2.2.4 - TRADE CYCLE + EQUILIBRIUM + factors of consumption Flashcards
Define Aggregate Supply
Total Amount of goods and services produced in an economy at a given time period
What is Equilibrium in AD
AD = AS
Define Interest rates
Cost of borrowing and reward for saving
Define exchange rates
Currency expressed in terms of another
What is the wealth effect
When assets Appreciate in value leading to consumers
‘‘feeling rich’’ so consume more
What is the negative wealth effect
When assets depreciate in value so consumers ‘‘feel poorer’’
so consume less
What is Confidence for consumers in economics
When a consumer has for eg. job security so more confidence to consume.
What is anticipated inflation
Consumers predict that general price level will increase in future so they consume more.
For example, buy more houses
Define gross investment
Investment before depreciation
Define Net investment
Gross investment - capital depreciation - taxes
Define confidence for firms in economics
Confidence of firms on future economic prospects and demand
What is the animal spirit - keynes
Emotions of confidence and hope
Define accelerator effect
Increase in economic growth leads to larger proportionate rise in investment
Define easier access to credit
When financial institutions relax the laws and criteria for lending.
Makes access to credit easier
Define price level
Average of current price across entire goods and services produced in an economy
Define productivity
The output per worker over a period of time
Define Fiscal Policy
A policy designed to achieve the macroeconomic objectives
Involves changing government spending, and tax
Define Direct Tax
Tax on income, profits and wealth.
Eg. Income tax and NI + inheritance tax
Define Indirect Tax
Taxes are placed on the value of goods and services,
Eg, VAT
Define the trade cycle
The economic/trade cycle is the natural fluctuation of the economy between periods of expansion ( Growth) and contraction (recession).
What is the Trend of Growth
Where economic growth should be based on previous years
So Predict based on past years
Define BOOM in trade cycle
A period of rapid economic expansion, resulting in higher GDP, lower unemployment, higher inflation rate, trade deficit and rising assets prices
Define Recession
A period of negative economic growth for two consecutive quarters.
This is when there is a contraction in growth resulting in higher unemployment, lower GDP, fall in inflation, trade surplus, and falling asset prices
Define SLUMP in a trade cycle
Severe period of economic collapse associated with high unemployment, low prices, decline in business, consumer confidence.
Define Recovery in trade Cycle
When GDP ( Growth) starts to rise, increasing in employment and confidence in an economy.
How is fiscal policy and trade cycle linked
- Government spending is likely to rise in a recession and slump, to increase growth and reduce unemployment
- Taxes are likely to be lower in a recession/slump as growth is low, therefore lower taxes would increase consumption and increase economic growth
In a boom its the opposite
Whys is AS curve sloping upwards
Because at a higher price, firms have a higher incentive to produce as there is more profit.
What is one characteristic of a recession
Interest rates would fall to encourage economic growth.
Consumption decreases, so demand decreases, therefore inflation decreases too.
