Definitions Flashcards
Balance of payments
A record of a country’s trade and investment with other countries
Business confidence
Expectations about the future of the economy
- vital in influencing business decisions about how much to spend on capital goods (investment)
Consumer confidence
Expectations about the future based on interest rates, incomes and jobs which affect household expenditure
Cost push inflation
Increases in the price level resulting from increases in costs of production
Cyclical unemployment
Unemployment resulting from a lack of aggregate demand (demand deficient unemployment)
Depreciation
A fall in the value of one currency against another
Disposable income
Income after the deduction of direct taxes and the addition of state benefits
Economic growth
The growth in the value of output of an economy and, in the long run, an outward shift in the production possibility frontier
Fiscal drag
The reduction in disposable income that occurs if tax bands are not adjusted in line with inflation
Frictional unemployment
Unemployment arising when people are between jobs
Hyperinflation
A very high rate of inflation which causes serious economic problems and political instability
Inflationary noise
The distortionary effect inflation can have on price signals
Marginal propensity to consume
The proportion of any additional income which is spent rather than saved
Menu costs
Costs involved in having to change prices as a result of inflation
Multiplier
An increase in an injection into the circular flow of income causing a greater increase in aggregate demand. Formula 1/1-mpc
Shoe leather costs
Costs involved in moving money around during a period of inflation in a bid to maintain its real value
Structural unemployment
A mismatch in the demand for skills as a result in the changing pattern of industry
Transfer payments
Money transferred from one group to another not in return for providing a good or service. Such payments can’t be calculated in calculating GDP
Unemployment trap
A situation where some people are financially better off living on unemployment benefits than working
Wealth distribution
The extent to which different groups of households share in the total wealth of the country
Actual economic growth
An increase in real GDP (as opposed to potential economic growth)
Aggregate demand
The total demand for a country’s goods and services at a given price level and in a given time period
Aggregate supply
The total value of output all producers in an economy are willing and able to supply at a given price level / in a given period of time.
Appreciation
The rise in value of one currency against another
Austerity
Economic policy aimed at reducing a governments deficit (or borrowing). Austerity can be achieved through increases in government revenues - primarily increasing tax - and/or reduction in government spending or future spending commitments.
Automatic stabilisers
Forms of government spending and taxation that dampen down fluctuations without any deliberate changes in government policy
Balanced budget
Is one in which government spending equals revenues (neither a deficit nor a surplus)
Budget
A statement of a government’s spending and tax revenues for the next financial year
Budget defecit
When government spending exceeds tax revenue. Reducing the deficit can be achieved by austerity measures or a period of economic growth.
Budget surplus
When tax revenue exceeds government spending
Capacity utilisation
Measures how much of an economy’s productive potential is being used. Utilisation falls during a recession
Capital market
A stock or bond market where firms can raise money for investment purposes
Claimant count
The number of people claiming unemployment-related benefits. One of the measures of unemployment (cf. Labour Force Survey)
Comparative advantage
The ability to produce a product at a lower opportunity cost than other countries, regions, firms or people.
Consumer Price Index
This is the preferred meaner of inflation which excludes housing costs but includes all households. (cf. retail price index)
Circular Flow of Income
This is the flow of products/services and income between producers/firms and households/consumers
Closed economy
An economy which is operating without imports or exports
Corporation tax
A tax on a firms profits; a direct tax
Current account balance
A record of a country’s trade in goods, trade in services, income and current transfers
Cyclical trade deficit
A trade deficit which that arises purely due to changes in the economy’s cycle, e.g many countries run a deficit when their economy is growing strongly as increased aggregate demand sucks in imports
Deflation
A sustained fall in the average price level - ‘inflation’ below 0%
Deflationary fiscal policy
Measures using government spending and/or taxation designed to reduce aggregate demand
Demand management policies
This refers to the range of monetary and fiscal policies to influence the aggregate demand for goods and services in an economy
Demand pull inflation
Increases in the average price level resulting from excessive increases in aggregate demand
Deregulation
The removal of laws and regulations which restrict competition
Developing countries
Countries generally lacking a high degree of industrialisation and/or other measures of development
Direct taxes
Taxes on income and wealth of people and firms. Income and corporation taxes are direct taxes.
Discretionary income
Income after the deduction of direct taxes and essential bills and the addition of state benefits (cf. disposable income)
Disequilibrium
A situation of unbalance
Dividends
A share in the profits of firms which is distributed to shareholders
Domestic trade
The exchange of products within an economy
Dumping
When a producer in one country exports a product to another country at a price below that which it charges in its home country or below the costs of supply
Economic Cycle
Variations in the annual rate of growth of an economy over time. The stages of the cycle include recovery, boom, slow down and recession
Economic Growth
The growth in the value of output of an economy and, in the long run, an outwards shift in the production possibility frontier
Economic stability
The avoidance of volatility in economic growth rates, inflation, unemployment and exchange rates
Economically inactive
Those who are of working age but are neither in work nor actively seeking work
Exchange rate
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Expansionary Monetary Policy
Changes in the money supply (increase), rate of interest (cut) and/or exchange rate (lower) which are designed to simulate aggregate demand
Expectations
How we anticipate the future to unfold. This can have powerful effects on the decisions of households, firms and governments.
Fiscal Policy
The taxation and spending decisions of a government
