Booklet 6 Flashcards
What is the term used to describe a phenomenon whereby increased public sector spending displaces spending by the private sector, either by driving up the prices of factors of production or by increasing the cost of borrowing?
Crowding out
What term refers to a budget deficit that is caused by the phase of the economic cycle that an economy is in?
Cyclical budget deficit
What term describes the tendency of the tax system to withdraw more from a growing economy e.g. through bracket creep as rising incomes see more taxpayers drawn into higher tax brackets?
Fiscal Drag
What describes the reduction in the long run productive capacity of an economy as a result of skills lost during unemployment. It can be used to any long-lasting impact of a negative economic shock?
Hysteresis
What is it called when workers are unable to find a job due to circumstances beyond their control, usually associated with cyclical unemployment?
Involuntary Unemployment
What is a situation in which conventional monetary policy begins to lose traction - in spite of low interest rates, economic agents prefer to save than spend, usually due to low business and consumer confidence?
Liquidity Trap
What is the idea that economic agents do not recognize that the purchasing power of money will fall over time?
Money Illusion
What is the rate of unemployment when the aggregate labour market is in equilibrium - the demand for and supply of labour are equal? Mostly voluntary unemployment as workers look for better pay or conditions.
Natural Rate of Unemployment
What is the rate of unemployment below which inflation would be expected to increase?
Non-accelerating rate of unemployment
What is an independent body set up to scrutinize the government’s fiscal policy and produce independent economic forecasts?
Office for Budget Responsibility
What is a scenario where an increase in saving reduces aggregate demand and therefore real national output and income (reducing people’s ability to save)?
Paradox of Thrift
What is the cost of borrowing and reward for saving, expressed in percentage terms, corrected for inflation (Real interest rate = nominal interest rare - rate of inflation)?
Real Interest Rate
What is the proposition that an increase in government spending funded by borrowing will be offset by a fall in consumption as households smooth their expenditure in anticipation for later tax increases to repay the debt?
Ricardian Equivalence
What is a budget deficit that persists irrespective of the phase of the economic cycle due to a fundamental imbalance of the government receipts and expenditure (i.e. the government continues to operate with a budget deficit even during an economic boom)?
Structural budget deficit
What is it called where there are vacancies available, but workers do not take them as they are holding out for better pay or conditions?
Voluntary unemployment
