Economics Unit 2 Definitions

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  • Created by: Jessica
  • Created on: 06-05-14 20:25
Economic Growth
The capacity of the economy to produce more goods and services overtime
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Output Gap
The difference between the general trend line and the fluctuating (actual) curve on an economic cycle.
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Negative Output Gap
Where the economy is producing less that its trend output
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Positive Output Gap
When actual GDP exceeds trend GDP increasing inflationary pressure
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Inflation
The increase in the general price level overtime
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Deflation
A persistant decrease in the general price level overtime
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Demand Pull Inflation
Where aggregate demand exceeds aggregate supply leading to an increase in the price level
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Cost Push Inflation
Where increased costs of production result in firms increasing their prices leading to an increase in the general price level
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Trade Offs
Where the pursuit of one objective may mean an opportunity cost in terms of another
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Aggregate Demand
The total demand in the economy [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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Economic Indicators
Economic statistics that provide information about the expansions and contractions of business cycles
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Policy Objectives
Targets/goals the the government is hoping to achieve
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Policy Indicators
Allow us to measure economic performance. E.g. GDP
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Policy Instruments
The tools the government uses to influence the economy
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Monetary Policy
Controlling the macroeconomy through changes in monetary variables such as the money supply and interest rates
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Interest Rate
The cost of borrowing or the reward for saving
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Money Supply
The total amount of money in an economy
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Exchange Rate
The price at which one currency e.g. the pound, exchanges for another, e.g. the US dollar
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Fiscal Policy
The policy of the government regarding taxation and government spending
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Demand-side Fiscal Policy
Changes in the level or structure of government spending and taxation aimed at influencing one or more of there components of aggregate demand
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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 through influencing incentives to save, to supply labour, to be entrepreneurial and to promote investment.
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Expansionary Fiscal Policy
Increasing levels of government spending relative to tax revenue, appropriate to stimulating aggregate demand during a downturn in economic activity
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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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Supply-side policy
Measures designed to increase aggregate supply and therefore the potential output of the the economy
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Employment
Where people are actively engaged in a productive activity, usually exchanged for wages
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Unemployment
Those without a job who are looking for work at the current wage rate
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Unemployment Hysteresis
Negative effects of employment
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Unemployment Trap
Where individuals receive more in benefit payments than they would paid if they were in a job
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Cyclical Unemployment
Demand deficient unemployment that occurs as a result of the economic cycle
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Frictional Unemployment
People between jobs
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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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Voluntary Unemployment
Workers who are not prepared to take a job at current wage levels
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Participation Rates
The proportion of the country's population that makes up the labour forceDef
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Goods (visibles)
Exports or Imports that are tangible E.g. Cars
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Services (invisibles)
Intangibles such as insurance provision or banking services
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Progressive Tax
As income rises, the percentage taken as tax rises E.g. Income tax
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Regressive Tax
As income rises, the percentage taken as tax falls E.g. Road Tax
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Balanced Budget
When government receipts are equal to government spending in a financial year
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Budget Deficit
When government spending exceeds government receipts resulting in the need to borrow
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Budget Surplus
When government receipts exceeds government spending allowing repayment of outstanding debts
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Nominal GDP
GDP/income/output figures NOT adjusted for inflation
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Real GDP
GDP/income/output figures adjusted for inflation
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GDP per Capita
GDP divided by the population - a measure of living standards
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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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Weighting
Where a commodity is given a weighting proportional to its importance in the general pattern of consumer spending
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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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Accelerator Effect
The relation between the change in new investment and the rate of change of national income
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Supply side Shock
Something that will increase or reduce the costs, hence supple-side of all firms in the economy E.g. a large increase in the price of oil
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Labour Market
An example of a factor market, in this case where labour is bought and sold
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Other cards in this set

Card 2

Front

The difference between the general trend line and the fluctuating (actual) curve on an economic cycle.

Back

Output Gap

Card 3

Front

Where the economy is producing less that its trend output

Back

Preview of the back of card 3

Card 4

Front

When actual GDP exceeds trend GDP increasing inflationary pressure

Back

Preview of the back of card 4

Card 5

Front

The increase in the general price level overtime

Back

Preview of the back of card 5
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