Economics Revision- Theme 2 Revision

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What is consumption?
The total expenditure by households on goods and services over a period of time
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What is meant by Average propensity to consume?
The proportion of total income which is spent. It is calculated by C/Y
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What is meant by Average propensity to save?
The proportion of a total income which is saved. It is calculated by S/Y
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What is disposable income?
Household income over a period of time including state benefits, less direct taxes
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What are durable goods?
Goods which are consumed over a long period of time, such as a television set or car
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What are non durable goods?
Goods which are consumed almost immediately like an ice cream or a packet of washing powder
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What is meant by the Marginal propensity to consume?
The proportion of a change in income which is spent. it is calculated by change in C/ change in Y
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What is meant by the Marginal propensity to save?
The proportion of a change in income which is saved. It is calculated by change in S/ change in Y
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What is meant by Animal spirits?
business confidence: the mood of managers and owners of firms about the future of their industry and the wider economy
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What is meant by gross investment?
The addition to capital stock, both to replace the existing capital stock which has been used up (depreciation) and the creation of additional capital
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What is investment?
The addition to the capital stock of the economy
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What is net investment?
Gross investment minus depreciation
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What is 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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What is meant by 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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Give 3 examples of injections into the circular flow of income?
Investment/ Government spending/ Exports
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Give 3 examples of leakages from the circular flow of income?
Saving/ taxation/ imports
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What is the multiplier effect?
An increase in investment or other injection will lead to an even greater increase in income.
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What is gross domestic product (GDP)?
A measure of the output or value added of an economy which does not include output or investments from abroad or an allowance for the depreciation of the nations capital stock
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What is gross national income (GNI)?
The value of the goods and services produced by a country over a period of time (GDP) plus net overseas interest payments and dividends (factor incomes)
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What is gross national product (GNP)?
The market value of goods and services produced over a period of time through the labour or property supplied by citizens of a country both domestically (GDP) and overseas
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What is meant by 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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What is meant by boom or peak?
A period of time when the economy is growing strongly and operating above its productive potential
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What is meant by depression or slump?
A period of the trade cycle when there is a particular deep and long fall in output
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What is meant by a downturn?
A period of the trade cycle when either economic growth or GDP itself is falling
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What is economic growth?
A rise in output in an economy which can be either actual growth or potential growth
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What is the output gap?
The difference between the actual level of GDP and the productive potential of the economy. There is a positive output gap when actual GDP is above the productive potential of the economy and it is in boom
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What is meant by hysteresis?
The process whereby a variable does not return to its former value when changed. In terms of the trade cycle, it is used to describe the phenomenon of an economy failing to return to its former long term rate of growth after a severe recession
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What is a recession?
A period of the trade cycle when output or growth in output falls
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What is cost push inflation?
Inflation caused by increases in the costs of production in the economy
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What is deflation?
A fall in the general price level
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What is demand pull inflation?
Inflation which is caused by excess demand in the economy
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What is disinflation?
A fall in the rate of inflation
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What is hyper inflation?
Large increases in the general price level
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What is meant by the term underemployed?
Those who would work more hours if available or are in jobs which are below their skill level
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What is unemployment?
When individuals are without a job but are actively seeking work
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What is frictional employment?
When workers are unemployed for short lengths of time between jobs
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What are the 2 main parts of the balance of payments?
The current account- Which records payments for the exports and imports of goods and services/ The capital and financial account- Which records saving, investment and speculative flows of money
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What are the 2 monetary policy instruments?
Interest rates and quantitative easing
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What are the 3 fiscal policy instruments?
Government spending and tax and government borrowing
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What is a fiscal policy?
The use of taxes, government spending and government borrowing by government to achieve its objectives
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What is a monetary policy?
The manipulation by government of monetary variables, such as interest rates and the money supply, to achieve its objectives
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What is quantitative easing?
A monetary policy instrument where the central bank buys financial assets in exchange for money in order to increase borrowing and lending in the economy
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Other cards in this set

Card 2

Front

What is meant by Average propensity to consume?

Back

The proportion of total income which is spent. It is calculated by C/Y

Card 3

Front

What is meant by Average propensity to save?

Back

Preview of the front of card 3

Card 4

Front

What is disposable income?

Back

Preview of the front of card 4

Card 5

Front

What are durable goods?

Back

Preview of the front of card 5
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