What is the definition of Aggregate Demand?
The total level of planned expenditure on goods and services by households, firms, government and foreign nations produced in the UK: AD = C + I + G + X – M
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Aggregate Supply?
The total planned output of UK firms and government.
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Definitions of balance of payments?
The record of economic transactions between the UK and the rest of the world. It is split into two parts: the current account and transactions of external assets and liabilities (the capital and financial accounts).
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A constraint on the supply side of the economy that causes costs to rise as the economy grows.
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Budget Deficit?
The amount by which government spending exceeds tax revenue (fiscal deficit).
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Budget Surplus?
The amount by which tax revenue exceeds government spending (fiscal surplus).
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Definition of Budget?
An annual statement by the government of its tax and spending intentions for the following year.
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Business cycle?
Fluctuations in the growth rate of economic activity around the trend rate of growth.
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What is the Circular flow of income?
A simple model of the economy that shows the flow of income between households, firms and the financial, government and international trade sectors.
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Total planned household expenditure.
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The Consumer Price Index measures the average household cost of living, excluding housing costs, and it is used as the target for monetary policy.
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What is the Current Account?
Account recording all the international transactions related to goods and services. It is composed of four parts: trade in goods, trade in services, net investment income (IPD) and current transfers.
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A sustained fall in the average cost of living.
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Deflationary gap?
A position where the actual growth rate is below the trend growth rate which tends to lead to rising unemployment and falling inflation.
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Demand side policies are?
Monetary and fiscal policies used by the government to shift aggregate demand in order to fine tune the economy.
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Disposable income is?
Income after direct tax that households can choose to spend or save.
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Definition of exchange rate?
The price of sterling in terms of another currency, expressed as the number of units of foreign currency per pound.
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The value of goods and services sold in exchange for foreign currency.
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What is a fiscal policy?
The manipulation of government spending and taxation to influence the level of aggregate demand.
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Gross Domestic Product is a measure of the total output of goods and services in an economy over a period of time.
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Government spending?
Expenditure by the government on goods and services, not including transfer payments (benefits).
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What is HDI?
The Human Development Index is a composite measure of the average quality of life in a country that includes life expectancy, educational attainment and real GDP per head.
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Definition of imports?
The value of goods and services bought with foreign currency.
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Definition of inflation?
A sustained increase in the average cost of living.
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What is the inflationary gap?
A position where the actual growth rate is above the trend growth rate which tends to lead to rising inflation and falling unemployment.
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What is an injection?
The exogenous additions of investment, exports and government spending to the circular flow of income.
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Definition of interest rate?
The cost of borrowing money.
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Expenditure by firms on capital goods.
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What is the Monetary policy?
The manipulation of interest rates (or the money supply) to influence the level of aggregate demand.
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The monetary policy committee?
The independent Bank of England committee that sets interest rates once a month.
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Definition of multiplier effect?
The augmentation of national income resulting from an increased injection into the circular flow of income. Its size is determined by the extent to which income is leaked from the circular flow.
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National income is?
The total earnings of individuals, firms and government in an economy.
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Net investment income?
The interest, profits and dividends earned on UK-owned assets abroad minus the interest, profits and dividends earned on foreign-owned assets in the UK.
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The output gap?
The difference between actual output and potential output.
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What is the Phillips curve?
The empirical observation that there is a possible trade-off between inflation and unemployment.
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Definition of Productivity?
Measures output per worker per time period e.g. output per worker hour.
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Productivity gap?
A measure of the difference between productivity levels in different countries.
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Real GDP?
The total value of goods and services produced within a country over a year, adjusted for inflation i.e. ‘GDP at constant prices’.
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Definition of Recession?
A period where economic activity falls for six months or more (two consecutive quarters).
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Standard of living?
The level welfare experienced by the population living within an economy.
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Disposable income that is not spent by households.
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A physical quantity or value of economic resources that exist at a single point in time.
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Definition of Supply-side policy?
Policy to increase the level of potential output and thus shift the LRAS curve to the right.
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Transfer payments are?
Payments made by the government which do not contribute directly to output such as unemployment benefit.
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The value of assets owned by a household, including houses, shares and bonds. Wealth is a stock whereas income is a flow.
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The wealth effect?
The wealth effect is the impact of a change in the value of household assets on consumption due to an adjustment in the propensity to save in order to restore the value of households’ wealth.
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The endogenous leakages of saving, imports and taxation from the circular flow of income.
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Aggregate Supply?


The total planned output of UK firms and government.

Card 3


Definitions of balance of payments?


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Card 5


Budget Deficit?


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