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26 Cards in this Set
- Front
- Back
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Accelerator effect |
Planned capital investment by private sector businesses is linked to the growth of demand for goods and services. When consumer or export demand is rising strongly, businesses may increase investment to expand their production capacity and meet the extra demand. This process is known as the accelerator effect. But the accelerator effect can work in the other direction! A slowdown in consumer demand can create excess capacity and may lead to a fall in planned investment demand. |
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Appreciation |
An increase in the value of an asset over time. The increase can occur for a number of reasons including increased demand or weakening supply, or as a result of changes in inflation or interest rates. This is the opposite of depreciation, which is a decrease over time. |
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Aggregate supply |
Aggregate supply (AS) measures the volume of goods and services produced within the economy at a given price level. In simple terms, aggregate supply represents the ability of an economy to produce goods and services either in the short-term or in the long-term. It tells us the quantity of real GDP that will be supplied at various price levels. The nature of this relationship will differ between the long run and the short run. |
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Austerity measures |
Austerity measures refer to official actions taken by the government, during a period of adverse economic conditions, to reduce its budget deficit using a combination of spending cuts or tax rises. |
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Balance of payments |
The balance of payments (BOP) records all financial transactions between the UK and the Rest of the World. The BOP figures tell us about how much is being spent by British consumers and firms on imported goods and services, and how successful UK firms have been in exporting to other countries and markets. |
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Budget deficit |
When the government is running a budget deficit, it means that in a given year, total government expenditure exceeds total tax revenue. As a result, the government has to borrow through the issue of debt such as Treasury Bills and long-term government. |
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Business confidence |
The state of business confidence can be vital in determining whether to go ahead with an investment project. When confidence is strong then planned investment will rise. |
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Capacity ultilisation |
Capacity utilisation is the percentage of the firm’s total possible production capacity that is actually being used. |
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Claimant count (Measure of U/E) |
The Claimant Count measure of unemployment counts only those people who are eligible to claim the Job Seeker's Allowance. |
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Classical LRAS |
The Classical view is an inelastic LRAS. The Keynesian view suggests it is elastic at a point up to inelastic. In a sense the Keynesian view is a combination of the short run aggregate supply and long run. The Keynesian LRAS shows that there is a point in the economy of spare capacity where firms can use more. There also comes a point where full capacity is reached. |
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Consumer confidence |
The willingness of people to make major spending commitments depends on how confident they are about both their own financial circumstances, and also the general health of the economy. Consumer confidence is quite volatile from month to month. Some of the fluctuations are seasonal – but the underlying trend is what really matters. |
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Consumer spending |
Consumers' expenditure on goods and services: This includes demand for consumer durables (e.g. washing machines, audio-visual equipment and motor vehicles & non-durable goods such as food and drinks which are “consumed” and must be repurchased). |
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Consumer Price Index (CPI) |
A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to their importance. Changes in CPI are used to assess price changes associated with the cost of living. |
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Corporation tax |
Corporation tax is paid on profits. If the government reduces the rate of corporation tax (or increases investment tax-allowances) there is a greater incentive to invest. Britain has relatively low rates of company taxation compared to other countries inside the EU. This is a factor that helps to explain why Britain has been a favoured venue for inward investment from overseas during the last decade. |
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Credit crunch |
An economic condition in which investment capital is difficult to obtain. Banks and investors become wary of lending funds to corporations, which drives up the price of debt products for borrowers. |
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Cost push inflation |
Cost push inflation is caused by increases in costs of production e.g. wage increases, increased import price (imported inflation) or higher indirect taxation. Firms put up prices to maintain profit margins. Cost-push inflation can be illustrated by an inward shift of the short run aggregate supply curve. The fall in SRAS causes a contraction of real national output together with a rise in the general level of prices. |
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Current account deficit |
A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services it exports. The current account also includes net income, such as interest and dividends, as well as transfers, such as foreign aid, though these components tend to make up a smaller percentage of the current account than exports and imports. The current account is a calculation of a country’s foreign transactions, and along with the capital account is a component of a country’s balance of payment. |
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Current account surplus |
A positive difference between a nation’s savings and investment. A current account surplus indicates that a nation is a net lender to the rest of the world, in contrast to a current account deficit, which indicates that it is a net borrower. The current account is the sum of the trade balance (exports less imports), net income from abroad and net current transfers; as the trade balance is generally the largest of these components, a current account surplus usually implies that the nation is a large exporter and has a positive trade balance. A current account surplus increases a nation’s net assets by the amount of the surplus. |
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Cyclical budget deficit |
That portion of a country's budget deficit that reflects changes in the economic cycle. Budget positions tend to deteriorate as economies slow as tax revenues fall and welfare spending rises; they improve as economic growth returns, tax revenues rise and welfare spending is reduced. A cyclically-adjusted deficit strips out the impact that the economic cycle has on budgetary health. |
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Cyclical unemployment |
Cyclical unemployment is unemployment that results when the overall demand for goods and services in an economy cannot support full employment. It occurs during periods of slow economic growth or during periods of economic contraction. |
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Deflation |
Price deflation is when the rate of inflation becomes negative. I.e. the general price level is falling and the value of money is increasing. Some countries have experienced deflation in recent years – good examples include Japan and China. In Japan, the root cause of deflation was very slow economic growth and a high level of spare (excess) capacity in many industries that was driving prices lower. |
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Deindustrialisation |
Long-term decline in the importance of the manufacturing sector in an economy. We can distinguish between relative decline (e.g. where the share of total national output accounted for by manufacturing declines) and absolute decline. |
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Depreciation |
A decrease in an asset's value caused by unfavorable market conditions. |
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Depression |
A severe and prolonged downturn in economic activity. In economics, a depression is commonly defined as an extreme recession that lasts two or more years. |
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Deregulation |
De-regulation or liberalisation means the opening up of markets to greater competition. The aim of this is to increase market supply (driving prices down) and widen the range of choice available to consumers. The discipline of competition should also lead to greater cost efficiency from producers – who are keen to hold onto their existing market share. Good examples of deregulation to use include: urban bus transport, parcel delivery services, mortgage lending, telecommunications, and gas and electricity supply. |
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Disposable income |
Disposable income measures income available for households to spend and is important when looking at the factors that determine consumer spending and saving. Personal disposable income = Gross UK Household income - Personal taxation + transfer payments |
