Deck 2 (D-F) Flashcards
Deflation
A situation in which the average level of prices is falling - this is negative inflation
Demand-deficient unemployment
Unemployment that arises because of a lack of aggregate demand in the economy, so that the equilibrium level of output is below full employment
Demand-pull inflation
Inflation initiated by an increase in aggregate demand
Depreciation
Currency - a fall in the exchange rate system
Capital equipment - fall in value of physical capital equipment over time as it is subject to wear and tear
Devaluation
Process whereby a government reduces the price of its currency relative to an agreed rate in terms of foreign currency
Discouraged workers
People who have been unable to find employment and who are no longer looking for work
Disposable income
Income that households have to devote to consumption and saving, after taxes have been paid and state benefits added
Economically inactive
People of working age who are not looking for work
Effective exchange rate
The exchange rate for a country relative to a weighted average of currencies of its trading partners
Exchange rate
The price of one currency in terms of another currency
Exchange Rate Mechanism (ERM)
A system that was set-up by a group of European countries in 1979 with the objective of keeping member countries’ currencies stable against each other
Financial account of the balance of payments
Account identifying transactions in financial assets between the residents of a country and the rest of the world
Fiscal policy
Decisions made by the government on its expenditure, taxation and borrowing
Fixed exchange rate
A system in which the government of a country agrees to fix the value of its currency in terms of that of another country
Flat-rate tax system
A system of income tax in which each taxpayer pays the same rate of tax on income
Floating exchange rate
A system in which the exchange rate is permitted to find its own level in the market
Foreign exchange reserves
Stocks of foreign currency and gold owned by the central bank of a country to enable it to meet any mismatch between the demand and supply of the country’s currency
Frictional unemployment
Unemployment associated with people searching for work, they are between jobs
Full employment
A situation where people who are economically active in the workforce and are willing and able to work (at going wage rates) are able to find employment
Developed economy
An economy with a high level of income per head
Developing economy
An economy with a low level of income per head
Direct tax
A tax that is taken directly from a person or firm’s income and cannot be easily avoided
Distribution of income
How income is shared out between households in a country
Economic cycle
The tendency for economic activity to fluctuate outside its trend growth rate
Economic growth
Short-run - an increase in real GDP
Long-run - an increase in an economy’s productive capacity
Exports
Products and services sold overseas
Fiscal drag
When people’s income is dragged into higher tax bands as a result of tax bands not being adjusted in line with inflation
Free market mechanism
The system by which the market forces of demand and supply determine prices and the decisions made by consumers and firms
