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89 Cards in this Set

  • Front
  • Back
Recession
Negative economic growth over two successive quarters.
Economic Growth
An increase in the real output of the economy.
Long-term Growth Rate
The average rate of economic growth sustained over a period of time.
Real Gross Domestic Product (GDP) Per Capita
The total output of the economy in a year, divided by the size of the population, adjusted for inflation.
Actual Growth
An increase in the productive potential of the economy matched by an increase in demand.
Potential Growth
An increase in the productive potential of the economy not necessarily matched by demand.
Output Gap
The difference between the actual level of GDP and the productive potential of the economy.
Trend Rate of Economic Growth
The long-run average increase in GDP.
Supply-side Policies
A range of measures designed to increase aggregate supply.
Activity rate/Participation rate
The proportion of the population of working age in a job or actively seeking work.
Occupational Immobility
The difficulties faced by workers wishing to change occupations due to not having the required skills or qualifications.
Labour Productivity
Output per worker per hour.
Gross Domestic Product (GDP)
Output produced by resources within the UK.
Gross national product (GNP)
Output produced by resources within the UK, plus net property income from abroad.
National Income
Output produced by resources within the UK, plus net property income from abroad, minus depreciation of the nation's capital equipment.
Non-monetised Sector
Valuable economic activity where no money changes hands.
Purchasing Power Parity
Exchange rates that take into account how much a typical basket of goods in one country costs compared to another country.
Human Development Index (HDI)
A measure of economic welfare based on the average of three indicators- standard of living, life expectancy and educational attainment.
Human Poverty Index (HPI):
A measure of economic welfare based on four basic dimensions of human life: longevity, knowledge, Economic provisioning, and social inclusion.
Measure of Domestic Progress
A measure of economic welfare designed to reflect progress in quality of life and progress towards a sustainable economy by factoring in the social and environmental costs of growth, and benefits of unpaid work such as household labour.
Misery Index
A measure of economic welfare constructed by adding the unemployment rate to the inflation rate.
Sustainability (of economic growth)
Economic growth which does not impose costs on the future generations.
Balance of payments
A record of the financial transactions over a period of time between a country and its trading partners.
Inventory Investment/Stock-Building
Investment by firms in stocks of raw materials and stocks of finished goods ready to be sold.
Demand-Pull Inflation
Inflation resulting from too much demand in the economy, relative to the supply capacity.
Accelerator Theory
The theory that the level of investment is related to past changes in national income.
Multiplier Effect
A change in one of the components of AD leads to a greater overall change in national income.
Multiplier/accelerator model
A model which describes how the interaction of the accelerator theory & the multiplier effect lead to changes in national income.
Direct taxes
Taxes levied directly on the income of an individual or organisation.
Canons of taxation*
The characteristics of a 'good tax', after Adam Smith.
Principles of taxation
A modern list of characteristics of a 'good tax' system.
Horizontal equity
When people or firms with the same income and financial circumstances pay the same amount of tax.
Vertical equity
When the amount that people and firms pay is based on their ability to pay.
Hypothecation*
When taxes are earmarked for a specific purpose.
Benefit principle*
The argument that taxes should be linked to the benefits received by taxpayers.
Progressive tax
Where the proportion of a person's income paid in tax increases as income increases.
Regressive tax
Where the proportion paid in tax falls as income increases.
Proportional tax
Where the proportion of income paid in tax stays the same as income increases.
Capital expenditure
Government spending to improve the productive capacity of the nation, for example on schools.
Current expenditure
Government spending on the day-to-day running of the public sector, including raw materials and wages of public sector workers.
Transfer payments
Government payments to individuals for which no service is given in return, for example state benefits.
Fiscal stance
Whether the government is seeking to increase or decrease AD through fiscal policy.
Cyclical budget deficit
A budget deficit resulting from fluctuations in the economic cycle
Automatic stabilisers*
Features of government spending and taxation that minimise fluctuations in the economic cycle.
Structural budget deficit
A budget deficit resulting from fundamental changes in the structure of the economy.
PSNCR*
Public Sector Net Cash Requirement - The difference between government spending and revenue.
National debt
Borrowings of government over successive years.
Crowding out
Where a public sector deficit deters private sector investment and consumption.
Golden rule*
The UK government's fiscal rule that net government borrowing should only be to fund infrastructure projects.
Sustainable investment rule*
The fiscal rule that over the economic cycle, public sector debt should not exceed 40% of GDP.
Stealth' taxes
A negative term coined by government critics to describe taxes designed to go unnoticed.
Foreign direct investment (FDI)
Investments in the domestic economy in new manufacturing plants by foreign multinational companies.
Discretionary/active fiscal policy
Deliberate changes in government spending or taxation to influence the economy as a whole.
Laffer curve*
A model that shows the theoretical relationship between tax rates and tax revenues.
Current account
The part of the balance of payments that primarily records trade in goods and services.
Capital account and financial account
The part of the balance of payment that records capital flows in and out of the country.
Current account deficit
When imports of goods and services exceed exports.
Current account surplus
When exports of goods and services exceed imports.
Balance of trade in goods
Visible exports minus visible imports.
Balance of trade in services
Invisible exports minus invisible imports.
Net income flows
The difference between inward and outward flows of interest, profits and dividends.
Net current transfers
Mainly government transfers to and from overseas organisations.
Hot money
Volatile capital movements which take place in the foreign exchange markets due to interest rate changes.
Direct investment
The acquisition of productive assets, for example, factories and offices.
Portfolio investment
The acquisition of financial assets, for example, shares and financial derivatives.
Expenditure-reducing policies
Policies used to correct current account imbalances by reducing consumer spending power.
Expenditure-switching policies
Policies used to correct current account imbalances by encouraging consumers to buy domestically produced output rather than imports.
Marginal propensity to import
The proportion of an increase in income that is spent on imports.
Devaluation
Controls on imports, such as tariffs and quotas.
Direct controls
Reducing the value of a currency in a fixed or semi-fixed exchange rate system.
Depreciation
In relation to currencies, reducing the value of a currency in a free-floating exchange rate system.
J-curve effect
In the short term, a devaluation or depreciation will lead to a deterioration of the current account before it starts to improve.
Revaluation
Increasing the value of a currency in a fixed or semi-fixed exchange rate system.
Appreciation
Increasing the value of a currency in a free-floating exchange rate system.
Exchange controls
restrictions on the ability to trade foreign currencies by a county's central bank
Adjustable peg
value of the fixed exchange rate can be changed as circumstances require
Crawling peg
frequent changes in the value of a fixed exchange rate
international monetary fund
a multinational institution set up in 1947 to operate the adjustable peg exchange rate system
Ceiling and floor price
maximum and minimum price determined by the authorities respectively
dirty float
manipulation of a floating rate to gain advantages over trading partners
Single market
removal of obstacles, such as customs checking, to allow the free movement of goods, services, capital and persons through the area
European monetary union
a group of countries that have adopted the euro and have their monetary policy controlled by the European central bank
Trade deflection
redirection of international trade due to the formation of a trade area
Rules of origin
stipulation that a product must be manufactured from locally sourced components
Intra-trade area
trade between the members of a trading agreement
Trade creation
an increase in international trade that results from the reduction in trade barriers
Social dumping
where goods are produced by low wage labour usually with expense by employers on workers' social benefit
Anglo-saxon neo-liberalism
economic reform aimed at boosting the dynamism of economies - in contrast to the social model, which stresses social objectives
Eurosclerosis
high unemployment and slow job creation despite economic growth