Tutor2u Glossary Theme 2 Flashcards

Question

Nominal income | 2.1 - Economic growth

Answer 1

The level of income in a given time period (e.g. a year) which is unadjusted for the effects of inflation, also known as money income.

Answer 2

Income per head of the population – a measure of average living standards e.g. Gross national income per capita = GNI/total population.

Answer 3

The buying power of a unit of currency. It is inversely related to the rate of inflation.

Answer 4

PPP is an economic theory that compares different countries' currencies through a "basket of goods" approach. According to this concept, two currencies are in equilibrium—known as the currencies being at par—when a basket of goods is priced the same in both countries, taking into account the exchange rates. Your purchasing power is the same in this situation.

Answer 5

Income after taxes and welfare benefits, adjusted for the effects of inflation.

Answer 6

Nominal GDP adjusted for price changes, expressed at constant prices.

Answer 7

Nominal income adjusted for price changes, expressed at constant prices.

Answer 8

Real value of household income per head of population = real GDP divided by the resident population.

Answer 9

The service industries include the retail sector, the financial sector, the public sector, business administration and cultural activities. In 2019, the service industries accounted for 80% of total UK GDP and accounted for 83% of jobs.

Answer 10

The CPI is the UK government's preferred measure of inflation, it measures changes in the average cost of living for a representative household and is a weighted price index.

Answer 11

Inflation caused by rising costs of production either domestically or from importing raw materials at higher prices due to exchange rate depreciation.

Answer 12

CPIH is a measure of UK inflation introduced in 2017 that includes owner occupiers’ housing costs). These are the costs of housing services associated with owning, maintaining and living in one’s own home.

Answer 13

Small rises in the general price level over a long period, low positive rate of inflation.

Answer 14

A persistent fall in the general price level of goods and services shown by a negative rate of inflation.

Answer 15

Caused by an excess of AD over AS. “Too much money chasing too few goods”.

Answer 16

A fall in the rate of inflation but not sufficient to bring about deflation. Prices are still rising but at a slower rate, for example a drop in the annual inflation rate from 6% to 2%.

Answer 17

A sustained increase in the general price level for goods and services.

Answer 18

The rate of increase of consumer prices expected by consumers. Expectations can then influence spending and saving decisions and also wage bargaining.

Answer 19

The Bank of England has a CPI inflation target, which is currently 2 per cent.

Answer 20

Demand and supply-side pressures that can cause a rise in the general price level. Demand-pull inflationary pressure is greatest when actual GDP exceeds potential GDP causing a positive output gap. Cost-push inflationary pressure can arise from increases in unit wage costs, rising import prices and an increase in the prices of raw materials, fuel and components used in production.

Answer 21

The entire quantity of a country's commercial bills, coins, loans and credit

Answer 22

Occurs when there is a low positive inflation rate of between 1-3% and price changes that do occur have little impact on day-to-day decisions of people and businesses

Answer 23

The buying power of a unit of currency. It is inversely related to the rate of inflation.

Answer 24

An economy with an inflation rate which is lower than comparable economies. Over time, a low relative rate of inflation can lead to improved price competitiveness.

Answer 25

A combination of slow growth and rising inflation. The most notable recent period of stagflation occurred during the 1970s, when world oil prices rose dramatically, and UK inflation rose at one point to nearly 30 per cent.

Answer 26

Where workers bid for higher wages because they have seen their real income eroded by rising prices. This can lead to a further burst of cost-push inflation

Answer 27

Weights are used when calculating a weighted consumer price index. In the UK for example, the weights used are taken from the spending patterns revealed by data from the Family Expenditure Survey. Heavily weighted items such as transport costs, fuel bills and prices of foodstuffs have a bigger impact on the overall measure of CPI inflation

Answer 28

The number of people claiming unemployment-related benefits.

Answer 29

Unemployment caused by a persistent lack of aggregate demand for goods and services, where national output < potential output leading to a negative output gap.

Answer 30

Also known as cyclical unemployment, occurs when planned demand is insufficient to generate a full-employment level of real national output, this is most likely to happen in a slowdown or recession.

Answer 31

People often out of work for a long time who give up on job search and who become economically inactive in the labour market. A cause of hidden unemployment.

