Edexcel Economics Unit 2 Definitions

Front 1

Aggregate demand

Back 1

total planned spending at a given price level. AD = C+I+G+(X-M)

Front 2

Aggregate supply

Back 2

total output firms are willing and able to supply at a given price level.

Front 3

Appreciation of a currency

Back 3

strengthening of a currency under a floating exchange rate system.

Front 4

Balance of Payments (BOP)

Back 4

a record of a country’s financial dealings with the rest of the world.

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Balance of payments deficit

Back 5

when the value of outflows exceed inflows on the BOP.

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Balance of trade

Back 6

the difference in values between exports and imports of goods.

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Black (hidden or informal) economy

Back 7

economic activity not declared for tax purposes.

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Budget (or fiscal) deficit

Back 8

when government revenue falls short of government spending.

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Budget (or fiscal) surplus

Back 9

when government revenue exceeds government spending.

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Business (or trade or economic) cycle

Back 10

regular oscillations in economic activity.

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Capital (or Capital stock)

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All inputs to production that have themselves been produced (e.g. tractors, spades, factories and office buildings).

Front 12

Circular flow of income

Back 12

a model showing the flow of goods, services and factors and their payments around the economy.

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Consumer Price Index

Back 13

the official measure of inflation in the UK. It is the UK’s name for the EU standard measure, the Harmonised Index of Consumer Prices (HICP). CPI and RPIX exclude payments of mortgage interest and other housing costs.

Front 14

Cost push inflation

Back 14

inflation caused by increases in firms’ costs of production, e.g. wages, electricity, gas, diesel and/or raw materials.

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Current account of the BOP

Back 15

the record of trade in goods and services, flows of investment income and transfers. (Investment income = interest on deposits, dividends from shares, etc.; transfers = remittances and inter-government payments like EU budget contributions.)

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Current account deficit

Back 16

when outflows of money on the current/day-to-day BOP account exceed inflows.

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Current account surplus

Back 17

when inflows of money on the current/day-to-day BOP account exceed outflows

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Deflation

Back 18

sustained fall in the general price level.

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Deflationary policy

Back 19

government policies which reduce aggregate demand.

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Demand-side policies; demand management

Back 20

government use of fiscal or monetary policies to manipulate AD. (Execution of monetary policy outsourced to the Monetary Policy Committee.)

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Demand pull inflation

Back 21

inflation caused by excess demand in the economy.

Front 22

Depreciation of a currency

Back 22

weakening of a currency under a floating exchange rate system.

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Depression (or slump)

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a period in which there is a particularly deep and long fall in output.

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Devaluation

Back 24

a reduction by government in the value of its currency against another in a fixed exchange rate system.

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Direct tax

Back 25

tax levied on income, wealth or profits.

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Discretionary fiscal policy

Back 26

deliberate changes to fiscal policy to influence aggregate demand.

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Disposable income

Back 27

household income minus income tax and National Insurance Contributions.

Front 28

Dumping

Back 28

the sale of goods at less than cost price by foreign producers in the domestic market.

Front 29

Economic growth

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growth in an economy’s productive potential.

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Exchange rate

Back 30

the price of one currency in terms of another.

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Expansionary fiscal policy

Back 31

the use of tax and/or government spending to increase AD.

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Expenditure dampening (reducing) policy

Back 32

government policies to reduce AD.

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Financial account of the BOP

Back 33

the section of the BOP recording flows of savings, investment and currency.

Front 34

Fine tuning

Back 34

the use of demand management policies to smooth out fluctuations in the economy.

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Fiscal stance

Back 35

whether government is trying to raise or lower aggregate demand through fiscal policies.

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Fiscal policy

Back 36

government policy towards taxation, government spending and borrowing.

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Fixed exchange rate

Back 37

an exchange rate pegged at a given rate and maintained by government intervention.

Front 38

Foreign exchange market

Back 38

the markets where currencies are bought and sold.

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Forward exchange market

Back 39

a market in which promises to buy or sell currency at a future date at an agreed price are traded.

Front 40

Floating exchange rate

Back 40

an exchange rate determined by market forces.

Front 41

Frictional (search) unemployment

Back 41

when workers are unemployed for short lengths of time between jobs.

