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Economics definitions > A2 MACRO > Flashcards

A2 MACRO Flashcards

1
Q

Long run economic growth

A

an increase in the potential output of an economy, shown by an output movement in country’s PPF

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2
Q

Short Run economic growth

A

Actual growth, an increase in output from making use of spare capacity and unemployed labour, known as an economic recovery.

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3
Q

Productivity

A

Output per unit of input.

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4
Q

Economic Cycle

A

a period between 4 and 10 years in which actual output fluctuates above and below the trend line.

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5
Q

Aggregate Demand

A

the total planned spending on goods and services in an economy within a particular time period.

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6
Q

Short-Run aggregate supply

A

the quantities of real output businesses plan to produce and sell at real prices levels.

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7
Q

Macroeconomic equilibrium

A

When AD=AS and when injections into the circular flow of income equal the leakages.

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8
Q

Long-Run aggregate supply

A

the real output that can be supplied when an economy is on its PPF.

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9
Q

Natural level of output

A

the long-run equilibrium level of potential output

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10
Q

Output gap

A

the difference between actual output and the trend level of output.

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11
Q

Negative output gap

A

when actual output is less than the trend growth level of output.

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12
Q

Positive output gap

A

when actual output is more than the trend growth level of output.

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13
Q

The national income multiplier

A

measures the relationship between a change in one of the components of AD and the resultant change in national income.

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14
Q

Government spending multiplier

A

measures the relationship between and change in government spending and the resulting change in the equilibrium level of national income.

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15
Q

Full employment

A

according to the Beveridge definition, occurs when only 3% of the labour force are unemployed.

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16
Q

Equilibrium unemployment

A

when the labour market is in equilibrium the level of people unemployed.

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17
Q

The natural rate of unemployment

A

the rate of unemployment when the labour market is in equilibrium.

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18
Q

The claimant count

A

measure of the number of people unemployed by counting the number of people on unemployment related benefits.

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19
Q

The labour force survey

A

a survey which estimates the level of unemployment by surveying 60,000 households to see if they are looking for work.

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20
Q

Frictional unemployment

A

The unemployment that occurs while people are between jobs.

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21
Q

Seasonal unemployment

A

unemployment resulting from seasonal demand for labour.

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22
Q

Structural unemployment

A

unemployment resulting from the decline of an industry and unemployment as a result of nontransferable skills.

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23
Q

Classical or real wage unemployment

A

a form of disequilibrium unemployment that occurs when the labour market fails to clear. Caused by real wage rates being too high.

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24
Q

Cyclical unemployment

A

Involuntary unemployment. Caused by a lack of demand in the economy causing a lack of derived demand for labour.

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25
Q

Inflation

A

the continuous and persistent rise in the average price level and a fall in the value of money.

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26
Q

Deflation

A

the continuous and persistent fall in the price level and an increase in the value of money.

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27
Q

Reflation

A

an increase in real output and employment following an increase in AD.

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28
Q

Retail price index

A

the UK price index for welfare benefit increases. Includes housing costs.

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29
Q

Consumer price index

A

the most used UK price index used in monetary policy, based on basket of goods.

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30
Q

Price index

A

and index that measures price level.

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31
Q

Quantity theory of money

A

The theory inflation is caused by a prior increase in the money supply.

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32
Q

Fischer equation of exchange

A

MV=PT

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33
Q

Demand-pull inflation

A

inflation caused by excess AD.

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34
Q

Cost-push inflation

A

inflation caused by rising business costs of production.

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35
Q

Short-run Philips curve

A

a downward sloping curve showing the trade off between reducing inflation and reducing unemployment.

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36
Q

Long-run Phillips curve

A

a vertical curve showing how trade-offs between inflation and decreasing unemployment are not possible.

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37
Q

Natural rate of unemployment (Philips curve)

A

Where the LR and SR Philips curves intersect the employment axis.

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38
Q

Adaptive expectations

A

describes how economic agents adapt their expectations on the future based on events in the recent past.

39
Q

Rational expectations

A

Explain how economic agents form expectations of what is likely to happen based on the most up-to-date and relevant information available.

40
Q

Money

A

Both a medium of exchange and a store of value.

41
Q

Bank

A

an institution that accepts deposits and creates deposits when lending to customers who wish to borrow.

42
Q

Central Bank

A

the bank that implements monetary policy and also issues and controls fiat money.

43
Q

Monetary policy

A

the part of monetary policy that is used to control inflation eg interest rates and quantative easing.

44
Q

Rate of interest

A

the cost of borrowing and the reward for saving.

45
Q

Taxation

A

compulsory levies charged by the government to raise revenue, primarily to finance government spending.

46
Q

Regressive tax

A

a tax when proportion of income paid in tax decreases as income increases.

47
Q

Proportionate/Flat tax

A

a tax where the proportion of income paid stays the same as income increases.

