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73 Cards in this Set
- Front
- Back
actual economic growth |
the rate of growth of GDP in a period |
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aggregate demand |
the total amount of spending on goods and services produced in an economy during a period of time C+I+G+ (X-M) |
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aggregate demand curve |
the relationship between the level of aggregate demand and the overall price level; it shows planned expenditure at any given possible overall price level |
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automatic stabilisers |
effects by which government expenditure adjusts to offset the effects of recession and boom without the need for active intervention (useful for evaluating demand side policies) |
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average propensity to consume marginal propensity to consume |
the proportion of income that households devote to consumption the proportion of additional income that households devote to consumption |
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balance of payments |
a set of accounts showing the transactions conducted between residents of a country and the rest of the world |
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bank rate |
the interest rate that is set by the Monetary Policy Committee of the Bank of England in order to influence inflation (Tip: it is useful to know where the bank rate is currently) |
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business cycle |
a phenomenon whereby GDP fluctuates around its underlying trend, following a regular pattern of peaks and troughs |
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capital productivity |
a measure of output per unit of capital |
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claimant count of unemployment |
the number of people claiming the Jobseeker's Allowance (JSA) each month (people claiming the JSA must declare that they are out of work, and capable of, available for and actively seeking work during the week in which their claim is made) |
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consumer price index (CPI) |
a measure of the general level of prices in the UK the annual percentage change of the CPI has been used as the inflation target (set by the government, for the Bank of England to achieve) since Jan 2004 |
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consumption |
total planned household spending |
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consumption function |
the relationship between consumption and disposable income such that as disposable income rises so does consumption |
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cost-push inflation |
inflation initiated by an increase in the costs faced by firms, inflation arising on the supply side of the economy (cost-push inflation should be illustrated by a shift inwards of the SRAS curve) |
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crowding out
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a process by which an increase in government spending 'crowds out' private sector activity by raising the cost of borrowing G rises, financed by an increase in govt borrowing. This increases the supply of govt bonds, which pushes down their price increasing their 'yield'. This pushes up longer term interest rates throughout the economy, reducing investment (I). |
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cyclical unemployment |
unemployment that arises during the downturn of the economic cycle, such as a recession |
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deflation disinflation |
a fall in the average level of prices (i.e. negative inflation) a fall in the rate of inflation (i.e. prices rising but more slowly) |
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demand-pull inflation |
inflation initiated by an increase in aggregate demand |
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depreciation |
the fall in the value of physical capital equipment over time due to wear and tear
(depreciation is the reason capital needs to be replaced fairly regularly and why if the rate of investment falls the quality of capital will still suffer shifting in AS) |
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discouraged workers |
people who have been unable to find employment and who are no longer looking for work |
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disposable income |
the income left to consume or save, once direct taxes have been paid and benefits received disposable income = income minus taxes plus benefits real disposable income = disposable income minus inflation |
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economically inactive |
people of working age who are not looking for work for a variety of reasons (e.g. stay-at-home mums) |
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exchange rate |
the price of one currency in terms of another |
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export-led growth |
a strategy for achieving rapid economic growth through the promotion of export activity (e.g. China) |
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fiscal policy |
decisions made by the government on its expenditure, taxation and borrowing |
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frictional unemployment |
unemployment associated with job search (i.e. people who are between jobs but will rapidly move into another) |
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full employment natural rate of unemployment |
when all economically active workers are able to find employment at going wage rates the unemployment rate that exists when the economy is in long-run equilibrium |
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budget deficit budget surplus |
when government spending is greater than tax revenues G>T when tax revenues are greater than government spending T>G |
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gross domestic product (GDP) gross national income (GNI) |
GDP is a measure of the economic activity carried out in the domestic economy over a period GNI = GDP + net income from abroad |
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human capital |
the stock of skills and expertise that contribute to a worker's productivity; it can be increased through education and training |
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ILO unemployment rate |
the percentage of the workforce who are without a job, want a job, have actively sought work in the last 4 weeks and are available to start work in the next 2 weeks (or who are about to start a new job in the next 2 weeks) The ILO stands for the International Labour Organisation |
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index number |
a device for comparing the value of a variable in one period of location with a base observation (e.g. the consumer price index measures the average level of prices relative to a base period) |
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inflation |
the rate of increase in the average price level in an economy |
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what are the three injections into the circular flow? what are the three withdrawals? |
G, I, X S, M, T |
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interventionist policies |
