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163 Cards in this Set
- Front
- Back
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Accelerator Effect
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The relation between the change in new investment and the rate of change of national income
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Actual Supply
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The amount that producers in fact produce. This may differ from planned supply for a variety of reasons such as breakdowns in production, staff absences etc
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Aggregate Demand
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Total planned expenditure in the economy known by the identity C + I + G + (X - M)
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Aggregate Supply
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The total value of goods and services supplied in the economy
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Allocative Efficiency
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This is achieved in an economy when it is not possible to make everyone better off without making someone worse off or you cannot produce more of one good without making less of another
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Balance Of Payments
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Exports minus imports - a deficit means more is imported than exported
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Balance of Trade
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Visible exports minus visible imports
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Balanced Budget
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Where government recipt equal government spending in a financial year
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Boom/Bust Policy
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The government using macroeconomic tools to stimulate and then contract economy
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Broad Money
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Money that is held in banks and building societies but that is not immediately accessible
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Budget Deficit
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Where government spending exceeds government receipts in a financial year (PSNCR)
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Budget Surplus
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Where government recipts exceeds spending in a financial year (PSDR)
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Buffer Stock
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An intervention system that aims to limit the fluctuations of the price of a commodity
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Capital Spending
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Government spending to improve the productive capacity of a nation, including infrastructure, schools and hospitals
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Central Bank
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The financial institution in a country or group of countries typically responsible for issuing notes and coins and setting short term interest rates
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Classical View
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Economists who believed that recessions and slumps would cure themselves
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Commodity
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A good that is traded, but usually refers to raw materials or semi-manufactured goods that are traded in bulk such as tea, iron, ore, oil or wheat often they are unbranded goods ( homogeneous) where all firms' product are very similar and undistinguishable from each other
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Competition
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A market situation in which there are a large number of buyers and sellers
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Complimentary Product
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Goods that are consumed together, for example bread and butter or dvd and dvd players
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Complete Market Failure
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Where the free market fails to provide a product at all, i.e. the case of public goods
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Composite Demand
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A good that is demanded for more than one purposes so that an increase in demand for one purpose reduces the available supply for the other purpose, typically leading to higher prices e,g milk used in butter and cheese
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Contraction in Supply
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When the amount offered for sale is reduced because the price level has fallen
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Contractionary Fiscal Policy
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Increasing levels of tax revenues related to government spending, appropriate during a boom in economic activity
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Contraction in Demand
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Falls in the quantity demanded caused by rises in prices
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Cost Push Inflation
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Where increased cost of production results in firms increasing their prices leading to an increase in the general price level
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CPI (Consumer Price Index)
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A measure of the price level similar to HICP (Harmonised Index of Consumer Prices) used widely in the Eurozone. Used since 2004 as a target measure for inflation by the government and MPC
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Credit Crunch
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Where borrowing becomes more expensive or unavailable.
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Current Account equilibrium
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Current account equilibrium where the current account exercises no effect on the domestic macroeconomy.
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Current Spending
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Government spending on a day-to-day running of the public sector, including raw materials and wages of public sector workers
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Cyclical Unemploymet
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Demand deficient employment that occurs as a result of the economic cycle
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Deflation
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A situation where prices persistently fall
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Deindustrilisation
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A fall in the proportion of national output accounted for by the manufacturing sector of the economy
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Demand
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The amount that consumers are willing and able to buy at each given price level
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Demand Deficient Unemployment
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Insufficient aggregate demand in the economy to employ the available labour
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Demand Pull Inflation
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Where aggregate demand exceeds aggregate supply leading to an increase in the level of prices
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Demand-side Fiscal Policies
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Changes in the level of structure of government spending ad taxation aimed at influencing one or more of the components of aggregate demand
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Demerit Goods
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A good that would be over-consumed in a free market, as it brings less overall benefit to consumers than they realise
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Deregulation
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The process of removing government controls from markets
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Derived Demand
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When the demand for one good or service comes from the demand from another good or service. The demand for cars stimulates the demand for steel, therefore the demand for steel is derived demand.
