8 economic performance Flashcards
economic recovery definition
when short-run economic growth takes place after a recession
demand-side economic growth definition
the impact of changes in aggregate demand on the economy
supply-side econoic growh definition
changes in the potential output of the economy which is affected by the available factors of production
e.g changes in the size of the labour force
trend growth rate definition
the rate at which output can grow, on a sustained basis, without putting pressure on inflation
annual percentage increase in the productive capacity of the economy
seasonal fluctuation definition
variation of economy activity resulting from seasonal changes in the economy
economic cycle definition
upswing and downside in aggregate economic activity taking place over 4-12 years
in order to be an economic cycle has to be longer than seasonal fluctuation
actual output definition
level of real output produced in the economy in a particular year
trend level of output definition
what the economy is capable of producing when working at full capacity
difference between trend level and actual output
actual output differs when there is positive or negative output gap
what is a boom
A period of economic activity characterised by an increase in the rate of real output growth and increasing inflation.
what is a trough
A sustained period of low economic growth which usually follows a recession and is usually associated with:
Low growth
High unemployment
Low inflation
Low levels of confidence
what is recovery
When an economy grows after a period of contraction.
what is a recession
negative real GDP growth for 2 or more consecutive quatres
what is a depression
A sustained reduction in economic activity and GDP that lasts for a long period of time (typically 2 years or more) and leads to very high levels of unemployment
aka a prolonged trough
output gap definition
the level of actual real output in the economy is greater pr lower than the trend output level
4 benefits of economic growth
- increases standard of living
- provides new and more environmentally friendly technologies
- produces a fiscal dividend (more tax revenue from indirect tax and direct tax)
- lead to a cycle of benefits (greater confidence, increased investment, better technology and capital, greater international competitiveness, higher profits)
5 costs of economic growth
- uses up finite resources
- leads to pollution
- can widen inequalities and distribution of income and wealth
- leads to urbanisation
- growth in population, more people who are poor
frictional unemployment definition
unemployment that is usually short term and occurs when a worker switches between jobs, time lags
also known as transitional unemployment
geographical immobility of labour
when workers are unwilling or unable to move from one are to another in search of work
occupational immobility of labour
when workers are unwilling or unable to move from one type to another type of job
e.g because different skill set needed
structural unemployment definition
long-term unemployment occurring when some industries are declining, even though other industries may be growing, also occurs within a growing industries when capital increases and reduces the demand for labour and requires new skills
what 2 ways is structural unemployment caused
- unable to adapt to a change in demand, leads to more efficient competitors (geographical immobility of labour)
- change in skills needed as industries change the way they produce goods (occupational immobility of labour)
deindustrialisation definition
decline of manufacturing industries
cyclical unemployment definition
unemployment caused by a lack of aggregate demand in the economy
when does cyclical unemployment occur
when the economy goes into a recession or depression
seasonal unemployment definition
unemployment arising in different seasons of the year, caused by factors such as the weather and christmas
real wage definition
the purchasing power of the nominal wage
real-wage unemployment definition
unemployment caused by real wages being stuck above the equilibrium real wage
equilibrium unemployment definition
exists when the economy’s aggregate labour market is in equilibrium. it is the same as the natural level of unemployment
natural rate of unemployment (NRU)
the rate of unemployment when the aggregate labour markets is in equilibrium
what 2 unemployment’s make up the equilibrium unemployment
- frictional
- structural
demand pull inflation definition
a rising price level caused by an increase in aggregate demand
cost push inflation definition
a rising price level caused by an increase in the costs of production
wage-cost inflation
a rising price level caused by an increase in wages and salaries
import-cost inflation
a rising price level caused by an increase in the costs of imported energy, food, raw materials and manufactured goods
monetarists
economists who argue that prior increase in the money supply is the cause of inflation
quantity theory of money definition
oldest theory of inflation, which states that inflation is caused by a persistent increase in the supply of money
equation of exchange definition
the stock of money in the economy multiplied by the velocity of circulation of money equals the price level multiplied by the quantity of real output in the economy
equation of exchange formula
MV = PT
What is M in the equation of exchange
money supply
what is V in the equation of exchange
velocity of circulation, average number of times a unit of currency changes hands
- stable and doesn’t change unless incomes change
what is P in the equation of exchange
average price of each transaction
what is T in the equation of exchange
total number of transactions made
- relativly constant
What can PT multiplied together relate to
nominal GDP
what are the 2 effects of expectations on changes in the price level
inflation:
- prices higher next year, they will act now, more inflation
deflation:
- prices lower next year, won’t purchase yet, more deflation
what are 4 costs/disadvantages of inflation
- distributional effects (fixed incomes lose, strong bargaining position wins)
- distortion of normal economic behavior (higher prices next year, buy/hoard goods now)
- international competitiveness (inflation higher than other countries, exports more expensive)
- show leather costs and menu costs (sl = spending time shopping around and checking prices, mc = firms adjusts price lists more often)
current account deficit definition
occurs when currency outflows in the current account exceed currency inflows.
export less than import
current account surplus definition
occurs when currency inflows in the current account exceed currency outflows
exports greater than imports
balance of trade in goods definition
the part of the current account measuring payments for the exports and imports of good
balance of trade in services definition
part of the current account and is the difference between the payments for the exports of services and the payments for the imports of services
short-run Philips curve definition
relationship between the rate of inflation and the rate of unemployment
long-run philips curve definition
a vertical curve located at the NRU
vertical point takes account of expectations in inflation
