economics

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accelerator effect
the relation between the change in new investment and the rate of change of national income
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actual supply
the amount that producers in fact produce. This can differ from planned supply as there can be breakdowns in production
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aggregate demand
total planned expenditure in the economy. Formula is C +I +G + (x-m
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Aggregate supply
the total value of goods and services supplied in the economy
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Allocative efficiency
this is achieved in an economy when it is not possible to make anyone better without making someone worse off or you cannot produce more of one good without making less of another
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Balance of Payments
Exports minus imports. A deficit meaning more is imported than exported.
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Balance of trade
visible exports minus visible imports
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Balanced budget
where government revenue equal government spending in a financial year
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boom/bust policy
the government using macroeconomic tools to stimulate and then contract the economy
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Broad Money
money that is held in banks and building societies but isn't immediately accessible. It includes more than just physical money.
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Budget deficit
where government spending exceeds government revenue in a finacial year
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budget surplus
where government revenue exceeds government spending in a finacial year
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buffer stock
an intervention system that aims to stop to limit the fluctuations of the price of a commodity
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capital spending
government spending to improve the productive capacity of the nation, including infrastructer, schools and hospitals
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central bank
the financial instituation in a country responsible for issuing notes, coins and setting the short term interest rates
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classical view
economists who believed that recessions and slumps would cure themselves
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commodity
a good that is traded, usually referring to raw materials or semi-manufactured goods that are traded in bulk such as tea or wheat. Normally unbranded goods.
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competition
a market situation in which there are a large number of buyers and sellers
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complementary products
goods that are consumed together for example bread and butter
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complete market failure
where the free market fails to provide a product at all like a public good
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composite demand
a good that is demanded for more than one purpose so that an increase in demand for one purpose reduces the available supply for the other purpose leading to higher prices. e.g milk used in butter and cheese.
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contraction in supply
when the amount offered for sale is reduced because the price level has fallen
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contractionary fiscal policy
increasing levels of tax revenue relative to government spending, appropriate during a boom in economic activity.
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contraction in demand
falls in the quantity demanded caused by rises in prices
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cost push inflation
where increased costs of production results in firms increasing their prices leading to an increase in the general price level
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credit crunch
where borrowing becomes more expensive or unavailable
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current account equilibrium
where the current account exercises no effect on the domestic macroeconomy
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current spending
government spending on the day to day running of the public sector including raw materials and wages of public sector workers
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cyclical unemployment
demand deficient unemployment that occurs as a result of the economic cycle
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deflation
a situation where prices persistently fall
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deindustralisation
a fall in the proportion of national output accounted for by the manufacturing sector of the economy
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demand
the amount that consumers are willing and able to buy at each given price level per unit
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demand deficient unemployment
insufficient aggregate demand in the economy to employ the available labour
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demand pull inflation
where aggregate demand exceeds aggregate supply leading to an increase in the level of prices
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demand side fiscal policy
change in the level or structure of government spending and taxation aimed at influencing one or more of the components of aggregate demand
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demerit good
a good that would be over-consumed in a free market as it brings less overall benefit to consumers than they realise. It is over-consumed and normally has negative externalities
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deregulation
the process of removing government controls from markets.
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derived demand
when the demand for one good or service comes from the demand for another good or service. the demand for cars stimulate the demand for steel. Steel is derived demand
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discouraged workers
workers who leave the market because despite many attempts they are unable to find a job
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discretionary fiscal policy
the deliberate manipulation of government spending and taxation to influence the economy.
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diseconomies of scale
where an increase in the scale of production leads to increases in average total costs for firms
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disequilibrium
a situation within the market where supply does not equal demand
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disposable income
income available to households after the payment of income tax and national insurance
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division of labour
breaking the production process down into a sequence of tasks, with workers assigned to particular tasks
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Economic goods
goods that are scarce and have an opportunity cost
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economic growth
the capacity of the economy to produce more goods and services over time
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economic indicators
economic statistics that provide information about the expansions and contractions in business cycles
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economic models
these 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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economic welfare
refers to the satisfaction an individual or society gets from the allocaion of resources. this may involve the standard of living for example
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economies of scale
where an increase in the scale of production leads to reductions in average total cost for firms
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effective demand
demand supported by the ability or real purchasing power to pay for a good or service
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employment
where labour is actively engaged in a productive activity usually in exchange for payments such as wages
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equilibrium
the price at which supply is equal to demand and there is no tendency to change
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ex ante
a term that refers to future events
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ex post
a term that refers to after the event
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excess demand
when demand is greater than supply at a given price
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excess supply
when supply is greater than demand at a given price signalling to producers to lower prices
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exchange rate
the price at which one currency exchanges for another eg the US dollar and the UK pound
