint in a particular market in an economy which prevents higher growth for the whole economy.
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Laffer Curve
A curve which shows that at low levels of taxation, tax revenues will increase if tax rates are increased; however, after a certain point disincentives to pay tax will cause a lower tax rate to provide more revenue as less people avoid paying.
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Poverty/Earnings Trap
Occurs when an individual is little better off or even worse off when gaining an increase in wages because of the combined effect of increased tax and benefit withdrawal.
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Supply Side Policies
Government policies designed to increase the productive potential of the economy and push the long-run aggregate supply curve to the right.
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Unemployment Trap
Occurs when an individual is little better off or even worse off when getting a job after being unemployed because of the combined effect of increased tax and benefit withdrawal.
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Bank Base Rate
The interest rate which a bank sets to determine its borrowing and lending rates. It offers interest rates below its base rate to customers who deposit funds with it, whilst charging interest rates above base rate to borrowers.
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Central Bank
The financial institution in a country or a group of countries typically responsible for the printing and issuing of notes and coins, setting short-term interest rates, managing the country’s gold and currency reserves and issuing government debt.
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Instrument Of Policy
An economic variable, such as the rate of interest, income tax rates or government spending on education, which is used to achieve a target of government policy.
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Monetary Policy
The attempt by government or a central bank to manipulate the money supply, the supply of credit, interest rates or any other monetary variables, to achieve the fulfilment of policy goals such as price stability.
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Rate Of Interest
The price of money, determined by the demand and supply of funds in a money market, where there are borrowers and lenders.
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Target Of Policy
An economic goal which the government wishes to achieve, such as low unemployment or high growth.
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Appreciation Or Depreciation Of A Currency
A rise or fall in the value of a currency when the currency is floating and market forces determine its value.
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Export And Import Volumes
The number of exports and imports. In statistics, they are usually expressed in index number form. They can be calculated by dividing the value of total exports or imports by their average price.
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Hot Money
Short-term, speculative flows of money across foreign exchanges, made in order to make a profit on the difference between the buying and selling price of the currency.
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Card 2

Front

The exchange of goods or services, with or without money.

Back

Transaction

Card 3

Front

The total of all the money coming into a country from abroad less all of the money going out of the country during the same period. Increasing the rate of inflation will worsen Balance of Payments, and vice versa.

Back

Preview of the back of card 3

Card 4

Front

Factors of Production refer to an economic term to describe the inputs that are used in the production of goods or services in the attempt to make an economic profit. The factors of production include Land, Labour, Capital and Enterprise.

Back

Preview of the back of card 4

Card 5

Front

Money or assets put to economic use. Economists describe capital as one of the four essential ingredients of economic activity, the factors of production, along with Land, Labour, and Enterprise.

Back

Preview of the back of card 5
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