Economics Unit 2 Flashcards
Aggregate demand
Total demand in the economy made up of consumption, investment, government expenditure and net exports. Known by the identity: C+I+G+(X-M) = AD
Aggregate Supply
The total value of goods and services supplied in the economy.
Imports
Goods or services purchased from abroad.
Economic Growth
The capacity of the economy to produce more goods and services over time.
Gross Domestic Product
The total value of goods and services produced in the economy.
Negative Output Gap
Where the economy is producing less than its trend output.
Positive Output Gap
When actual GDP exceeds trend GDP increasing inflationary pressure.
Trade-off
Where one macroeconomic objective has to be curtailed in favour of another objective.
Unemployment
Those without a job but who are seeking work at current wage rates.
Exports
Goods or services sold abroad.
Employment
Where labour is actively engaged in a productive activity usually in exchange for payments such as wages.
Exporting
The sale of goods or services to a foreign country, generates income for the home country.
Importing
The purchase of goods and services from abroad, leads to expenditure for the home country.
Economic indicators
Economic statistics that provide information about the expansions and contractions of business cycles.
Nominal GDP
GDP/income/output figures not adjusted for inflation.
Real GDP
GDP/income/output figures adjusted for inflation
GDP per capita
GDP divided by the population, a measure of living standards.
Weighting
Where a commodity is given a weighting proportional to its importance in the general pattern of consumer spending
Index numbers
A weighted average of a group of items compared to a given base value of 100.
Economic models
These are used to show the essential characteristics of complicated economic conditions in order to analyse them and predict the result of changes of variables.
Recession
When an economy is growing at less than its long-term trend rate of growth.
Balance of Payments
Exports minus imports - a deficit means more is imported than exported
Flow
Measured over a specified period of time
Stock
A quantity measured at a particular point in time
Injections
Money that originates outside the circular flow and so will increase national income/output/expenditure
Withdrawals
Any money not passed on in the circular flow and has the effect of reducing national income/output/expenditure
Investment
Spending by firms on buildings, machinery and improving the skills of the labour force
Savings
A withdrawal from the circular flow
Income Induced
Will increase as income increases and decrease as income decreases
Multiplier Effect
Where an increase or decrease in spending leads to a larger than proportionate change in the national income
Net Government Spending
The difference between the government spending and taxation
Fiscal Policy
The policy of the government regarding taxation and government expenditure
Positive Expectations
Businesses expect the future sales and profits to improve due to factors like increased aggregate demand
Negative Expectations
Businesses expect future sales and profits to be less due to factors like falling aggregate demand
Accelerator Effect
The relation between the change in new investment and the rate of change of national income
Privatisation
Sale of government-owned assets to the private sector
Classical View
Economists who believed that recessions and slumps would cure themselves
Long-run Aggregate Supply
The economy’s productive capacity
Natural rate of Unemployment
The rate of unemployment that is consistent with a stable rate of inflation
Productivity
A measure of efficiency, measuring the ratio of inputs to outputs; the most common measure is labour productivity, which is the output per worker
Monetary Policy Committee
A committee of economists/ central bankers who meet monthly and decide whether or not to change the rate of interest
Supply-Side Shock
Something that will increase or reduce the costs, hence supply-side of all firms in the economy, e.g. a large increase in the price of oil
Boom/Bust Policy
The government using macroeconomic tools to stimulate and then contract the economy
Total Factor Productivity
The overall productivity of inputs used by a firm in producing a particular level of output
Deflation
A situation where prices persistently fall
Credit Crunch
Where borrowing becomes more expensive or unavailable
Participation rates
Proportion of the country’s population that makes up the country’s labour force
Demand Pull Inflation
Where aggregate demand exceeds aggregate supply leading to an increase in the level of prices
Cost Push Inflation
Where increased costs of production result in firms increasing their prices leading to an increase in the general price level
Tight Labour Market
Where firms have to increase wages to attract the labour that they require
Cyclical Unemployment
Demand deficient unemployment that occurs as a result of the economic cycle
Demand deficient Unemployment
Insufficient aggregate demand in the economy to employ the available labour