Answer 32

Also known as hidden unemployment, where part of the labour force is either left without work or is working in a redundant manner where worker productivity is essentially zero.

Answer 33

Those who are unemployed and actively seeking employment.

Answer 34

Those who are of working age but are neither in work nor actively seeking work.

Answer 35

Those moving between jobs. Typically lasts for up to six months.

Answer 36

When there enough job vacancies for all the unemployed to take work.

Answer 37

Human capital is a measure of individuals’ skills, knowledge, abilities, social attributes, personalities and health attributes. These factors enable individuals to work, and therefore produce something of economic value.

Answer 38

The state of not producing an economic output.

Answer 39

The ILO is a United Nations agency whose mandate is to advance social justice and promote decent work by setting international labour standards.

Answer 40

Process by which workers find appropriate jobs given their tastes and skills.

Answer 41

The Labour Force Survey (LFS) is a study of the employment circumstances of the UK population. It is the largest household study in the UK and provides the official measures of employment and unemployment.

Answer 42

When businesses find it difficult to recruit the skilled workers they need.

Answer 43

The number of people able, available and willing to work at prevailing wage rates.

Answer 44

The movement of people from one geographical location to another with the intention of settling in the new region.

Answer 45

The equilibrium rate of unemployment = frictional + structural unemployment.

Answer 46

NEET’ stands for young people aged 16-24 Not in Education, Employment or Training (NEET). 788,000 people aged 16-24 in the UK were NEETs in 2019, representing 11.3% of the age group.

Answer 47

When the number of migrants coming into a country is higher than those leaving in a given time period – usually a year.

Answer 48

Nominal wage adjusted for the effects of inflation

Answer 49

Making someone redundant is to end their paid employment

Answer 50

This occurs when people are unemployed at particular times of the year when demand for labour is lower than usual.

Answer 51

Unemployment that results from the decline in an industry which leaves people unemployed because they do not have the skills needed by industries that are growing.

Answer 52

When demand for labour is high and there are shortages of labour. Businesses may have to offer higher wages to attract and keep the workers they need.

Answer 53

Workers are underemployed when they are willing to supply more hours of work than their employers are prepared to offer.

Answer 54

The unemployment rate is the proportion of the economically active population who are unemployed.

Answer 55

When the prospect of the loss of unemployment benefits dissuades those without work from taking a new job – creates a disincentives problem.

Answer 56

Labour costs per unit of output.

Answer 57

An employment contract under which the employee is not guaranteed work and is paid only for work carried out.

Answer 58

A record of all financial transactions between an economy and the rest of the world.

Answer 59

The difference between the value of country’s exports and imports of goods and services combined

Answer 60

Formerly known as financial account, now a small section of the account which includes effects of debt forgiveness, sale/transfer of patents, copyrights, franchises, leases and other transferable contracts across borders

Answer 61

Measures the difference between money and credit going in and out of an economy (through exports, imports and income paid on assets both home and abroad).

Answer 62

When net external trade and income is negative leading to a net outflow of demand from the circular flow

Answer 63

When net external trade and income is positive, a net injection into the circular flow.

Answer 64

A trade deficit that arises purely due to changes in the business cycle, for example many countries run a trade deficit when strong growth increases demand for imports.

Answer 65

The European single currency was created in 1999 and entered common ]circulation in 2002. As of 2019 there are 19 nations in the Euro Zone.

Answer 66

Exchange rates are the price of one country’s’ currency in relation to another.

Answer 67

Sales from selling goods and services overseas, an injection of aggregate demand.

Answer 68

External competitiveness is the ability of businesses to sell their goods and services at competitive prices in a foreign country / overseas market.

Answer 69

Money that flows freely and quickly around the world looking to earn the best rate of return. It might be invested in any asset whose value is expected to rise (e.g. property or shares) or placed in an account offering the best real rate of interest.

Answer 70

Part of the current account of the balance of payments, it measures the net flow of profits, interest and dividends from investments in other countries and net remittance flows from migrant workers.

Answer 71

Part of the current account of the balance of payments, it includes overseas aid / debt relief, military grants and (for the UK) net payments to the European Union.

Answer 72

The balance between the monetary value of exports and imports.

Answer 73

Assets such as businesses, shares, property owned in overseas countries and which might generate a flow of primary income which is a credit item on the current account.