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Discouraged Workers
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Workers who leave the labour market because despite numerous attempts they are unable to find a job
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Discretionary Fiscal Policy
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The deliberate manipulation of government spending and taxation to influence the economy
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Diseconomies of Scale
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Where an increase in the sale of production leads to increases in average total costs of firms
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Disequilibrium
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A situation within the market where supply does not equal demand
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Disposable Income
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Income available to households after the payment of income tax and national insurance contribution
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Division of Labour
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Breaking the production process down into a sequence of tasks, with works assigned to a particular task
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Economic goods
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Goods that are scarce and therefore have an opportunity cost
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Economic Growth
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The capacity of the economy to produce more goods and services overtime
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Economic Indicatiors
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Economic statistics that provide information about the expansions and contractions of business cycles
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Economic Modules
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These are used to show the essential characteristics of complicated economic conditions in order to analyse them and predict the results of changes of variables
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Economic Welfare
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Refers to the benefit or satisfaction an individual or society gets from the allocation of resources. We can attempt to measure the welfare of individuals but really we want to understand the overall effects of society as a whole. This will include how well off people feel, how much they have but also might consider other factors such as the environment and standard of living- their physical well being,although this is hard to define
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Economies of Scale
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Where an increase in the scale of production leads to the reductions in average total cost of fims
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Effective Demand
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Demand supported by the ability to pay for a good or service
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Employment
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Where labour is and actively engaged in a productive activity usually in exchange for payment such as wages
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Equilibrium
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The price at which demand is equal to supply and there is no tendancy for change
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Ex ante
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A term that refers to future events
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Ex post
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A term that refers to after the event
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Excess Demand
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When demand is greater than supply at a given price
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Excess Supply
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When supply at a particular price is greater than demand, this should signal to producers to lower prices
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Exchange Rate
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The prices at which one currency, e.g the pound, exchanges for another e.g. the US dollar
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Expansionary Fiscal Policy
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Increasing levels of government spending relative to tax revenue, appropriate to stimulating aggregate demand during a down turn in economic activity
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Exporting
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The sale of goods or services to a foreign country generates income for the home country
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Exports
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Goods or services sold abroad
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Extension in Supply
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When there is an increase in supply because the market price has risen
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Extensions in Demand
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Increases in demand caused by changes (falls) in price
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Externalities
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Cost or benefits that spill over to third parties external to a market transaction
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Factor Markets
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The market for the factors of production that make other goods ad services such as labour or raw materials
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Failure of Information (Information Failure)
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Where economic agents do not properly percieve the benefits or disadvantages of a transaction
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Fiscal Policy
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The policy of the government regarding taxation and government expenditure
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Fixed Costs
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Cost of production that do not vary as output changes
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Flow
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Measured over a specified period of time
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Free Goods
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Goods that have no opportunity costs, or example air
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Free Market Economy
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One in which their is very limited government involvement in providing goods and services. It's main role is to ensure that the rules of the market are fair so that for e.g, people can not steal each others property
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Free-rider Problem
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Where some consumers benefit from other consumers purchasing a good particularly in the case of public goods
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Frictional/Search Unemplyment
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People between jobs
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GDP per capita
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GDP divided by the population - a measure of living standards
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Geographical Immobility
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Where workers find it difficult to move to where employment opportunities may be due to family ties and differences in housing costs
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Globilisation
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The ability to produce goods anywhere in the world and sell them in any country
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Goods and Services
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Goods are considered to be tangible products that we can touch such as CD's or a car. These are distinct from services, which are not tangible such as trip to the cinema or a train journey. We do not buy the train or the cinema but do receive intangible benefits from watching the film or travelling
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Government Failure
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When government intervention to correct market failure does not improve the allocation of resources or leads to worsening the situation. The government cost of intervention may therefore exceed the benefits
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Gross Domestic Product
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The total value of goods and services produced in the economy
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Hot Money
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Money that is liable to rapid transfer from one country to another
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Human Capital
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The skills, abilities, motivation and knowledge of labour. Improvements in human capital raise productivity and can shift the PPB to the right
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Importing
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The purchase of goods and services from abroad-leads to expenditure for the home country
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Imports
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Goods or services purchased from abroad
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Incidence of Tax
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The proportion of a tax that is passed into the consumer. If most of a tax is added to the consumer then the incidence of tax is said to be high. When demand is price inelastic then the incidence of tax tends to be high
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Income
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A flow of earnings to a factor of production over a period of time e.g wages or salaries
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Income elasticity of Demand
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The proportion to which demand changes when their is a change in income
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Indirect tax
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Tax on spending
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Inferior Goods
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Goods or services that will see demand fall when income rises
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Joint Supply
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When the production of one good also results in the production of another
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Labour Market
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An example of a factor market, in this case where labour is bought and sold
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Marginal external beneit
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The spillover benefit to third parties of an economic transaction
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Marginal External Cost
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The spillover cost to third parties of an economic transaction
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Marginal Private Benefit
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The benefit to an individual or firm of an economic transaction
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Margianal Private Cost
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The cost to an individual or firm of an economic transaction
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Marginal Social Benefit
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The full benefit to society of an economic transaction including private and external benefits
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Marginal Social Costs
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The full costs to society of an economic transaction including private and external costs
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Market Clearing Price
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The price at which all goods that are supplied will be demanded
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Market Demand
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Total demand in a market for a good, the sum of all individuals demand at each given price
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Market Failure
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Where the market fails to produce what consumers require at the lowest possible cost
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Market Supply
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The sum of all individual firms supply curves at each given price
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Maximum Price
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A price ceiling above which the price of a good or service is not allowed to increase
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Merit Good
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A good that would be under consumed in a free market as individuals do not full perceive the benefits obtained from consumption
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Minimum Price
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A price floor below which the price of a good or service is not allowed to decrease
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Monopoly
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A market structure dominated buy a single seller of a good
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Negative Exteralities
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Cost imposed on a third party not involved in the consumption or production of the good
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Normal Good
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Goods or services that will see an increase in demand when income rise
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Normative Statments
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Opinions that require valued judgments to be made
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Occupation Immobility
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As pattern of demand and employment change many workers may find it difficult to easily secure new jobs since they may lack the necessary skills
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Opportunity Cost
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The next best alternative foregone (given up) when an economic decision is made, note it is only the next best alternative not a range of alternatives
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Partial Market Failure
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Where the free market provides a product but with a misallocation of resources
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Planned Supply
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The amount producers plan to produce at each given price
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Pollution Permit
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A permit sold to firms by the government allowing them to pollute up to a certain limit
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Positive Externalities
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A positive spillover effect to third parties of a market transaction
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Positive Statement
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Statements that can be tested against real world data
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Price Elasticity
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The responsiveness of demand to a change in the price level, the formula is percentage change in quantity demand divided by percentage change in price
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Private Good
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A good that is both excludable and rival in consumption
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Production
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The process that converts factor inputs into outputs of goods and services
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Production Possibility Boundary
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The PPB indicates the maximum possible output that can be achieved given a fixed set of resources and technology in a particular time period
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Productive Efficiency
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When a firm operates at minimum average total cost, producing the maximum possible output from inputs into the production process
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Profit
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When total income or revenue for a firm is greater than total cost
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Public Goods
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A good that posses the characteristics of non excludabilty and non rivalry in consumption.
