Chapter 9: Economic Influences On Business Behaviour Flashcards
Define economic growth
Economic growth: an increase in a country’s productive potential measured by an increase in its real GDP.
Define gross domestic product (GDP)
Gross domestic product (GDP): the total value of goods and services produced in a country in one year – real GDP has been adjusted for inflation.
Define business cycle
Business cycle: the regular swings in economic activity, measured by real GDP, that occur in most economies, varying from boom conditions (high demand and rapid growth) to recession when total national output declines.
Define business investment
Business investment: expenditure by businesses on capital equipment, new technology and research and development.
Define recession
Recession: a period of six months or more of declining real GDP.
Define inflation
Inflation: an increase in the average price level of goods and services – it results in a fall in the value of money.
Define deflation
Deflation: a fall in the average price level of goods and services.
Define working population
Working population: all those in the population of working age who are willing and able to work.
Define unemployment
Unemployment: this exists when members of the working population are willing and able to work, but are unable to find a job.
Define cyclical unemployment
Cyclical unemployment: unemployment resulting from low demand for goods and services in the economy during a period of slow economic growth or a recession.
Define structural unemployment
Structural unemployment: unemployment caused by the decline in important industries, leading to significant job losses in one sector of industry.
Define frictional unemployment
Frictional unemployment: unemployment resulting from workers losing or leaving jobs and taking a substantial period of time to find alternative employment.
Define balance of payments (current account)
Balance of payments(current account): this account records the value of trade in goods and services between one country and the rest of the world. A deficit means that the value of goods and services imported exceeds the value of goods and services exported.
Define exchange rate
Exchange rate: the price of one currency in terms of another.
Define exchange rate depreciation
Exchange rate depreciation: a fall in the external value of a currency as measured by its exchange rate against other currencies. If $1 falls in value from €2 to €1.5, the value of the dollar has depreciated in value.
Define imports
Imports: goods and services purchased from other countries.
Define exports
Exports: goods and services sold to consumers and business in other countries.
Define exchange rate appreciation
Exchange rate appreciation: arise in the external value of a currency as measured by its exchange rate against other currencies. If $1 rises from €1.5 to €1.8, the value of the dollar has appreciated.
Define fiscal policy
Fiscal policy: concerned with decisions about government expenditure, tax rates and government borrowing – these operate largely through the government’s annual budget decisions.
Define government budget deficit
Government budget deficit: the value of government spending exceeds revenue from taxation.
Define government budget surplus
Government budget surplus: taxation revenue exceeds the value of government spending.
Define monetary policy
Monetary policy: is concerned with decisions about the rate of interest and the supply of money in the economy.
Define market failure
Market failure: when markets fail to achieve the most efficient allocation of resources and there is under- or overproduction of certain goods or services.
Define external costs
External costs: costs of an economic activity that are not paid for by the producer or consumer, but by the rest of society.
Define income elasticity of demand
Income elasticity of demand: measures the responsiveness of demand for a product after a change in consumer incomes.