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163 Cards in this Set

  • Front
  • Back
Accelerator Effect
The relation between the change in new investment and the rate of change of national income
Actual Supply
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
Aggregate Demand
Total planned expenditure in the economy known by the identity C + I + G + (X - M)
Aggregate Supply
The total value of goods and services supplied in the economy
Allocative Efficiency
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
Balance Of Payments
Exports minus imports - a deficit means more is imported than exported
Balance of Trade
Visible exports minus visible imports
Balanced Budget
Where government recipt equal government spending in a financial year
Boom/Bust Policy
The government using macroeconomic tools to stimulate and then contract economy
Broad Money
Money that is held in banks and building societies but that is not immediately accessible
Budget Deficit
Where government spending exceeds government receipts in a financial year (PSNCR)
Budget Surplus
Where government recipts exceeds spending in a financial year (PSDR)
Buffer Stock
An intervention system that aims to limit the fluctuations of the price of a commodity
Capital Spending
Government spending to improve the productive capacity of a nation, including infrastructure, schools and hospitals
Central Bank
The financial institution in a country or group of countries typically responsible for issuing notes and coins and setting short term interest rates
Classical View
Economists who believed that recessions and slumps would cure themselves
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
A market situation in which there are a large number of buyers and sellers
Complimentary Product
Goods that are consumed together, for example bread and butter or dvd and dvd players
Complete Market Failure
Where the free market fails to provide a product at all, i.e. the case of public goods
Composite Demand
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
Contraction in Supply
When the amount offered for sale is reduced because the price level has fallen
Contractionary Fiscal Policy
Increasing levels of tax revenues related to government spending, appropriate during a boom in economic activity
Contraction in Demand
Falls in the quantity demanded caused by rises in prices
Cost Push Inflation
Where increased cost of production results in firms increasing their prices leading to an increase in the general price level
CPI (Consumer Price Index)
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
Credit Crunch
Where borrowing becomes more expensive or unavailable.
Current Account equilibrium
Current account equilibrium where the current account exercises no effect on the domestic macroeconomy.
Current Spending
Government spending on a day-to-day running of the public sector, including raw materials and wages of public sector workers
Cyclical Unemploymet
Demand deficient employment that occurs as a result of the economic cycle
A situation where prices persistently fall
A fall in the proportion of national output accounted for by the manufacturing sector of the economy
The amount that consumers are willing and able to buy at each given price level
Demand Deficient Unemployment
Insufficient aggregate demand in the economy to employ the available labour
Demand Pull Inflation
Where aggregate demand exceeds aggregate supply leading to an increase in the level of prices
Demand-side Fiscal Policies
Changes in the level of structure of government spending ad taxation aimed at influencing one or more of the components of aggregate demand
Demerit Goods
A good that would be over-consumed in a free market, as it brings less overall benefit to consumers than they realise
The process of removing government controls from markets
Derived Demand
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.
Discouraged Workers
Workers who leave the labour market because despite numerous attempts they are unable to find a job
Discretionary Fiscal Policy
The deliberate manipulation of government spending and taxation to influence the economy
Diseconomies of Scale
Where an increase in the sale of production leads to increases in average total costs of firms
A situation within the market where supply does not equal demand
Disposable Income
Income available to households after the payment of income tax and national insurance contribution
Division of Labour
Breaking the production process down into a sequence of tasks, with works assigned to a particular task
Economic goods
Goods that are scarce and therefore have an opportunity cost
Economic Growth
The capacity of the economy to produce more goods and services overtime
Economic Indicatiors
Economic statistics that provide information about the expansions and contractions of business cycles
Economic Modules
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
Economic Welfare
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
Economies of Scale
Where an increase in the scale of production leads to the reductions in average total cost of fims
Effective Demand
Demand supported by the ability to pay for a good or service
Where labour is and actively engaged in a productive activity usually in exchange for payment such as wages
The price at which demand is equal to supply and there is no tendancy for change
Ex ante
A term that refers to future events
Ex post
A term that refers to after the event
Excess Demand
When demand is greater than supply at a given price
Excess Supply
When supply at a particular price is greater than demand, this should signal to producers to lower prices
Exchange Rate
The prices at which one currency, e.g the pound, exchanges for another e.g. the US dollar
Expansionary Fiscal Policy
Increasing levels of government spending relative to tax revenue, appropriate to stimulating aggregate demand during a down turn in economic activity
The sale of goods or services to a foreign country generates income for the home country
Goods or services sold abroad
Extension in Supply
When there is an increase in supply because the market price has risen
Extensions in Demand
Increases in demand caused by changes (falls) in price
Cost or benefits that spill over to third parties external to a market transaction
Factor Markets
The market for the factors of production that make other goods ad services such as labour or raw materials
Failure of Information (Information Failure)
Where economic agents do not properly percieve the benefits or disadvantages of a transaction
Fiscal Policy
The policy of the government regarding taxation and government expenditure
Fixed Costs
Cost of production that do not vary as output changes
Measured over a specified period of time
Free Goods
Goods that have no opportunity costs, or example air
Free Market Economy
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
Free-rider Problem
Where some consumers benefit from other consumers purchasing a good particularly in the case of public goods
Frictional/Search Unemplyment
People between jobs
GDP per capita
GDP divided by the population - a measure of living standards
Geographical Immobility
Where workers find it difficult to move to where employment opportunities may be due to family ties and differences in housing costs
The ability to produce goods anywhere in the world and sell them in any country