48
Q

Principles of taxation

A

Equity
Flexibility
Efficiency

49
Q

Fiscal policy

A

The use of government spending and taxation and the government’s budgetary position to achieve a government’s policy objectives.

50
Q

Keynesian fiscal policy

A

where fiscal policy is used to manage AD

51
Q

Supply-side fiscal policy

A

where fiscal policy is used to increase personal incentives, favoured by free market economists.

52
Q

Balanced budget

A

when G=T over a particular time period.

53
Q

The borrowing requirement

A

the amount a government must borrow to finance a budget deficit.

54
Q

Automatic stabiliser

A

a factor that changes automatically to stabilise AD and the economic cycle. eg progressive taxation and unemployment benefits.

55
Q

Expansionary fiscal policy

A

using fiscal policy to increase AD and shift the AD curve to the right.

56
Q

Contractionary fiscal policy

A

Using fiscal policy to decrease AD to shift the AD curve to the left.

57
Q

Crowding out

A

A process where private sector spending and output is displaced by the growth of the public sector spending and output.

58
Q

Golden Rule

A

net borrowing over a cycle should only include new infrastructure eg roads, bridges.

59
Q

Sustainable investment rule

A

public sector debt should be kept to 40% of GDP

60
Q

Supply-side policies

A

aim to make markets more competitive ad efficient, increasing the production potential and shift the LRAS.

61
Q

Laffer curve

A

shows tax revenues first rising and then falling as % tax increases.

62
Q

The stability and growth pact

A

An agreement by EU countries to limit budget deficits in order to promote economic convergence between member states.

63
Q

Closed economy

A

An economy that undertakes no trade with the rest of the world.

64
Q

Open economy

A

An economy is completely open to trade with the rest of the world.

65
Q

International division of labour

A

Describes different countries specialising by producing different goods.

66
Q

Absolute advantage

A

occurs when a country is absolutely best at producing a good compared to other countries, or more technically efficient.

67
Q

Comparative advantage

A

The country which has the least opportunity cost when producing a good has a comparative advantage over the other.

68
Q

Import controls

A

Include tariffs, import duties, quotas, export subsidies and informal controls.

69
Q

Globalisation

A

the process of growing economic integration of the world’s economies.

70
Q

Balance of payments

A

Measures all the currency flows in and out of an economy in a given time period.

71
Q

The current account

A

Part of the BoP, measuring income currency flows, especially payments for imports and exports.

72
Q

Transfers

A

Payments between countries, which have no return, e.g. foreign aid and grants.

73
Q

Investment income

A

The profit and interest income flowing into a country generated by assets abroad.

74
Q

Direct oversea investment

A

Occurs when firms invest in or buy real productive assets located in foreign countries.

75
Q

Portfolio overseas investment

A

Occurs when financial services firms by financial assets such as bonds issued in foreign countries.

76
Q

Speculative capital flows

A

Occurs when firms, countries or individuals buy up a currency in order to earn high rate of interest on bank deposits in that country or when they speculate a rise in the currencies exchange rate will help them make a capital gain in the future.

77
Q

Balance of payments equilibrium

A

Occurs when the capital account more or less balances out of a period.

78
Q

Deflationary policy

A

involves contractionary monetary or fiscal policy to shift the AD curve left.

79
Q

Devaluation

A

A fall in the currencies exchange rate brought about either formally by a government or through a downward float or depreciation of the exchange rate.

80
Q

J-curve

A

A J shaped curve that maps the possible path of the current account after a devaluation.

81
Q

Exchange rate

A

The external price of a currency usually measured against another currency.

82
Q

Free-floating exchange rate

A

An exchange rate solely determined by market forces.

83
Q

Disequilibrium exchange rate

A

A rate at which there is excess demand for or excess supply of a currency.

84
Q

Fixed exchange rate

A

When an exchange rate is fixed at a certain level by a country’s central bank and maintained by the central bank’s intervention in the foreign exchange market.

85
Q

Managed exchange rate

A

Similar to fixed exchange rate by which a central bank intervenes in the foreign exchange market in order to determine a currencies exchange rate.

86
Q

Adjustable peg exchange rate

A

A manged exchange rate similar to a fixed exchange rate accept the central bank may alter and revalue the exchange rate.

87
Q

Exchange equalisation

A

When a central bank buys or sells its own currency to maintain a particular exchange rate.

88
Q

Dirty floating

A

A manged exchange rate system in which the central bank intervenes in the foreign exchange market whilst the currency is still floating.

89
Q

Reserve currency

A

A currency widely held in foreign currency reserves of other countries and is used by them to pay for trade.

90
Q

Euro

A

The single currency used in the eurozone.

91
Q

Eurozone

A

Contains the countries where the euro has replaced the national currency.

92
Q

European central bank

A

The central bank for the eurozone.

93
Q

Economic and Monetary union

A

Involves a common monetary arrangement in the eurozone and the goal in the Eu of further economic integration.

Economics definitions (4 decks)

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