Answer 74

Restricting trade through tariffs and other forms of import controls such as quotas.

Answer 75

The buying power of a unit of currency. It is inversely related to the rate of inflation

Answer 76

Sending money to people in another country. For many lower-income nations, remittance income is now a big contribution to their Gross National Income (GNI).

Answer 77

A trade deficit that arises due to supply-side weaknesses rather than a change in GDP or currency – usually caused by poor price and non-price competitiveness.

Answer 78

A trade deficit occurs when a country imports a greater value of goods and services than it exports. A trade deficit as a net withdrawal from the circular flow of income.

Answer 79

Total amount of goods and services demanded in the economy at a given time and price level. It is the sum of consumption expenditure, investment expenditure, government expenditure and net exports

Answer 80

The state of confidence or pessimism held by consumers and businesses.

Answer 81

Expectations about the future including interest rates, incomes and jobs

Answer 82

Products such as washing machines or computer screens that are not used up immediately when consumed and which provide a flow of services over time.

Answer 83

Household spending on goods and services. In the UK, household consumption is the largest element of aggregate demand (GDP), accounting for 67% of the total in 2019.

Answer 84

Gross income less income tax and national insurance contributions plus welfare benefits.

Answer 85

The financial resources available to households to spend or save: * Original income: Income from jobs, private pensions, interest from savings * Gross income = original income + cash benefits * Disposable income = gross income minus direct taxes * Post-tax income = disposable income minus indirect taxes

Answer 86

The monetary value of assets – including property, shares, savings, pension fund assets.

Answer 87

Income is a flow of money to factors of production such as wages and salaries paid to people in work, interest from savings and rental income from owning land/assets.

Answer 88

An interest rate is the cost or price of borrowing, or the gain from lending, normally expressed as an annual percentage amount.

Answer 89

When the value of an asset falls below the debt left to pay on that asset. Term is most commonly used in connection with property prices after a slump in house prices.

Answer 90

Fund that pools employees' pension benefits and holds them so that they can be paid at retirement. The money is invested in stocks, bonds and other assets to boost returns and ensure that there are sufficient funds to be paid out.

Answer 91

The amount of income you can earn before you start paying income tax. It is £12,500 in 2019

Answer 92

Saving because of fears of a loss of real income or rising unemployment.

Answer 93

The percentage of household disposable income that is saved rather than spent.

Answer 94

Credit not secured by another asset – i.e. money borrowed on credit cards.

Answer 95

Wealth is a stock concept. Wealth can be held in different ways including savings held in commercial bank deposits, ownership of shares issued by stock-market listed companies and equity stakes in private businesses and ownership of property / real estate.

Answer 96

The supposed link between changes in wealth and household spending.

Answer 97

The willingness and ability of financial institutions to lend funds to producers and consumers.

Answer 98

The state of confidence or pessimism held by consumers and businesses.

Answer 99

Expectations about the future of the economy – vital in influencing business decisions about how much to spend on new capital goods and employment intentions.

Answer 100

Total investment calculated by adding new investment to replacement investment.

Answer 101

An interest rate is the cost or price of borrowing, or the gain from lending, normally expressed as an annual percentage amount.

Answer 102

Spending on capital goods including plant & machinery and infrastructure.

Answer 103

Interest, profits and dividends from assets owned and located overseas.

Answer 104

The economics of John Maynard Keynes. The belief that the state can directly stimulate demand in a stagnating economy. For instance, by borrowing money to fund public works projects like new roads, housing, schools and hospitals

Answer 105

Total investment minus replacement investment

Answer 106

The purchase of capital goods by firms to replace existing, worn out capital. It does not add to the total capital stock of an economy.

Answer 107

A government's policy regarding taxation and public spending. It can be loose (with the emphasis on increased spending and lower tax revenue to boost economic activity, with the acceptance of a wider fiscal deficit) or tight (with the emphasis on cutting spending and raising extra tax revenue, resulting in a slower-growing economy.

Answer 108

The amount the government must borrow each year to finance their spending.

Answer 109

The total stock of unpaid debt issued by a government. A government will normally borrow money by issuing bonds or other securities

Answer 110

Spending by government on education, health care and defence & other public services.

