AS definitions Flashcards
Accelerator
A change in the level of investment in new capital goods induced by a change in the rate of national income or aggregate demand
Actual output
Level of real output produced in the economy in a particular year
Aggregate demand
The total planned spending on real output produced within the economy
C+I+G+(X-M)
Aggregate supply
The level of real national output that producers are prepared to supply at different average price levels
Availability of credit
Funds available for households and firms to borrow
Balance of payments/Current account
A record of all the currency flows into and out of a country in a particular time period
Balanced budget
Achieved when government spending equals government revenue
G=T
Bank of England
The central bank in the UK economy which is in charge of monetary policy
Bank rate
The rate of interest the Bank of England pays to commercial banks on their deposits held at the Bank of England
Budget deficit
Occurs when government spending exceeds government revenue
G>T
Budget surplus
Occurs when government spending is less than government revenue
G
Central bank
Controls the banking system and implements monetary policy on behalf of the government
Consumer price index (CPI)
The official measure used to calculate the rate of consumer price inflation in the UK. The CPI calculates the average price increase of a basket of 700 different consumer goods and services
Consumption
Total planned spending by households on consumer goods and services produced within the economy
Contractionsry fiscal policy
Uses fiscal policy to decrease aggregate demand shifting the AD curve left
Contractionary monetary policy
Uses higher interest rates and other monetary policy tools to decrease aggregate demand and to shift the AD curve left
Cost push inflation
A rising price level caused by an increase in the costs of production, shown by a shift in the SRAS curve to the left
Credit crunch
Occurs when there is a lack of funds available in the credit market, making it difficult for borrowers tho obtain financing, and leads to a rise in the costs of borrowing
Current account deficit
Exports less than imports
Current account surplus
Exports greater than imports
Cyclical unemployment
When there is a lack of AD in the economy and occurs when the economy goes into a recession
Deflation
A persistent continuing fall in the average price level
Deindustrialisation
The decline of manufacturing industries, together with coal mining
Demand side
Relates to the impact of changes in AD on the economy
Demand pull inflation
A rising price level caused by an increase in aggregate demand, shown by a shift in the AD curve to the right
Deregulation
Involves removing previously imposed regulations
Direct tax
A tax which cannot be shifted by the person legally liable to pay the tax onto someone else. They’re levied on income and wealth
Eg income tax
Disinflation
When the rate of inflation is falling, but still positive and the price level is rising slower than previously
Distribution of income
The spread of different incomes among individuals and different income groups in the economy
Economic cycle
Upswing and downside in aggregate economic activity taking place over 4 to 12 years
Economic performance
Success or failure in achieving economic policy objectives
Economic recovery
When short run economic growth takes place after a recession
Exchange rate
The price of a currency
Eg pound measured to other currencies such as US dollar/euro
Expansionary fiscal policy
Uses fiscal policy to increase aggregate demand and to shift the AD curve to the right
Expansionary monetary policy
Uses lower interest rates and other monetary instruments to increase aggregate demand and shift the AD curve to the right
Exports
Domestically produced goods or services sold to residents of other countries
Fiscal policy
The use by the government of government spending and taxation to try to achieve the governments policy objectives
Frictional unemployment
Unemployment that is usually short term and occurs when a worker switches between jobs
Full employment
When under 3% of the he labour force are unemployed
Geographical immobility or labour
When workers are unwilling or unable to move from one area to another in search of work
Gross domestic product (GDP)
The sum of all goods and services, or level of output produced in the economy over a period of time
Imports
Goods or services produced in other countries and sold to residents of this country
Index number
Base year = 100
Shows fluctuations/comparisons of values of per year
Indirect tax
A tax which can be shifted by the person legally liable to pay the tax onto someone else. These are levied on spending
Eg VAT
Inflation
A persistent or continuing rise in the average price level
Aimed at 2%
Injection
Spending entering the circular flow of income as a result of investment, government spending and exports
Investment
Total planned spending by firms on capital goods produced within the economy
Involuntary unemployment
When workers are willing and able to work at the current wage rate but they’re no jobs available
Labour force survey
A quarterly sample of households in the UK. Providing information on households labour status
Long run aggregate supply (LRAS)
Aggregate supply when the economy is producing at its production potential.
Can be shifted right if more factors of production become available or productivity rises
Long run economic growth
An increase in the economy’s potential level of real output and an outward movement of the economy’s PPF
Economic growth
An increase in the goods and services produced within an economy over a period of time
Marginal propensity to consume
The fraction of an increase in disposable income that people plan to spend domestically on consumer goods
Monetary policy
The use by the government and its agent, the Bank of England, of interest rates and other monetary instruments to try to achieve the governments policy objectives
Monetary policy committee (MPC)
Nine economists which meet monthly within the Bank of England to set the bank rate, interest rates and other aspects of monetary policy
Money supply
The stock of money in the economy, made up of cash and bank deposits
Multiplier
The relationship between a change in aggregate demand and the resulting usually larger change in national income
National capital stock
The stock of capital goods, such as buildings and machinery, in the economy that has accumulated over time
National debt
The stock of all past central government borrowing that has not been paid
National income
The flow of new output produced in the economy in a particular period
Natural rate of unemployment
Rate of unemployment when the aggregate labour market is in equilibrium
Negative output gap
The level of actual real output in the economy is lower than the trend output level
Nominal GDP
GDP measured at the current market prices, with inflation removed
Occupational immobility of labour
When workers use unwilling or unable to move from one type of job to another
Eg different skills are needed
Output gap
The level of actual real output in the economy greater or lower than the trend output level
Phillips curve
Shows relationship between the rate of inflation and the rate of unemployment
Policy conflict
When two policy objectives cannot both be achieved at the same time. The worse the performance in achieving the other
Positive output gap
The level of actual real output in the economy is greater than the trend output level
Price index
An index number showing the change in the basket of prices over a month, quarter or year
Privatisation
Involves shifting ownership of state owned assets to the private sector
Progressive taxation
If, as income rises, a larger proportion of income is paid in tax
Eg income tax
Proportional taxation
When proportion of income payed in tax is the same as income increases
Eg
Rate of interest
The reward for lending or borrowing money
Currently 0.5%
Real GDP
A measure of all the goods and services produced in the economy, adjusted for inflation
Real wage
The purchasing power of money wage
Real wage falls as inflation increases
Real wage unemployment
Unemployment caused by real wages being stuck above the equilibrium real wage
Recession
A fall in real GDP over 2 consecutive quarters of the year
Regressive taxation
When the proportion of income tax falls as income increases
Eg VAT
Saving
Income which is not spent
Seasonal unemployment
Unemployment arising in different seasons of the year
Eg ski instructor
Short run aggregate supply (SRAS)
Aggregate supply when the level of capital is fixed
Structural unemployment
When a decline in industries leads to long term unemployment
Eg coal mining
Supply side
Relates to changes in the potential output affected by the factors of production
Eg changes in the size of the labour force
Supply side policies
Improving national economic performance by creating competitive and more efficient markets
Eg education and training
Trend growth rate
The rate which output can grow sustainably without putting pressure on inflation
Voluntary unemployment
When workers choose to remain unemployed and refuse job offers at the current market wage rates