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Quasi- Public Good
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A good that has som eof the qualities of a public good but does not fully posses the two required characteristics of non rivalry and non excludability
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Real GDP/Real National Income/ Real Output
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GDP/Income/Output figures adjusted for inflation
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Real Interest Rate
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The money rate of interest minus the rate of inflation
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Recession
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When an economy is growing at less that its long-term trend rate of growth
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Renewable Resources
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Resources that are able to be replenished over time, whereas non-renewable such as oil and gas are likely to run out
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Repo Rate
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The interest rate that is set by the Monetary Policy Committee of the Bank of England in order to influence inflation. Short for ; sale and repurchase rate'
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RPIX
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A measure of the price level that excludes payments to service mortgage interest from the Retail Price Index measure. Used as the target measure of inflation by the government and MPC until the end of 2003
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Savings
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Withdrawl from the circular flow
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Specialisation
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The production of a limited range of goods by an individual factor of production or firm or country in cooperation with others so that together a complete range of goods is produced
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Stock
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A quantity measured at a particular point in time
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Structural Employment
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Unemployment caused by a change in the demand side or supply side of the economy.
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Subsidies
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Payments by government to producers to encourage production of a good or service. Often subsidies are found in farming where farmers receive funds from government per tonne or unit of output. This typically means that prices can be lower than would otherwise be the case
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Substitutes
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Goods that can be used as alternative to another good, i.e bus and railway services. Close substitutes are good alternatives whereas weak substitutes are not very good or likely alternatives such as gas fired power in the UK and hydroelectric power
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Supply
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The amount offered for sale at each given price level
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Supply-side Fiscal Policy
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Changes in the level or structure of government spending and taxation designed to improve the supply side of the economy through influencing incentives to save, to supply labour , to be entrepreneurial, and to promote investment , which are largely micro economic in nature
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Supply-side Policies
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A range of measures designed to increase aggregate supply and hence the economy and hence the potential output of the economy though many improvements may come from the private sector
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Index Numbers
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A weighted average of a group of items compared to a given base value of 100
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Inflation
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A persistent increase in the level of prices
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Injections
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Money that originates outside the circular flow and so will increase national income/output/expenditure
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Investment
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Spending by firms on buildings, machinery and improving the skills of the labour force
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Investment Good
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A product that will increase in value over time
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Keynesian
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View that suggests how government could cure mass unemployment
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Long Run Aggregate Supply
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The economy's productive capacity
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Monetary Policy
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Controlling the macro economy via changes to monetary variables such as the money supply or interest rates
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Money Supply
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The total amount of money in an economy
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Multiplier Effect
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Where an increase or decrease in spending leads to a larger than proportionate change in the national income
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Negative Expectations
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Businesses expect future sales and profits to be less due to factors like falling aggregate demand
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Negative Output Gaps
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Where the economy is producing less than trend output
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Nominal GDP
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GDP figures not adjusted to inflation
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Positive Output Gap
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Actual GDP exceeds trend GDP increasing inflationary pressure
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Privitisation
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Sale of government owned assets to the private sector
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Supply side shock
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Something that will increase or reduce the costs, hence supply side of all firms in the economy, ie price of oil
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Total Factor Productivity
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The overall productivity of inputs used by a firm in producing a particular level of out put
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Trade Off
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Where one macroeconomic objective has to be curtailed in favour of another objective
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Transfer Payments
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Government payment to individuals for which no service is given in return e.g state benefits
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Transmission Mechanism of Monetary Policy
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How changes in the base interest rate influence the components of aggregate demand
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Unemployment
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Those without a job who are seeking work at current wage rate
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Unemployment Trap
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Where individuals receive more in benefit payment than they would be payed in a job
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Variable Cost
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Cost of production that vary with output
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Wealth
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A stock of owned assets e.g house or portfolio of shares
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Withdrawls
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Any money not passed on in the circular flow and has the effect of reducing national income/output/expenditure
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