Macro Booklet 6 Flashcards
(15 cards)
Crowding Out
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
Cyclical Budget Deficit
A budget deficit that is caused by the phase of the economic cycle that an economy is in
Fiscal Drag
The tendency of the tax system to withdraw more from a growing economy
Hysteresis
A 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
Involuntary Unemployment
Where workers are unable to find a job due to circumstances beyond their control, usually associated with cyclical unemployment
Liquidity Trap
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 confidence
Money Illusion
The idea that economics agents do not recognise that the purchasing power of money will fall over time (thinking nomially instead of real)
Natural Rate of Unemployment
The rate of unemployment when the aggregate supply of 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
Non-Accelerating Inflation Rate of Unemployment (NAIRU)
The rate of unemployment below which inflation would be expected to increase
Office for Budget Responsibility (OBR)
An independent body set up to scrutinise the governments fiscal policy and produce independent economics forecasts
Paradox of Thrift
A scenario where an increase in saving reduces aggregate demand and therefore RNO and income
Real Interest Rate
The cost of borrowing and reward for saving, expressed in percentage terms, corrected for inflation. Real interest rate = nominal interest rate - rate of inflation
Ricardian Equivalence
The proposition than an increase in government spending funded by borrowing will be offset by a fall in consumption as households smooth their expenditure in anticipation of later tax increases to repay the debt
Structural Budget Deficit
A budget deficit that persists irrespective of the phase of the economic cycle due to a fundamental imbalance in government receipts and expenditure
Voluntary Unemployment
Where there are vacancies availiable, but workers do not take them as they are holding out for better pay or conditions