Answer 111

A trade cycle refers to fluctuations in economic activities specially in employment, output and income, prices, profits etc.

Answer 112

Exchange rates are the price of one country’s’ currency in relation to another.

Answer 113

Part of the current account of the balance of payments, it measures the net flow of profits, interest and dividends from investments in other countries and net remittance flows from migrant workers.

Answer 114

Part of the current account of the balance of payments, it includes overseas aid / debt relief, military grants and (for the UK) net payments to the European Union.

Answer 115

The balance between the monetary value of exports and imports.

Answer 116

Restricting trade through tariffs and other forms of import controls such as quotas

Answer 117

Total planned output of goods and services in an economy at a given time and price level.

Answer 118

Either an inflation shock or a shock to potential national output; adverse aggregate supply shocks of both types reduce real output and can increase the rate of inflation.

Answer 119

Factor prices, including rent, wages and interest.

Answer 120

Exchange rates are the price of one country’s’ currency in relation to another.

Answer 121

The Classical view is that LRAS is inelastic. This has important implications. The classical view suggests that real GDP is determined by supply-side factors – the level of investment, the level of capital and the productivity of labour etc. Classical economists suggest that in the long-term, an increase in aggregate demand (faster than growth in LRAS), will just cause inflation and will not increase real GDP.

Answer 122

Any policy which seeks to promote competition & efficiency in markets and industries.

Answer 123

Any change in the population, for example in terms of average age, dependency ratios, life expectancy, family structures, birth rates etc.

Answer 124

The commercial development of exploiting new or improved goods and services.

Answer 125

The creation of a new product, service or concept.

Answer 126

The economics of John Maynard Keynes. The belief that the state can directly stimulate demand in a stagnating economy. For instance, by borrowing money to fund public works projects like new roads, housing, schools and hospitals

Answer 127

The Keynesian LRAS assumes wages and prices are fixed until near full employment is reached. Whilst the economy has spare capacity, the LRAS is perfectly elastic, and only when near full employment is reached, does the price level start to rise. At full employment, the Keynesian LRAS becomes vertical as no further output can be produced.

Answer 128

Unemployment caused by a lack of aggregate demand in the economy – a deficiency of private sector spending causes both output and employment to contract

Answer 129

Long run aggregate supply is determined by the state of technology, productivity, factor mobility and incentives. The LRAS curve is assumed to be vertical (i.e. independent of prices) and represents the normal capacity level of output for the economy.

Answer 130

The movement of people, especially workers, between countries. * **Immigration** refers to people entering a country. * **Emigration** refers to people leaving a country. * **Net migration** refers to the difference between the number of people entering and leaving a country.

Answer 131

A measure of efficiency = output per unit of input or output per person employed.

Answer 132

An economic model that shows flows of goods and services and factors of production between firms and households. The circular flow shows how national income or Gross Domestic Product is calculated.

Answer 133

Income represents a flow of earnings from using factors of production to generate an output of goods and services. For example, wages and salaries are a factor reward to labour and interest is the flow of income for the ownership of capital.

Answer 134

The value of a stock of assets such as housing, personal pensions, savings and many different forms of marketable (sellable) assets such as antiques.

Answer 135

njections are variables in an economy that add to the circular flow of income and include investment (I), government spending (G) and exports (X).

Answer 136

Withdrawals are variables in an economy that remove money flows from the circular flow of income and include saving (S), government taxation (T) and imports (M).

Answer 137

Total amount of goods and services demanded in the economy at a given time and price level. It is the sum of consumption expenditure, investment expenditure, government expenditure and net exports.

Answer 138

Total planned output of goods and services in an economy at a given time and price level.

Answer 139

Equilibrium means ‘at rest’ or ‘a state of balance’ - i.e. a situation where there is no tendency for change. At this point aggregate demand is exactly equal to aggregate supply.

Answer 140

Nominal national output adjusted for price changes, expressed at constant prices.

Answer 141

The proportion of any change in income that is spent rather than saved.

Answer 142

The change in total spending on imported products following a change in income. The higher is the marginal propensity to import, the greater is the outflow of extra income in the circular flow model. A high MPM reduces the size of the multiplier effect.