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expansionary fiscal policy
increasing levels of government spending relative to tax revenue, appropiate to stimulating aggregate demand during a downturn in economic activity.
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exporting
the sale of goods or services to a foreign country. It generates income for the home country
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exports
goods or services sold abroad
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extension in supply
when there is an increase in supply because the market price has risen
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extensions in demand
increases in demand caused by a fall in price
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externalities
costs or benefits that spill over to third parties external to a market transaction
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factor market
the market for the factors of production that make other goods and services such as labour
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information failure
when consumers don't understand the full benefits or disadvantages of a transaction
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fiscal policy
the policy of the government regarding taxation and government expenditure
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fixed costs
when cost of production don't vary as output changes
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flow
measured over a specificed period of time
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free goods
goods that have no opportunity cost, eg air
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free market economy
when there is a very limiited government involvement in providing goods and services. Only job is to ensure the market rules are fair.
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Free rider problem
where some consumers benefit from other consumers purchasing a good, particularly in the case of a public good with parking tickets.
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Frictional/search unemployment
people between jobs
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GDP per capita
GDP divided by the population - a measure of living standards
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geographical immobility
when workers find it difficult to move to where employment is due to family ties or due to differences in housing costs
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globalisation
the ability to produce and sell in any country in the world
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goods and services
goods are tangible products such as cd whereas services are not tangible like a train journey
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government failure
when government intervention to correct market failure does not improve the allocation of resources or leads to a worsening of the situation. The costs of government intervention exceeds the benefits
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gross domestic product
the total value of goods and services produced in the economy
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hot money
money that is available to rapid tranfser from country to another
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human capital
the skills, motivation, and knowledge of labour. Improvements of human capital improve productivity and shift ppb to the right
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importing
the purchase of goods and services from foreign countries. Leads to expenditure for the home country
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imports
goods or services purchased abroad
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incidence of tax
the proportion of a tax that is passed onto the consumer
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income
the flow of earnings to a factor of production over a period of time eg wages
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income elasticity of demand
proportion to which demand changes when there is a change in income. Formula is percentage change of quantity demanded divided by percentage change of income
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income induced
will increase as income increases and decrease as income decreases
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index numbers
a weighted average of a group of items compared to a given base value of 100
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indirect tax
a tax on spending
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inferior goods
goods or services that see a fall in demand when incomes rise
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inflation
a persistent increase in the level of prices
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inflationary pressure
occurrences that are likely to lead to increased prices
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injections
money that orgiinates outside the circular flow and so will increase national income/output/expenditure
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interest rate
the cost of borrowing or the reward for saving
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investment
spending by firms on buildings, machinery and improving the skills of the labour force
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investment good
a product that will increase in value over time
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invisibles
intangibles such as the provision of insurance or banking services
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joint supply
when the production of one good also results in the production of another
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keynesian
John Maynard Keynes suggested how governments could cure mass unemploymeny
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labour market
an example of a factor market, where labour is bought and sold
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law of unintended consequences
when the actions of consumers, producers and governments have effects that are unanticipated
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long run aggregate supply
the economy's productive capacity
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marginal external benefit
the spillover benefit to third parties of an economic transaction
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marginal external cost
the spillover cost to third parties of an economic transactopm
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marginal private benefit
the benefit to an individual or firm of an economic transaction
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marginal private cost
the cost to an individual or firm of an economic transaction
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marginal social benefit
the full benefit to society of an economic transaction, including private and external benefits
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marginal social cost
the full cost to society of an economic transaction, including private and external costs
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market clearing price
the price at which all goods that are supplied will be demanded
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market demand
total demand in a market for a good, the sum of all individuals' demand at each given price
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market failure
when there is a misallocation of resources and the market fails to produce what consumers need at the lowest possible cost
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maximum price
a price ceiling which the price of a good or service cannot be above
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merit good
a good that would be under-consumed in a free market as consumers suffer from information failure
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minimum price
a price floor which the price of a good or service cannot be under
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monetary policy
controlling the macroeconomy via changes in monetary variables such as the money supply or interest rates
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money supply
the total amount of money in an economy
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monopoly
a market structure dominated by a single seller of a good
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multiplier effect
where an increase or decrease in spending leads to a larger than proportionate change in the national income
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narrow money
notes, coins and balances available for normal transactions
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negative expectations
businesses expect future sales and profits to be less due to factors like falling aggregate demand
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negative externalities
costs imposed on a third party external to the market transaction of a good
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negative output gap
where the economy is producing less than its trend output
