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Flashcards in 2.5 The Economic Cycle Deck (55)
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1

Define the economic cycle

The tendency for an economy to fluctuate between upswing, boom, downturn and recession

2

Give the 5 stages of the economic cycle

Upswing, boom, downturn, recession, recovery

3

Define economic boom

A period of rapid economic growth linked with rising demand and lower unemployment

4

Define economic downturn

Where people reduce spending, causing a fall in aggregate demand, thus reducing income and government revenue

5

Define recession

Where firms cut output due to low demand which reduces employment and lowers GDP

6

Define stagflation

A very bad combination of falling GDP and high inflation

7

Define what is meant by a 'leading indicator'

Early signs of direct economic action such as the state of consumer confidence

8

Definer what is meant by a 'lagging indicator'

Measures that are slow to reflect the current state of economic activity (e.g. employment levels)

9

Give 3 evaluation points on how a recession could be positive

- Sales of inferior goods rise
- Inflation is normally low
- Scope to employ a higher skilled workforce

10

Define circular flow of income

Connections between different sectors of our economic system focusing on goods and services and factors of production between firms and houselholds

11

Give 3 injections into the circular flow of income

Investment
Exports
Government Spending

12

Give 3 leakages from the circular flow of income

Savings
Imports
Taxes

13

Define injection in relation to the circular flow of income

Additions to the link between firms and households

14

Define leakage in relation to the circular flow of income

Ways in which income escapes from the circular flow of income

15

Define Aggregate demand

Total demand for goods and services in the economy

16

Give the equation for AD

AD = C + I + G + (X - M)

17

What is the biggest component of AD?

Consumer Spending

18

How does investment boost AD?

Spending on capital goods increases the productive capacity of the economy

19

How does government spending boost AD?

Direct investment, indirect grants, welfare payments

20

How does the balance of payments boost AD?

Exports are counted as domestic demand

21

Define fiscal policy

The use of government spending, taxation and borrowing to influence the pattern of economic activity

22

Define monetary policy

The use of interest rates to influence the supply of money and borrowing to influence economic activity

23

Define aggregate supply

The total quantity of output in the economy at a given price level

24

In which part of the aggregate supply graph is there lots of spare capacity in the economy?

Far left, under the curve

25

In which part of the aggregate supply graph is there very little spare capacity in the economy?

Far right, under the curve

26

Give the 3 things that impact Short-run Aggregate Supply

- Employment costs
- Cost of other inputs
- Impact of government

27

How do employment costs, other inputs and the impact of the government impact short-run aggregate supply?

The higher the cost, the lower output will be

28

What is meant by long-run aggregate supply?

The long-term ability for an economy to produce goods and meet demand

29

Give the 5 factors of long-run aggregate supply

- Productivity of labour
- Labour market participation
- Innovation and enterprise
- Capital investment
- Supply constraints

30

How does higher productivity boost AS?

Output per worker increases so more products are produced in the same time

31

What is meant by labour market participation?

The number of people in the workforce

32

How do supply constraints impact long-run aggregate supply?

Demand for scarce resources forces prices up

33

Give 3 possible positive impacts on businesses of inflation

- Real value of loans eroded
- Assets are made more valuable
- Spending on inferior goods increases

34

Give 3 negative impacts of inflation on businesses

- Real value of savings eroded
- Uncertainty can postpone expansion plans
- 'wage price spiral' as workers demand higher wages

35

What is meant by the 'wage price spiral'?

Increasing prices caused by inflation leading to staff demanding higher wages, reducing international competitiveness

36

Define inflation

A sustained increase in the general price level

37

Define deflation

A sustained fall in the general price level

38

Define disinflation

A reduction in the rate of inflation

39

Define nominal income

A measure of income that doesn't take inflation into account

40

Define real income

A measure of income that does take inflation into account

41

What is the RPI?

A measure of income weighted on the collection of goods and services bought including mortgage payments

42

What is the CPI?

A measure of income weighted on the collection of goods and services bought excluding mortgage payments

43

What does demand-pull inflation come from?

An increase in AD

44

What does cost-push inflation come from?

A reduction in AS

45

Define unemployment

The number of people willing and able to work at a given price rate without a job

46

Define underemployment

Those who aren't working their desired hours or are overskilled for their job role

47

What is the claimant count?

The number of people claiming jobseekers allowance

48

What is the other name for the ILO?

Labour Force Survey

49

What is the ILO (Labour Force Survey)?

Sample data based on counting those actively seeking work

50

Name the 5 types of unemployment

- Frictional
- Seasonal
- Structural
- Geographical
- Cyclical

51

What is meant by frictional unemployment?

Temporary unemployment due to moving between 2 jobs

52

What is meant by structural unemployment?

Long-term unemployment caused by changes in industry (e.g. the UK stopping coal mining)

53

What is meant by geographical unemployment?

Where jobs are available but not in your local area so you may have to commute far or move to get them

54

What is meant by seasonal unemployment?

Unemployment arising from the uneven pattern of activity in some industries

55

What is meant by cyclical unemployment?

Unemployment from declines in AD during the downturn of an economic cycle