Answer 143

The change in total savings arising from a small change in household disposable income. If income rises by £100 and £30 is saved, then the marginal propensity to save = 0.3 (i.e. the change in saving/change in income)

Answer 144

The change in taxation following a change in income.

Answer 145

The sum of the marginal propensity to save + marginal propensity to tax + the marginal propensity to import.

Answer 146

A calculation of the degree to which injections into the circular flow of income cause changes in final national income. Multiplier (k) = change in real GDP (Y)/change in injections (J). The formula used to calculate the size of any change in final national income that results from an increase in injections. The formula is 1/1-mpw where mpw is the marginal propensity to withdraw, or alternatively the formula 1/1-mpc can be used.

Answer 147

A description of the multiplier effect which comes about because injections of new demand for goods and services into the circular flow of income stimulate further rounds of spending – in other words “one person’s spending is another’s income”. This can lead to a bigger eventual final effect on output and employment.

Answer 148

This is the ratio of a change in equilibrium real income to the injection that has brought it about. For example if a £1m injection into the circular flow results in a £2.5m increase in national income, the value of the multiplier is 2.5.

Answer 149

A rise in real GDP in a given time period. It is also known as short run growth and is depicted by the aggregate demand curve shifting to the right.

Answer 150

The trend growth rate – mainly determined by changes in the stock of available factor inputs and also improvements in productivity. Trend growth is represented by a rightward shift in the LRAS (or PPF boundary).

Answer 151

When the number of migrants coming into a country is higher than those leaving in a given time period – usually a year.

Answer 152

Value of the goods and services produced by all sectors of the economy; agriculture, manufacturing, energy, construction, the service sector and government.

Answer 153

This is a rise in the productive potential or the capacity of the economy. It is not yet actual growth until AD rises to use up that extra capacity.

Answer 154

Value of output of goods and services e.g. measured by GDP or an index of production in specific industry.

Answer 155

Productive capacity of the economy – boosted by high quality capital investment

Answer 156

How much output is produced for a given input (such as an hour of work

Answer 157

Estimates in which the element of variability due to seasonal influences, which may distort the data, has been removed. Affects data such as unemployment, retail sales and output from highly seasonal industries

Answer 158

Unexpected events that can affect both aggregate demand and supply e.g. unexpected changes in world oil prices, currency volatility and the effects of political instability

Answer 159

Short run growth is cyclical; the growth of real GDP is determined by aggregate demand (C+I+G+X-M) and also factors affecting short run aggregate supply (SRAS).

Answer 160

Growth that meets the needs of the present without compromising the ability of future generations to meet their own needs. Sustainable growth can continue without damage to the environment, or the exhaustion of non renewable resources.

Answer 161

The long run average growth rate – mainly determined by changes in the stock of available factor inputs and also improvements in productivity. Trend growth is represented by a rightward shift in the LRAS (or PPF boundary).

Answer 162

An unexpected event beyond the control of the country’s officials that has a large negative impact on its economy.

Answer 163

A negative output gap means that an economy has a large amount of spare productive capacity. When actual GDP is below estimated potential GDP.

Answer 164

Difference between actual and potential national output. A negative output gap means that an economy has a large amount of spare productive capacity.

Answer 165

A positive output gap means that an economy is working beyond its normal productive capacity, perhaps by workers working overtime and machines running long hours.

Answer 166

The long run average growth rate – mainly determined by changes in the stock of available factor inputs and also improvements in productivity. Trend growth is represented by a rightward shift in the LRAS (or PPF boundary).

Answer 167

A period of rapid economic expansion resulting in higher GDP, lower unemployment, rising inflation rates and rising asset prices.

Answer 168

Used to describe a severe recession which may become a prolonged downturn and where a nation’s real GDP falls by at least 10 per cent.

Answer 169

When an economy goes into recession twice without a full recovery in between.

Answer 170

How we expect the future to unfold – necessarily affected by the degree of uncertainty.

Answer 171

A prediction made about the likely future performance of an economy.

Answer 172

When a sustained period of low aggregate demand can lead to permanent damage to the supply side of the economy, for example because of high long-term unemployment.

Answer 173

The high point of the economic cycle beyond which a recession starts.

Answer 174

A period of at least six months when real GDP decline. Or defined as a broadly-based contraction in output, employment, investment and confidence

Answer 175

A phase of the economic cycle, after a recession/depression, during which real GDP starts to increase and unemployment begins to fall.

