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Economics Unit 2 > Key Words > Flashcards

Key Words Flashcards

0
Q

Balance of payments

A

Exports- imports
A balance of payments deficit= imports>exports
A balance of payments surplus= exports> imports

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1
Q

Supply

A

Total amount of goods/ services that producers are willing and able to supply to a market at any given time period

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2
Q

Capital spending

A

Government spending to improve productive capacity of economy. Eg on schools. This pushes LRAS out.

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3
Q

Bank of England

A

Mark carney runs BOE.

Responsible for monetary policies

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4
Q

Classical view

A

Economists who believed that recessions and slumps would cure themselves

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5
Q

Cyclical unemployment

A

Demand deficient unemployment as a result of the economic cycle

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6
Q

Aggregate demand

A

AD= C+I+G+(X-M)
Consumption + investment + government spending + (exports- imports)
Total expenditure in the economy= GDP/AD/NI

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8
Q

Budget

A

Balanced budget= government spending= tax revenue
Budget deficit= government spending> tax revenue
Budget surplus= tax revenue> government spending

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9
Q

Government spending

A

2 types- current (wages, daily) and capital (infrastructure… Supply side policy)
Injection
Positive multiplier

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10
Q

Cost-push inflation

A

Where increased costs of production (shifts in AS) increases the price level.

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10
Q

Consumption

A 
60% of AD
Positive multiplier
Injection
By households
Affected by confidence, income tax, inflation...
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11
Q

Investment

A

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

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14
Q

Contractionary fiscal policy

A

Increasing levels of tax revenue and decreasing government spending.
Use when economy is at positive output gap

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15
Q

Deflation

A

A situation where prices persistently fall

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16
Q

Demand

A

Total amount of goods/ services that consumers are willing and able to purchase at any given time period

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17
Q

Demand-pull inflation

A

An increase in the price level due to a shift of AD right

AD>AS (excess demand so prices rise)

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18
Q

Demand-side fiscal policy

A

Changes in fiscal policy (tax and government spending) aimed at influencing one or more components of AD

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19
Q

Discretionary stabilisers

A

Deliberate government intervention of fiscal policy to be on the trend rate of growth (2.5%)

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20
Q

Disposable income

A

Income available to households after tax/ bills have been considered from the household salaries

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21
Q

Personal allowance

A

Amount of money that isn’t taxed on, up to £10,500

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22
Q

4 government aims

A

Growth
Unemployment
Inflation
Balance of payments (trade)

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23
Q

Monetary policy

A

Involves interest rates and quantities easing (creating new money, money supply)

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24
Q

Inflation

A

Target of 2%
Measured in CPI (consumer price index)
One of 4 government aims

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24
Q

Investment schedule

A

When increased interest rates causes less investment and decreased interest rates causes more investment

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25
Q

Accelerator effect

A

Increase in national income causes a proportionately larger change in investment

25
Q

Excess demand

A

When demand is greater than supply

26
Q

Voluntary unemployment

A

Workers who are not prepared to take a job at the current wage rate

28
Q

Depreciation of the pound

A 
Weak
Pound
Imports
Dear
Exports
Cheap
29
Q

Exports

A

Goods/ services sold abroad.

Export-led growth is preferable to mark carney as it stabilises economy

30
Q

GDP per capita

A

GDP divided by the population

31
Q

GDP

A

Gross domestic product=aggregate demand= national income

Total amount of money going into the economy

32
Q

Real GDP

A

Price of goods/ services including the rate of inflation

33
Q

Automatic stabilisers

A

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

34
Q

Expansionary fiscal policy

A

Increasing government spending and reducing tax revenue. Used during a negative output gap, to get onto the trend rate of growth (2.5%)

35
Q

Factors of production

A

Capital
Enterprise
Land
Labour

36
Q

Frictional unemployment

A

People between jobs

37
Q

PPF

A

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

38
Q

Imports

A

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

39
Q

Inflationary pressure

A

Likely to lead to increased prices

High inflationary pressures when there’s a positive output gap

40
Q

Excess supply

A

When supply is greater than demand

41
Q

Savings ratio

A

Ratio of total savings (leakage) to total disposable income

42
Q

Injections

A

Money that originates outside of the circular flow of income and so increases AD
Consumption/ exports/ government spending/ investment are injections

43
Q

Leakages

A

Money that leaves the circular flow of income

Savings/ imports/ tax are leakages

43
Q

Interest rate

A

Cost of borrowing money, currently= 0.5%

45
Q

Expansionary monetary policy

A

Decreasing interest rates and quanta truce easing.

Used during a negative output gap to get growth onto trend rate of growth

46
Q

Contractionary monetary policy

A

Increasing interest rates

Used when economy is at a positive output gap, to get down to the trend rate of growth

47
Q

Multiplier effect

A 
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
48
Q

Fiscal policy

A

Tax and government spending changing

48
Q

Policy trade off

A

Government is unable to achieve all 4 government aims simultaneously, involves an opportunity cost (cost of the next best option foregone)

49
Q

Production

A

Process that converts factors of production into goods/ services

51
Q

Recession

A

When an economy is growing at less than it long-term trend rate of growth

52
Q

Profit

A

Income/ revenue of a firm- costs of production

53
Q

Structural unemployment

A

Unemployment resulting from changing patterns of demand in the labour market and not matching the skills and locations of those seeking work

54
Q

Spare capacity

A

Level of unemployed resources, shown on a graph by the distance between FE and current output

55
Q

Rebalancing economy

A

Instead of consumer/ government spending-led growth, mark carney wants export/ investment-led growth. This reduces the debt

56
Q

Appreciation of the pound

A 
Strong 
Pound
Imports
Cheap
Exports
Dear
56
Q

Supply side policies

A

Shifts LRAS out by government spending on training/ schools…

57
Q

Subsidies

A

Payments by the government to producers to encourage supply at a lower price to encourage consumption

58
Q

Supply-side fiscal policies

A

Changes in level/ structure of government spending/ tax level to improve supply side of economy. Shifts out LRAS/ PPF

59
Q

Supply-side shock

A

Something that increases/ reduces costs of production (affects AS)
Eg. Large increase in price of oil

60
Q

Economic cycle

A

Fluctuations in real GDP/ economic growth

61
Q

Income tax

A

Tax on households income. Doesn’t affect AS, affects AD

Economics Unit 2 (1 decks)

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