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normal goods
goods or services that will see an increase in demand when incomes rise
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net government spending
the difference between government spending and taxation
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nominal GDP/nominal national income/nominal output
GDP/income/output figures not adjusted for inflation
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normative statements
opinions that require value judgements to be made
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occupational immobility
as patterns of demand and employment change, workers find it difficult to easily secure new jobs since they could lack the necessary skills
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oppurtunity cost
the next best alternative forgone when an economic decision is made/
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partial market failure
where the free market provides a product but with a misallocation of resources
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participation rates
proportion of the country's population that makes up the country's labour force
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planned supply
the amount producers plan to produce at each given price
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policy instrument
techniques used to achieve policy objectives
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policy objective
government's major macroeconomic objectives
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pollution permit
a permit sold to firms by the government, allowing them to pollute up to a certain limit
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positive expectations
businesses expect the future sales and profits to improve due to factors like increased aggregate demand
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positive externality
a positive spillover effect to third parties of a market transaction
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positive output gap
when actual GDP exceeds trend GDP increasing inflationary pressure
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positive statements
statements that can be tested against real world data
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price ceiling
maximum price
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price elasticity of demand
the responsiveness of demand to a change in the price level. The formula is percentage change in quantity demanded divided by percentage change in price
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price floor
minimum price
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private good
a good that is both excludable and rival in consumption
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privatisation
sale of government owned assets to the private sector
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product markets
markets where all kinds of goods and services are traded, eg mobile phone markets
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production
the process that converts factor inputs into outputs of goods and services
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production of possibility boundary
the PPB indicates the maximum possible output that can be achieved given a fixed set of resources and technology
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productive efficiency
when a firm operates at minimum average total cost, producing the maximum possible output from inputs into the production process
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productivity
a measure of efficiency, measuring the ratio of inputs to outputs
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profit
when total income exceeds total costs
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public good
a good that has characteristics of non-rivalry and non-excludability in consumption
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quasi-public good
a good that has some of the qualities of a public good but does not fully possess the two required characteristics of non-rivalry and non-excludability
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real GDP/real national income/real output
GDP/income/output figures adjusted for inflation
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real interest rate
the money rate of interest minus the rate of inflation
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recession
recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP)
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renewable resources
resources that are able to be replenished whereas non renewable resources such as oil are likely to run out
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savings
a withdrawal from the circular flow
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specialisation
the production of a limited range of goods by an individual factor of production or firm or country, in cooperation with others so that together a complete range of goods is produced
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stock
a quantity measured at a particular point in time
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structural unemployment
unemployment caused by a change in the demand side or supply-side of the economy
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subsidies
payments by government to producers encouraging them to produce a good or service
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substitutes
goods that can be used as alternatives to another good. E.g pepsi is a substitute for coke
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supply
the amount offered for sale at each given price level
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supply side fiscal policy
changes in the level or structure of government spending and taxation designed to improve the supply side of the economy
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supply side shock
something that will increase or reduce the costs
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sustainable
an activity carried out today that does not stop future generations maximising their welfare
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tight labour market
where firms have to increase wages to attract the labour that they require
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total factor productiviity
the overall productivity of inputs used by a firm in producing a particular level of output
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trade union
an organisation of workers set up to negotiate on wages, working hours and working conditions with employers on behalf of its members
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trade off
where one macroeconomic objective has to be restricted in favour of another objective
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transfer payments
government payments to individuals for which no service is given in return eg state benefits
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transmission mechanism of monetory policy
how changes in the base interest rate influence the components of aggregate demand
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unemployment
those without a job but who are seeking work at current wage rates
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unemployment trap
where individuals receive more in benefit payments than they would be paid if they were in a job
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value judgements
statements or opinions expressed that are not testable or cannot be verified and depend on an inidividual views
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variable costs
costs of production that vary with output
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visibles
exports or imports that are tangible, that you can see and touch as it crosses international boundaries
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voluntary unemployment
workers who are not prepared to take a job at current wage levels
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wealth
a stock of owned assets, eg housing property
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withdrawals
any money not passed on in the circular flow and has the effect of reducing national income
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weighting
where a commodity is given a weighting proportional to its importance in the pattern of consumer spending
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Other cards in this set

Card 2

Front

the amount that producers in fact produce. This can differ from planned supply as there can be breakdowns in production

Back

actual supply

Card 3

Front

total planned expenditure in the economy. Formula is C +I +G + (x-m

Back

Preview of the back of card 3

Card 4

Front

the total value of goods and services supplied in the economy

Back

Preview of the back of card 4

Card 5

Front

this is achieved in an economy when it is not possible to make anyone better without making someone worse off or you cannot produce more of one good without making less of another

Back

Preview of the back of card 5
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