Answer 176

Unexpected events that can affect both aggregate demand and supply e.g. unexpected changes in world oil prices, currency volatility and the effects of political instability.

Answer 177

A fall in the rate of growth of an economy but not a full-scale recession.

Answer 178

A sustained decrease in real GDP and a persistent rise in unemployment

Answer 179

A slowdown in economic activity but which does not result in a recession.

Answer 180

A trade cycle refers to fluctuations in economic activities specially in employment, output and income, prices, profits etc.

Answer 181

The low point of the economic cycle beyond which a recovery starts.

Answer 182

The distribution of income is how incomes are spread across households within the population. A common measure of income inequality is the Gini Coefficient.

Answer 183

Long run improvements in broad measures of income per capita, education and health outcomes and reductions in extreme poverty, hardship and inequality.

Answer 184

Inflows of capital from foreign multinationals (MNCs) including takeovers and tangible investment in new factories and technology

Answer 185

A sustained increase in the general price level for goods and services.

Answer 186

Sustained growth of real national output whilst maintaining price stability.

Answer 187

Income per head of the population – a measure of average living standards e.g. Gross national income per capita = GNI/total population.

Answer 188

In macroeconomics, balanced growth occurs when output and the capital stock grow at the same rate. Also refers to balanced expansion of components of aggregate demand.

Answer 189

The annual balance between government spending and tax revenues. When G>T, there is a budget deficit and when G

Answer 190

When the outflows on the current account are exactly equal to the inflows.

Answer 191

Environmental economics studies the impact of environmental policies and devises solutions to problems resulting from them. The approach can either be prescriptive or incentive-based.

Answer 192

Income distribution is how income is divided up among all the citizens in a country. The most common measure of income distribution is the Gini Coefficient.

Answer 193

The degree to which income is distributed unequally in an economy or population; income inequality can be illustrated using a Lorenz Curve and measured using the Gini coefficient.

Answer 194

Occurs when there is a low positive inflation rate of between 1-3% and price changes that do occur have little impact on day-to-day decisions of people and businesses.

Answer 195

Growth that meets the needs of the present without compromising the ability of future generations to meet their own needs. Sustainable growth can continue without damage to the environment, or the exhaustion of non renewable resources.

Answer 196

The unemployment rate is the proportion of the economically active population who are unemployed.

Answer 197

Economic policy aimed at reducing a government's deficit (or borrowing). Austerity can be achieved through increases in government revenues -primarily via tax rises - and/or a reduction in government spending or future spending commitments.

Answer 198

Automatic fiscal changes as the economy moves through stages of the business cycle – e.g. a fall in tax revenues from the circular flow in a recession.

Answer 199

The annual balance between government spending and tax revenues. When G>T, there is a budget deficit and when G

Answer 200

Occurs when government spending is greater than tax revenues. Reducing the deficit can be achieved by tax increases or cuts in government spending or a period of GDP growth which brings about a rise in direct and indirect tax revenues.

Answer 201

Occurs when tax revenues exceed government spending. A surplus can be used to repay some of the national debt.

Answer 202

Also known as the monetary policy rate, it is the official lending rate for loans set by a nation’s central bank e.g. the Bank of England or the European Central Bank.

Answer 203

A tax on the profits made by companies, in the UK the main rate of corporation tax is 19% and is expected to fall to 18% by 2020.

Answer 204

The size of the deficit is influenced by the state of the economy: in a boom, tax receipts are relatively high and spending on unemployment benefit is low.

Answer 205

Deliberate attempts to affect the level and growth of aggregate demand using changes in government spending, direct and indirect taxation and borrowing.

Answer 206

Taxes levied on streams of income and profits such as income tax and corporation tax.

Answer 207

Exchange rates are the price of one country’s’ currency in relation to another.

Answer 208

The trade-weighted external value of a currency.

Answer 209

Indirect taxes levied on specific goods, typically alcoholic beverages, tobacco and fuels.

Answer 210

A relaxation of monetary policy means an attempt to use an expansionary monetary policy to boost aggregate demand, output and jobs – includes lower interest rates.

