2.5 the economic cycle Flashcards
(28 cards)
economic cycle
recession
slump
recovery
boom
withdrawals
money being removed from circular flow of income e.g. saving, taxes, imports
injections
money which enters the economy e.g. investment, government spending, exports
net withdrawals
contraction of production (output decreases)
net injections
expansion of national output
components of AD
C + I + G + (X - M)
C
consumer spending
I
investment
G
government spending
(X - M)
exports - imports
factors affecting AS
- cost of employment
- cost of raw materials
- government regulation
- migration
inflation
persistent increase in the general price level of goods/services over a period of time
deflation
fall in the general price level
disinflation
fall in the rate of increase of the general price level (rate of inflation)
consumer price index (CPI)
measure of the average change over time of prices consumers pay, using a ‘basket of goods’ (measures inflation as experienced by consumers in day to day life)
retail price index (RPI)
includes housing prices
nominal vs real values
real values take into account the rate of inflation
types of inflation
- demand pull
- cost push
demand pull inflation
when aggregate demand is growing unsustainably, it puts pressure on resources and so producers increase their prices and earn more profit
causes of demand pull inflation
- depreciation in exchange rate
- fiscal stimulus in form of lower taxes or more gov spending
- lower interest rates
- high growth in UK export markets
cost push inflation
supply-side, occurs when firms face rising costs
causes of cost push inflation
- changes in world commodity prices
- labour becoming more expensive
- expectations of inflation
- indirect taxation
- depreciation in exchange rate
- monopolies
unemployment
when people are able, willing, and actively seeking for work but do not have a job
underemployment
when someone has a job, but their labour is not used to it’s full productive potential