(similar to supply-side policies) policies by which the government intervenes to stimulate aggregate supply |
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investment |
expenditure undertaken by firms to add to the capital stock |
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voluntary unemployment involuntary unemployment |
when an individual chooses not to accept a job at the going wage rate (perhaps because the difference between benefits and income is small) when an individual would like to accept a job at the going wage rate but is unable to find employment |
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Keynesian School |
a group of economists who believe that the macroeconomy can settle at an equilibrium below full employment (they therefore believe that governments can and should use demand-management to smooth the business cycle and reduce unemployment) |
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labour productivity |
output per worker or output per hour worked |
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marginal propensity to import |
the proportion of additional income that is spent on imports of goods and services |
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marginal propensity to save |
the proportion of an increase in disposable income that households would devote to saving |
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marginal propensity/rate of tax |
the proportion of additional income that is taxed |
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marginal propensity to withdraw |
the proportion of additional income that is withdrawn from the circular flow - the sum of the marginal propensities to save, import and tax |
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market-based policies |
policies that rely on allowing markets to work more freely |
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Monetarist School |
a group of economists who believed that the macroeconomy always adjusts rapidly to the full employment level of output, and that monetary policy should be the prime instrument for stabilising the economy |
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monetary policy |
the decisions made by the central bank regarding monetary variables such as the money supply or the interest rate |
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Monetary Policy Committee |
the body within the Bank of England responsible for the conduct of monetary policy |
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money supply |
the quantity of money in the economy |
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multiplier |
the ratio of a change in equilibrium real income to the autonomous change that brought it about 1/MPW or 1/(1-MPC) or 1/(MPS + MPM + MRT) |
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natural rate of output |
the long-run equilibrium level of output to which monetarists believe the macroeconomy will always tend |
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natural rate of unemployment |
the unemployment rate that will exist when the economy is in long-run equilibrium |
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nominal value |
the value of an economic variable (e.g. GDP, income) based on current prices, unadjusted for inflation |
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output gap |
the difference between actual real GDP and potential real GDP |
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Phillips curve |
an empirical relationship suggesting that there is a trade-off between unemployment and inflation (this suggests you can't have low unemployment and low inflation at the same time - a conflict in objectives) |
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potential economic growth |
an expansion in the productive capacity of the economy |
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productivity |
a measure of the efficiency of a factor of production |
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quantitative easing |
a process by which liquidity in the economy is increased when the Bank of England purchases assets from banks |
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real value |
the value of an economic variable measured using constant prices, therefore adjusted for inflation |
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recession |
two (or more) consecutive quarters of falling GDP (negative growth). |
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retail price index |
a measure of the average level of prices in the UK unlike the CPI it includes housing costs such as council tax and mortgage interest payments. |
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seasonal unemployment |
unemployment that arises in seasons of the year when demand is relatively low |
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short run aggregate supply curve |
a curve showing how much output firms would be prepared to supply in the short run at any given overall price level use this curve if the costs for firms are changing (e.g. oil prices, wages) |
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stagflation |
when both unemployment and inflation are high at the same time (this can be used as an evaluation for the Phillips curve which suggests a trade-off between unemployment and inflation) |
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structural unemployment |
unemployment arising because of changes in the pattern of economic activity within an economy |
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supply-side policies |
a range of measures intended to have a direct impact on aggregate supply and specifically the potential capacity output of the economy |
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total factor productivity |
the average productivity of all factors, measured as the total output divided by the total amount of inputs used |
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transmission mechanism of monetary policy |
the process by which a change in the bank rate affects inflation/growth (remember there are four channels: 1. via borrowing and savings behaviour 2. via a change in mortgage interest payments 3. via the wealth effect 4. via the exchange rate) |
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underemployment |
where an individual is employed in a second choice occupation or is only able to work part-time but would like to work full-time |
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unemployed |
people who are economically active but are not in employment |
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voluntary unemployment |
situation arising when an individual chooses not to accept a job at the going wage rate |
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withdrawals |
where money flows out of the circular flow in the form of savings, taxation and imports |
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wealth |
the accumulation of assets such as property or shares a stock concept (income is a flow concept) |
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workforce |
people who are economically active - either in employment or unemployed (Note: changes in the workforce/population shift AS, e.g. an increase in immigration means a greater workforce; but changes in employment/unemployment do not) |