Goods and Services
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
Government Failure
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
Gross Domestic Product
The total value of goods and services produced in the economy
Hot Money
Money that is liable to rapid transfer from one country to another
Human Capital
The skills, abilities, motivation and knowledge of labour. Improvements in human capital raise productivity and can shift the PPB to the right
The purchase of goods and services from abroad-leads to expenditure for the home country
Goods or services purchased from abroad
Incidence of Tax
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
A flow of earnings to a factor of production over a period of time e.g wages or salaries
Income elasticity of Demand
The proportion to which demand changes when their is a change in income
Indirect tax
Tax on spending
Inferior Goods
Goods or services that will see demand fall when income rises
Joint Supply
When the production of one good also results in the production of another
Labour Market
An example of a factor market, in this case where labour is bought and sold
Marginal external beneit
The spillover benefit to third parties of an economic transaction
Marginal External Cost
The spillover cost to third parties of an economic transaction
Marginal Private Benefit
The benefit to an individual or firm of an economic transaction
Margianal Private Cost
The cost to an individual or firm of an economic transaction
Marginal Social Benefit
The full benefit to society of an economic transaction including private and external benefits
Marginal Social Costs
The full costs to society of an economic transaction including private and external costs
Market Clearing Price
The price at which all goods that are supplied will be demanded
Market Demand
Total demand in a market for a good, the sum of all individuals demand at each given price
Market Failure
Where the market fails to produce what consumers require at the lowest possible cost
Market Supply
The sum of all individual firms supply curves at each given price
Maximum Price
A price ceiling above which the price of a good or service is not allowed to increase
Merit Good
A good that would be under consumed in a free market as individuals do not full perceive the benefits obtained from consumption
Minimum Price
A price floor below which the price of a good or service is not allowed to decrease
A market structure dominated buy a single seller of a good
Negative Exteralities
Cost imposed on a third party not involved in the consumption or production of the good
Normal Good
Goods or services that will see an increase in demand when income rise
Normative Statments
Opinions that require valued judgments to be made
Occupation Immobility
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
Opportunity Cost
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
Partial Market Failure
Where the free market provides a product but with a misallocation of resources
Planned Supply
The amount producers plan to produce at each given price
Pollution Permit
A permit sold to firms by the government allowing them to pollute up to a certain limit
Positive Externalities
A positive spillover effect to third parties of a market transaction
Positive Statement
Statements that can be tested against real world data
Price Elasticity
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
Private Good
A good that is both excludable and rival in consumption
The process that converts factor inputs into outputs of goods and services
Production Possibility Boundary
The PPB indicates the maximum possible output that can be achieved given a fixed set of resources and technology in a particular time period
Productive Efficiency
When a firm operates at minimum average total cost, producing the maximum possible output from inputs into the production process
When total income or revenue for a firm is greater than total cost
Public Goods
A good that posses the characteristics of non excludabilty and non rivalry in consumption.
Quasi- Public Good
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
Real GDP/Real National Income/ Real Output
GDP/Income/Output figures adjusted for inflation
Real Interest Rate
The money rate of interest minus the rate of inflation
When an economy is growing at less that its long-term trend rate of growth
Renewable Resources
Resources that are able to be replenished over time, whereas non-renewable such as oil and gas are likely to run out
Repo Rate
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'
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
Withdrawl from the circular flow
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
A quantity measured at a particular point in time
Structural Employment
Unemployment caused by a change in the demand side or supply side of the economy.
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
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
The amount offered for sale at each given price level
Supply-side Fiscal Policy
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
Supply-side Policies
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
Index Numbers
A weighted average of a group of items compared to a given base value of 100
A persistent increase in the level of prices
Money that originates outside the circular flow and so will increase national income/output/expenditure
Spending by firms on buildings, machinery and improving the skills of the labour force
Investment Good
A product that will increase in value over time
View that suggests how government could cure mass unemployment
Long Run Aggregate Supply
The economy's productive capacity
Monetary Policy
Controlling the macro economy via changes to monetary variables such as the money supply or interest rates
Money Supply
The total amount of money in an economy
Multiplier Effect
Where an increase or decrease in spending leads to a larger than proportionate change in the national income
Negative Expectations
Businesses expect future sales and profits to be less due to factors like falling aggregate demand
Negative Output Gaps
Where the economy is producing less than trend output
Nominal GDP
GDP figures not adjusted to inflation
Positive Output Gap
Actual GDP exceeds trend GDP increasing inflationary pressure
Sale of government owned assets to the private sector
Supply side shock
Something that will increase or reduce the costs, hence supply side of all firms in the economy, ie price of oil
Total Factor Productivity
The overall productivity of inputs used by a firm in producing a particular level of out put
Trade Off
Where one macroeconomic objective has to be curtailed in favour of another objective
Transfer Payments
Government payment to individuals for which no service is given in return e.g state benefits
Transmission Mechanism of Monetary Policy
How changes in the base interest rate influence the components of aggregate demand
Those without a job who are seeking work at current wage rate
Unemployment Trap
Where individuals receive more in benefit payment than they would be payed in a job
Variable Cost
Cost of production that vary with output
A stock of owned assets e.g house or portfolio of shares
Any money not passed on in the circular flow and has the effect of reducing national income/output/expenditure