Key Words Flashcards
Balance of payments
Exports- imports
A balance of payments deficit= imports>exports
A balance of payments surplus= exports> imports
Supply
Total amount of goods/ services that producers are willing and able to supply to a market at any given time period
Capital spending
Government spending to improve productive capacity of economy. Eg on schools. This pushes LRAS out.
Bank of England
Mark carney runs BOE.
Responsible for monetary policies
Classical view
Economists who believed that recessions and slumps would cure themselves
Cyclical unemployment
Demand deficient unemployment as a result of the economic cycle
Aggregate demand
AD= C+I+G+(X-M)
Consumption + investment + government spending + (exports- imports)
Total expenditure in the economy= GDP/AD/NI
Budget
Balanced budget= government spending= tax revenue
Budget deficit= government spending> tax revenue
Budget surplus= tax revenue> government spending
Government spending
2 types- current (wages, daily) and capital (infrastructure… Supply side policy)
Injection
Positive multiplier
Cost-push inflation
Where increased costs of production (shifts in AS) increases the price level.
Consumption
60% of AD Positive multiplier Injection By households Affected by confidence, income tax, inflation...
Investment
Shifts out LRAS/ PPF- increasing productive capacity
Spending by firms on capital goods (machinery/ equipment)
Positive multiplier
Injection
Preferred to consumer-led growth by mark carney as it stabilises economy
Contractionary fiscal policy
Increasing levels of tax revenue and decreasing government spending.
Use when economy is at positive output gap
Deflation
A situation where prices persistently fall
Demand
Total amount of goods/ services that consumers are willing and able to purchase at any given time period
Demand-pull inflation
An increase in the price level due to a shift of AD right
AD>AS (excess demand so prices rise)
Demand-side fiscal policy
Changes in fiscal policy (tax and government spending) aimed at influencing one or more components of AD
Discretionary stabilisers
Deliberate government intervention of fiscal policy to be on the trend rate of growth (2.5%)
Disposable income
Income available to households after tax/ bills have been considered from the household salaries
Personal allowance
Amount of money that isn’t taxed on, up to £10,500
4 government aims
Growth
Unemployment
Inflation
Balance of payments (trade)
Monetary policy
Involves interest rates and quantities easing (creating new money, money supply)
Inflation
Target of 2%
Measured in CPI (consumer price index)
One of 4 government aims
Investment schedule
When increased interest rates causes less investment and decreased interest rates causes more investment
Accelerator effect
Increase in national income causes a proportionately larger change in investment
Excess demand
When demand is greater than supply
Voluntary unemployment
Workers who are not prepared to take a job at the current wage rate
Depreciation of the pound
Weak Pound Imports Dear Exports Cheap
Exports
Goods/ services sold abroad.
Export-led growth is preferable to mark carney as it stabilises economy
GDP per capita
GDP divided by the population
GDP
Gross domestic product=aggregate demand= national income
Total amount of money going into the economy
Real GDP
Price of goods/ services including the rate of inflation
Automatic stabilisers
Changes to fiscal policy that happens without government intervention, automatically.
Eg during a negative output gap, welfare benefit spending increases because more people are unemployed, this increases AD and reduces the output gap
Expansionary fiscal policy
Increasing government spending and reducing tax revenue. Used during a negative output gap, to get onto the trend rate of growth (2.5%)
Factors of production
Capital
Enterprise
Land
Labour
Frictional unemployment
People between jobs
PPF
Production possibility frontier= long-run aggregate supply
Shows maximum possible production combinations of 2 goods
Shifts left when a natural disaster occurs
Shifts right when there’s an increase in capital goods/ capacity
Imports
Goods/ services that are purchased from abroad
More imports are bought when AD shifts right. But if imports are bought (more than exports) AD shifts left
Inflationary pressure
Likely to lead to increased prices
High inflationary pressures when there’s a positive output gap
Excess supply
When supply is greater than demand
Savings ratio
Ratio of total savings (leakage) to total disposable income
Injections
Money that originates outside of the circular flow of income and so increases AD
Consumption/ exports/ government spending/ investment are injections
Leakages
Money that leaves the circular flow of income
Savings/ imports/ tax are leakages
Interest rate
Cost of borrowing money, currently= 0.5%
Expansionary monetary policy
Decreasing interest rates and quanta truce easing.
Used during a negative output gap to get growth onto trend rate of growth
Contractionary monetary policy
Increasing interest rates
Used when economy is at a positive output gap, to get down to the trend rate of growth
Multiplier effect
Positive= increase in component of AD causes a greater proportional increase in AD Negative= decrease in component of AD causes a greater proportional decrease in AD
Fiscal policy
Tax and government spending changing
Policy trade off
Government is unable to achieve all 4 government aims simultaneously, involves an opportunity cost (cost of the next best option foregone)
Production
Process that converts factors of production into goods/ services
Recession
When an economy is growing at less than it long-term trend rate of growth
Profit
Income/ revenue of a firm- costs of production
Structural unemployment
Unemployment resulting from changing patterns of demand in the labour market and not matching the skills and locations of those seeking work
Spare capacity
Level of unemployed resources, shown on a graph by the distance between FE and current output
Rebalancing economy
Instead of consumer/ government spending-led growth, mark carney wants export/ investment-led growth. This reduces the debt
Appreciation of the pound
Strong Pound Imports Cheap Exports Dear
Supply side policies
Shifts LRAS out by government spending on training/ schools…
Subsidies
Payments by the government to producers to encourage supply at a lower price to encourage consumption
Supply-side fiscal policies
Changes in level/ structure of government spending/ tax level to improve supply side of economy. Shifts out LRAS/ PPF
Supply-side shock
Something that increases/ reduces costs of production (affects AS)
Eg. Large increase in price of oil
Economic cycle
Fluctuations in real GDP/ economic growth
Income tax
Tax on households income. Doesn’t affect AS, affects AD
