External economic influences on business behaviour Flashcards
Economic growth
an increase in a country’s productive potential measured by an increase in its real 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.
Business investment
expenditure by businesses on capital equipment, new technology and research and development.
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.
Recession
a period of six months or more of declining real GDP.
Inflation
an increase in the average price level of goods and services – it results in a fall in the value of money.
Deflation
a fall in the average price level of goods and services.
Working population
all those in the population of working age who are willing and able to work.
Unemployment
this exists when members of the working population are willing and able to work, but are unable to find a job.
Cyclical unemployment
unemployment resulting from low demand for goods and services in the economy during a period of slow economic growth or a recession.
Cyclical unemployment
unemployment resulting from low demand for goods and services in the economy during a period of slow economic growth or a recession.
Structural unemployment
unemployment caused by the decline in important industries, leading to significant job losses in one sector of industry.
Frictional unemployment
unemployment resulting from workers losing or leaving jobs and taking a substantial period of time to find alternative employment.
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.
Exchange rate
the price of one currency in terms of another.
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.
Imports
goods and services purchased from other countries.
Exports
goods and services sold to consumers and
business in other countries.
Exchange rate appreciation
a rise 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.
Fiscal policy
concerned with decisions about government expenditure, tax rates and government borrowing – these operate largely through the government’s annual budget decisions.
Government budget deficit
the value of government spending exceeds revenue from taxation.
Government budget surplus
taxation revenue exceeds the value of government spending.
Monetary policy
is concerned with decisions about the rate of interest and the supply of money in the economy.
Market failure
when markets fail to achieve the most efficient allocation of resources and there is under- or overproduction of certain goods or services.
External costs
costs of an economic activity that are not paid for by the producer or consumer, but by the rest of society.