Answer 211

Policies that are designed to ‘switch’ expenditure from imports to domestically produced goods in order to improve the balance of payments and stimulate GDP

Answer 212

Changes in monetary policy or fiscal policy designed to gradually manage the level of aggregate demand and prices e.g. small changes in policy interest rates / taxation.

Answer 213

Fiscal austerity refers to decisions by a government to reduce the amount of borrowing (i.e. cut the size of a fiscal deficit) over time.

Answer 214

When government expenditure is higher than the revenue from taxes in a given year

Answer 215

A government's policy regarding taxation and public spending. It can be loose (with the emphasis on increased spending and lower tax revenue to boost economic activity, with the acceptance of a wider fiscal deficit) or tight (with the emphasis on cutting spending and raising extra tax revenue, resulting in a slower-growing economy.

Answer 216

Many governments seek to maintain a degree of balance between tax revenues and public sector spending. A balanced budget is one in which spending equal revenue.

Answer 217

Government measures, normally involving increased public spending and lower direct and/or indirect taxation, aimed at giving a positive jolt to economic activity.

Answer 218

A severe world-wide economic financial crisis beginning with the collapse of the investment bank Lehman Brothers on 15/9/2008 and resulting in bail outs and other fiscal measures to prevent the collapse of the world financial system. The crisis caused a global economic downturn and the greatest financial crisis since the Great Depression of the 1930s.

Answer 219

Spending by government on education, health care and defence & other public services.

Answer 220

Welfare reform introduced by the UK government in 2013 – which limits total benefits at £500 per week for a family and £350 per week for a single person with no children.

Answer 221

A tax on imports that may be ad valorem (%) or a specific tax (a set amount per unit imported).

Answer 222

Taxes on spending. Examples include excise duties on fuel, cigarettes and alcohol and Value Added Tax (VAT) on many different goods and services. Producers may be able to pass on an indirect tax – depending on price elasticity of demand and supply

Answer 223

The Bank of England has a CPI inflation target, which is currently 2 per cent.

Answer 224

An interest rate is the cost or price of borrowing, or the gain from lending, normally expressed as an annual percentage amount.

Answer 225

The rate of tax on the next unit (£1) of income earned. In the UK for example, the basic rate of income tax is 20% on earned income up to the higher tax rate income limit.

Answer 226

Central bank policies govern the supply of money and the interest rate in an economy in order to influence output, employment and prices. In the UK the policy is administered by the Bank of England.

Answer 227

Bank of England committee of nine people (including the Governor) that meets every month to review the economy and set monetary policy interest rates for the UK.

Answer 228

Changes in monetary policy designed to increase aggregate demand including lower policy interest rates and measures to increase the supply of credit.

Answer 229

The entire quantity of a country's commercial bills, coins, loans and credit.

Answer 230

If there is an initial injection (e.g. a rise in exports), then the final increase in aggregate demand and real GDP will be greater. The size of the multiplier coefficient is affected by the marginal rate of withdrawal / leakage from the circular flow of income.

Answer 231

A government's total outstanding debt - effectively what the government still owes from the budget deficits accumulated over time

Answer 232

An interest rate that is below zero. For real interest rates, this can occur when the inflation rate is higher than the nominal interest rate.

Answer 233

The OBR is a non-departmental public body funded by the Treasury, that the UK government established to provide independent economic forecasts and independent analysis of the public finances.

Answer 234

A reduced rate of Corporation Tax applied to profits from patents – designed to stimulate research and innovation and improve the supply-side of the economy.

Answer 235

The amount of income you can earn before you start paying income tax. It is currently £12,500 in 2019.

Answer 236

With a progressive tax, the marginal rate of tax rises as income rises. I.e. as people earn more income, the rate of tax on each extra pound goes up. This causes a rise in the average rate of tax.

Answer 237

When the marginal rate of tax is constant leading to a constant average rate of tax

Answer 238

The introduction of new money into the national supply by a central bank. In the UK the Bank of England creates new money to buy financial assets from financial institutions. Total planned QE in January 2017 totalled £445 billion.

Answer 239

Nominal rate of interest adjusted for inflation.

Answer 240

Measures taken by government to transfer income from some individuals to others.

