Unit 2 - How the economy works

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Macroeconomic objective - L U
Low unemployment
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Macroeconomic objective - S E G
Sustainable economic growth
2 of 47
Macroeconomic objective - L, S I
Low, stable inflation
3 of 47
Macroeconomic objective - H C A B
Healthy current account balance
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Macroeconomic objective - R I
Reducing Inequality
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Macro-economic policy - The use of government spending and taxation to change the level of aggregate demand in the economny - *blank* policy
Fiscal
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Macro-economic policy - The use of changes in the interest rate to change the level of aggregate demand in the economy - *blank* policy
Monetary
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Macro-economic policy -Policies that look to increase aggregate supply through improving the quantity and/or quality of factors of production - *blank* policy
Supply-side
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Growth in the output of an economy (measured by real GDP) over a period of time
Economic Growth
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The total value of goods and services produced by a country in one year
GDP
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The total value of goods and services divided by the population
GDP per capita
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When a worker is willing and able and actively seeking work (at the current wage rate) but cannot find a job
Unemployment
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When all those able and willing to work are in paid employment at the current wage rate
Fill employment
13 of 47
A measure of unemployment based on the number of people claiming unemployment benefit
Claimant count
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A measure of unemployment based on a survey of households, asking whether people are actively seeking work but do not have a job
Labour force survey
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Type of unemployment - due to a lack of aggregate demand
Cyclical
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Type of unemployment - due to unemployed people not having the right skills for the jobs that are available
Structural
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Type of unemployment that is short-term due to people switching jobs
Frictional
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Type of unemployment - due to certain firms only demanding workers at certain times of the year e.g. a ski instructor
Seasonal
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A type of structural unemployment where workers who had the skills to do a job have been replaced by automated machienary
Technological
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Type of unemployment - due to people choosing not to work
Voluntary
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A sustained rise in the general price level over time
Inflation
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The general price level grows at a low, steady rate over time
Price Stability
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The percentage change in general price level over a period of time
Inflation rate
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A rate of inflation so high that the value of money becomes nearly worthless
Hyperinflation
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Inflation due to aggregate demand rising more quickly than the rise in supply of goods and services
Demand-pull inflation
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Inflation due to a rise in the costs of production faced by firms in the economy
Cost-push inflation
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A compulsoary payment to the governmet
Tax
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A tax on income or wealth
Direct tax
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A tax on spending on goods/services
Indirect tax
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How incomes are shared out among the people of a country
Distribution of income
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Policies that distribute income more evenly and reduce inequality
Redistribution of income
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When incomes/wealth are distributed unevenly
Inequality
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Benefits to citizens paid from tax revenue normally on basis of need
Transfer payment
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A tax which takes a greater proportion of income as income rises
Progressive Tax
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A tax which takes the same proportion of income as income rises
Proportional tax
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A tax which takes a lower proportion of income as income rises
Regressive tax
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When the market forces of supply and demand fail to allocate resources efficiently (in the best interest of society as a whole)
Market Failure
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When the market forces of supply and demand fail to allocate resources efficiently (in the best interest of society as a whole)
Market Failure
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The spill-over effects of production or consumption on third parties
Externalities
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The positive effects of consumption and production felt by those who are not a part of it
Positive Externalities
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The negative effects of consumption and production felt by people who are not part of it
Negative Externalities
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A beneficial good that has positive externalities and so is underconsumed
Merit good
43 of 47
A harmful good that has negative externalities and so is overconsumed
Demerit good
44 of 47
A policy that changes the total supply of money in the economy
Monetary policy
45 of 47
The use of interest rates to achieve the governments economic objectives
Interest Rate Policy
46 of 47
The interest rate set by the Bank of England which influences all other interest rates in the economy
Base Rate
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Other cards in this set

Card 2

Front

Macroeconomic objective - S E G

Back

Sustainable economic growth

Card 3

Front

Macroeconomic objective - L, S I

Back

Preview of the front of card 3

Card 4

Front

Macroeconomic objective - H C A B

Back

Preview of the front of card 4

Card 5

Front

Macroeconomic objective - R I

Back

Preview of the front of card 5
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