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Full capacity

Back 42

the output level at which no extra production can take place in the long run with existing resources.

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Gini coefficient

Back 43

a statistical measure of income (or wealth) inequality.

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Gross domestic product (GDP)

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the value of output produced within an economy in a time period.

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Gross national income (GNP)

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the value of GDP plus income earned abroad (interest and dividends, etc.) minus income flowing abroad.

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GDP growth

Back 46

increase in the actual output of an economy.

Front 47

Hot money

Back 47

money flowing between financial centres in search of the highest short-term interest rate.

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Human Development Index (HDI)

Back 48

a summary measure of the basic dimensions of human development in a country: a long and healthy life; access to knowledge; and a decent standard of living. Since 2010, the sources are: 1/3 life expectancy at birth; 1/3 mean and expected years of schooling; and 1/3 Gross National Income per head.

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Income

Back 49

the flow of wages or salary from a job or of interest and dividends.

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Indexation

Back 50

adjusting the value of economic variables in line with inflation.

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Indirect tax

Back 51

a tax on expenditure, e.g. VAT.

Front 52

Inflation

Back 52

a sustained rise in the general price level.

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Infrastructure

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social overhead capital.

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Injection

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spending on domestic output which is derived from outside the circular flow of income (i.e. Government expenditure; Investment; and eXports).

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Investment

Back 55

an increase in capital.

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Lorenz curve

Back 56

a curve showing the extent of inequality of income (or wealth) in society.

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Marginal propensity to consume

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the proportion of extra income that is spent.

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Marginal propensity to save

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the proportion of extra income that is not spent.

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Monetary policy

Back 59

government policy towards monetary variables such as the interest rate, money supply and credit.

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Multiplier

Back 60

the ratio of a change in income resulting from a change in injection.

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National debt

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outstanding public sector debt.

Front 62

Non government organisations

Back 62

private sector organisations (e.g. charities) involved in providing financial and technical assistance.

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Open economy

Back 63

an economy which is open to foreign trade.

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Output gap

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the difference between the actual level of GDP and full employment output.

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Labour force, workforce or participation (activity) rate

Back 65

the proportion of working-age people in paid jobs or looking for them.

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Productivity

Back 66

output per input of a factor of production.

Front 67

Public sector

Back 67

central & local government and public corporations.

Front 68

Public Sector Net Cash Requirement

Back 68

how much the government needs to borrow per time period.

Front 69

Purchasing power parity theory

Back 69

the theory that the exchange rate will adjust so as to offset differences in countries’ inflation rates.

Front 70

Quantitative easing

Back 70

a monetary policy where the central bank increases the money supply/base by a deliberate amount by buying government bonds from banks, funds and other financial institutions.

Front 71

Quality of life

Back 71

a measure of the overall well-being of a person.

Front 72

Standard of living

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a measure of the material well-being of a person.

Front 73

Real exchange rate

Back 73

the price of a country’s goods relative to those produced abroad when expressed in a common currency.

Front 74

Recession

Back 74

two successive quarters of negative economic growth.

Front 75

Revaluation

Back 75

an increase by government in the value of its currency against another in a fixed exchange rate system.

Front 76

Supply side policies

Back 76

government measures to increase aggregate supply.

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Supply-side shocks

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factors which cause the AS curve to shift suddenly to the left, e.g. large and sudden increases in the price of crude oil.

Front 78

Sustainable development

Back 78

development which meets the needs of the present generation without compromising the needs of future generations.

Front 79

Stop-go

Back 79

alternate deflationary and reflationary policies to tackle the most pressing economic problems which fluctuate with the trade cycle.

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Demand-deficient (cyclical) unemployment

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unemployment caused by a fall in aggregate demand.

Front 81

Structural unemployment

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unemployment that arises from changes in the pattern of demand and supply in the economy.

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Underemployment

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where people who want full-time work are only able to find part-time employment.

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Unemployment­

Back 83

the number of people who are actively looking for work, currently without a job.

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Unemployment rate

Back 84

the number of unemployed expressed as a % of the labour force.

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Wealth

Back 85

the value of a stock of assets owned at a point in time.

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Wealth effect

Back 86

the change in consumption following a change in wealth.

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Withdrawals (or leakages)

Back 87

income which is not spent on domestic output. (i.e. T, S, M)