2.1 GOVERNMENT AND THE ECONOMY- Flashcards
budget deficit
amount by which government spending is greater than government revenueº
macroeconomics
study of large economic systems such as those of a whole country or area of the world
mircoeconomics
study of small economics systems that are a part of national or international systems
economic growth
increase in level of output by a nation
national income
value of income, output or expenditure over a period of time
gross domestic product (GDP)
market value of all final goods and services produced in a period (usually yearly), an internationally recognised measure of national income
depression/ slump
bottom of economic cycle where GDP starts to fall with significant increases in unemployment
downturn
period in the economic cycle where GDP grows, but more slowly
recession
period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters
boom
peak of economic cycle where GDP is growing at its fastest
overheat
if an economy overheats, demand rises too fast, causing prices and imports to rise, a situation that governments may try to correct by raising taxes and interest rates
unsustainable growth
economic growth that is not possible to sustain without causing environmental problems
aggregate demand
total demand in the economy including consumption, investment, government expenditure and exports minus imports
deflation
period where the level of aggregate demand is falling
inflation
rate at which prices rise, a general and continuing rise in prices
consumer price index (CPI)
measure of the general price level (excluding housing costs)
retail price index (RPI)
measure of the general price level, which includes house prices and council tax
demand-pull inflation
inflation caused by too much demand in the economy relative to supply
cost-push inflation
inflation caused by rising business costs
interests rates
price paid to lenders for borrowed money; it is the price of money
monetarists
economists who believe there is a strong link between growth in the money supply and inflation
purchasing power of money
amount of goods and services that can be bought with a fixed sum of money
menú costs
costs to firms of having to make repeated price changes
shoe leather Costs
costs to firms and consumers searching for new suppliers when inflation is high
hyperinflation
very high inflation, rising prices out of control
transactions
payment, or the process of making one
unemployment
when those actively seeking work are unable to find a job
cynical or demand deficient unemployment
unemployment caused by falling demand as a result of a downturn in the economic cycle
laying off
stop employing someone because there is no work left for them to do
structural unemployment
unemployment caused by changes in the structure of the economy such as the decline in an industry
frictional unemployment
when workers are unemployed for a short period of time as they more from a job to another
seasonal unemployment
unemployment caused when seasonal workers such as those in the holiday industry are laid off because the season has ended
voluntary unemployment
unemployment resulting from people choosing not to work
balance of payments
record of all transactions relating to international trade
capital and financial account
that part of the balance of payments where flows of savings investment and currencies are recorded
current account
that part of the balance of payments where all imports and exports are recorded
exports
goods and services sold overseas
imports
goods and services bought from oversees
current account deficit
when value of imports exceeds value of exports
current balance
difference between total exports and total imports (visible and invisible)
current account surplus
when value of exports exceeds value of imports
balance of trade / visible balance
difference between visible exports and visible imports
invisible trade
trade in services
primary income
money received from the loan of production factors abroad
secondary income
government transfers to and from overseas agencies such as the EU
visible trade
trade in physical goods
exchange rate
price of one currency in terms of another
income inequality
differences in income that exist between the different groups or earners in society, the gap between the rich and the poor
Lorenz curve
graphical representation of the degree of income or wealth inequality in a country
absolute poverty
where people do not have enough resources to meet all of their basic human needs
relative poverty
poverty that is defined relative to existing living standards for the average individual
progressive taxation
where the proportion of income paid in tax rises as the income of the taxpayer rises
regressive taxation
tax system that places the burden of the tax more heavily on the poor
policy instruments
tools governments use to implement their policies, such as interest rates, rates of taxation, levels of government spending
budget
government spending and revenue plans for the next year
fiscal policy
decisions about government spending, taxation and levels of borrowing that affect aggregate demand in the economy
direct taxes
taxes levied on the income earned by firms and individuals
indirect taxes
taxes levied on spending such as VAT
value added tax (VAT)
tax on some goods and services - businesses pay value added tax on most goods and services they buy and if they are vat registered trademarks charge value added tax on the goods and services
fiscal deficit
amount by which government spending exceeds government revenue
fiscal surplus
amount by which government revenue exceeds government spending
national debt
total amount of money owned by a country
expansionary fiscal policy
fiscal measures designed to stimulate demand in the economy
contractionary fiscal policy
fiscal measures designed to reduce demand in the economy
Monetary policy
Use of interest rates and money supply to control agregate demanda in the economy
money supply
amount of money circulating in the economy
base rate
rate of interest set by government or regional central banks for lending to other banks, which in turn influences all other rates in the economy
mortgage
legal arrangement where you borrow money from a financial institution in order to buy land or a house, and you pay money back over a period of years
rate of interest
price of borrowing money
quantitative easing
buying off financial assets such as government bonds from comerical bancks, which results in a flow of money from central bank to comercial banks
aggregate supply
total amounts of goods and services produced in a country at a given price level in a given time period
supply side policies
government measures designed to increase aggregate supply in the economy
offset
if something such as a cost or sum of money offsets another cost it has the effect of reducing or balancing it so that the situation remains the same
austerity
official action taken by a government in order to reduce the amount of money that it spends or the amount that people spend