Answer 241

With a regressive tax, the rate of tax paid falls as incomes rise – I.e. the average rate of tax is lower for people on higher incomes. Examples: Duties on tobacco and alcohol

Answer 242

Monetary policy and/or fiscal policy aimed at encouraging higher growth and/or inflation. This can include interest rate cuts, quantitative easing (QE), direct and indirect tax cuts and government spending increases such as higher infrastructure investment.

Answer 243

The structural deficit is that part of the deficit which is not related to the state of the economy. This part of the fiscal deficit will not disappear when the economy recovers.

Answer 244

Payments by the government to suppliers that reduce their costs. The effect of a subsidy is to increase supply and therefore reduce the market equilibrium price.

Answer 245

A target is an objective of government policy e.g. low inflation

Answer 246

The imposition of taxes on streams of income, commercial activities and wealth by the government.

Answer 247

The tax burden measures total tax revenues as a % of GDP.

Answer 248

Tax competition happens when a national government uses reforms to the tax system as a supply-side strategy to attract investment and jobs into their economy.

Answer 249

The time it takes for one change e.g. a change in interest rates to affect other variables e.g. consumer confidence and spending

Answer 250

How a change in interest rates affects the behaviour of economic agents and ultimately leads to changes in aggregate demand, employment and inflationary pressures.

Answer 251

A specific tax per unit sold e.g. the duty on a litre of fuel might be 80 pence.

Answer 252

The welfare cap is a limit on the amount that UK government can spend on certain social security benefits and tax credits - It excludes pensions and Jobseekers' Allowance

Answer 253

Government policy directed at encouraging competition in the private sector: e.g. the investigation of takeovers or restrictive practices, regulation of monopoly power

Answer 254

Where no single firm has a dominant position and where the consumer has plenty of choice when buying goods or services. There are few barriers to the entry of new firms.

Answer 255

The ease with which a business can enter a market in search of a profit. When barriers to entry are low, a market can grow, increasing competition between firms and creating new jobs.

Answer 256

Barriers to people moving from one area to another to find work.

Answer 257

Barriers to the movement of people between areas and between jobs.

Answer 258

Incentives can be used to make goods and services markets, as well as labour markets, work more efficiently and therefore creating greater productive capacity.

Answer 259

The transport links, communications networks, sewage systems, energy plants and other facilities essential for the efficient functioning of a country and its economy.

Answer 260

Workers having the wrong skills for available job vacancies. This can be overcome by giving labour transferable skills.

Answer 261

The poverty trap affects people on low incomes. It creates a disincentive to look for work or work longer hours because of the effects of the tax and benefits system.

Answer 262

Productive capacity of the economy – boosted by high quality capital investment.

Answer 263

How much output is produced for a given input (such as an hour of work).

Answer 264

These policies focus on reducing the size of the state and extending the role of market forces in allocating scarce resources. For example: Cutting government spending (including welfare) and borrowing, lower business taxes to stimulate capital investment spending, reducing income tax rates to improve work incentives

Answer 265

Relative poverty measures the extent to which a household's financial resources falls below an average income threshold for the economy.

Answer 266

When a business is not making full use of its available capacity – there are spare factors of production including land, labour and capital. When an economy has plenty of spare capacity, short run aggregate supply is elastic,and the output gap is negative.

Answer 267

When a government believes that active intervention in markets can help achieve increased productive capacity and competitiveness. Examples include: State investment in public services and critical infrastructure, a commitment to a minimum wage and/or living wage to improve work incentives & productivity in the labour market, higher taxes on the wealthy to fund public and merit goods.

Answer 268

Monetary policy and/or fiscal policy aimed at encouraging higher growth and/or inflation. This can include interest rate cuts, quantitative easing (QE), direct and indirect tax cuts and government spending increases such as higher infrastructure investment.

Answer 269

Growth that meets the needs of the present without compromising the ability of future generations to meet their own needs. Sustainable growth can continue without damage to the environment, or the exhaustion of non-renewable resources.

Answer 270

The Phillips Curve shows a trade-off between inflation and unemployment. A demand-side policy to reduce unemployment could conflict with price stability.

Answer 271

When a given change in interest rates affects different groups or different countries to a lesser or greater degree.

Answer 272

A trade-off implies that choices have to be made between different objectives of policy for example a trade-off between economic growth and inflation.