2.1 Government and the Economy Flashcards
Budget deficit
amount by which government spending is greater than government revenue.
Macroeconomics
study of large economic systems such as: the whole country / area of the world.
Microeconomics
study of small economic systems, part of national or international systems.
Economic growth
increase level of output by a nation.
National income
value of income, outputs or expenditure over a period of time.
Gross domestic product (GDP)
market value of all final goods and services produced in a period (yearly), internationally recognised measure of national income.
Boom
peak of the economic cycle where GDP is growing at its fastest.
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, fall of GDP in two successive quarters.
Depression
bottom of the economic cycle where GDP starts to fall with significant increase in unemployment.
Recovery (upswing)
GDP starts to rise again.
Overheat
demand rises too fast, causes prices and imports to rise, situation that governments correct by raising taxes and interest rates.
Unsustainable growth
economic growth not possible to sustain without causing environmental problems.
Aggregate demand
total demand in the economy (include consumption, investment, government expenditure, exports minus imports)
Deflation
period where level of aggregate demand falls.
Inflation
rate at which prices rise, general and continuing rise in prices.
Consumer price index (CPI)
measure of the general price level (- housing costs)
Retail price index (RPI)
measure of the general price level (+ house prices & council tax)
Demand-pull inflation
inflation caused by too much demand relative to supply
Cost-push inflation
inflation caused by rising business costs
Interest rates
price paid to lenders for borrowed money; price of money
Monetarists
economists believe there’s a (strong) link between growth in money supply & inflation.
Purchasing power of money
amount of goods & services bought with a fixed sum of money.
Menu costs
costs to firms having to make repeated price changes.
Shoe leather costs
costs to firms & consumers searching for new suppliers when inflation is high
Hyperinflation
very high levels of inflation; rising prices get out of control.
Unemployment
when those actively seeking work are unable to find a job
Cyclical or Demand deficit 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 for them to do
Structural unemployment
unemployment caused by changes in the structure of the economy (decline in an industry).
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.
People choose not to work for the wages offered or do not like the idea of work in general.
Frictional unemployment
when workers are unemployed for a short period of time as they move from one job to another
Balance of payment
record of all transactions relating to international trade
Exports
goods and services sold overseas
Imports
goods and services bought from overseas
Current account
part of the balance of payments where all exports & imports recorded.
Capital and financial account
part of balance of payments where flows of saving, investment and currencies are recorded
Current balance
difference between total exports and total imports (visible and invisible)
Current account deficit
when value of imports exceeds the value of exports.
Current account surplus
when value of exports exceeds the value of imports.
Visible trade
trade in physical goods (buying and selling physical goods).
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.
Income inequality
differences in income that exist between the different groups of earners in society, that is, the gap between the rich and the poor.
Lorenz curve
graphical representation of the degree of income or wealth inequality in a county.
Absolute poverty
where people do not have enough resources to meet their basic human needs.
Relative poverty
poverty that’s 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.
Fiscal policy
decisions about government spending, taxation and levels of borrowing that affect aggregate demand in the economy.
Budget
government’s spending and revenue plans for the next year.
Direct taxes
taxes levied on the income earned by firms and individuals.
Indirect taxes
taxes levied on spending, such as VAT.
Value-added tax
tax on some goods and services, businesses pay value-added tax on most goods and services they buy and if they are VAT a registered, charged value-added tax on the goods and services they sell.
Fiscal deficits
amount by which government spending exceeds government revenue.
Fiscal surplus
amount by which government revenue exceeds government spending.
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 the money supply to control aggregate demand in the economy.
Mortagage
legal arrangement where you borrow money from a financial institution in order to buy land or a house, and you pay back the money over a period of years; if you do not make your regular payments, the lender normally has the right to take the property and sell it in order to get back their money
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
Quantitative easing
buying of financial assets, such as government bonds from commercial banks which results in a flow of money from the central bank to commercial banks.
Supply side policy
government measures designed to increase aggregate supply in the economy.
Aggregate supply
total amount of goods and services produced in a country at a given price level in a given time period.
