Managing the Economy Definitions from past papers

Key terms taken from past paper mark schemes

Circular flow of income
model of the economy which shows the movement of goods and services between households and firms, and their corresponding payments in money terms
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an addition to the level of I+G+X demand in the circular flow
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a leakage to the level of S+T+M in the circular flow
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the number of times a rise in income exceeds the rise in injections that caused it. It measures the more than proportionate increase in the circular flow of income
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Real income
the value of income after the effects of inflation have been removed.
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Rate of unemployment
the percentage of the workforce that is not currently employed
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Spare capacity
where there are unemployed resources in the economy. Accept also negative output gap.
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ILO unemployment
• Actively looking for a job and out of work in last four weeks • Questionnaire/interview • Survey by phone call/paper • Internationally recognised • age 16-65 • Sample, and related problems
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Claimant count unemployment
• the number of people claiming/receiving • JSA/dole/or unemployment related benefit • Age range – 18-60/65 • savings cap • must be able to prove they are looking for work • register at unemployment offices
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Macroeconomic policy
fiscal, monetary and supply side policies
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Macroeconomic objectives
the main aims of the government to achieve improved economic welfare (for all the population)
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Fiscal policy
the government’s manipulation of its spending and taxation in order to affect aggregate demand
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Fiscal deficit
government spending is more than revenue/taxation
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Demand-side policy
fiscal/monetary policy
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Supply-side policy
actions by government designed to promote market forces in order to increase economic growth or shift AS/PPF curve out
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Supply-side measures
aimed at increasing productivity and/or competition in the product market/ policies shifting AS to the right
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A recession
two consecutive quarters or 6 months of negative growth or reduction in output
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Economic growth
a measure of the increase in either real GDP/ output or potential output
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Export led growth
where the main cause of an increase in AD / GDP is via export promotion
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Human Development Index
a composite measure of economic development which includes longevity, years of school enrolment, literacy and GDP at PPPs presented as an index or rank which gives an indication of health and education rather than just incomes.
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Output gap
the difference between actual and potential (or trend) growth/ output/ GDP
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output per worker or output per hour worked measured either in volume or value; or output per unit of labour
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an increase in the capital stock or the buying of capital goods
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Sharp depreciation of the pound
a pound that is falling or has fallen in value against another major currency/ a pound that buys less foreign currency than it used to
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Exchange rate
The price of one currency expressed in terms of another or the amount of one currency that can be bought with a unit of another currency
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Current account of the balance of payments
imports and exports. It is composed balance of payments, such as trade in goods
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Rate of interest
cost of borrowing/ income from savings deposited in a bank / return on deposits in high street banks – changes in interest rates can have a time lag of 18-24 months
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an increase in the cost of living or average/general price level, or a fall in the purchasing power of £1
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Inflation target
a permitted range for the increase in the price levels, measured by changes in the CPI
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a decrease in the cost of living or average price level, or a rise in the purchasing power of £1
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Wealth effect
when asset (house prices/ shares etc.) values change. This affects changes in spending and confidence
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Other cards in this set

Card 2




an addition to the level of I+G+X demand in the circular flow

Card 3




Preview of the front of card 3

Card 4




Preview of the front of card 4

Card 5


Real income


Preview of the front of card 5
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