Notesale: Turn your study into money

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Unit Two Definitions (SL):…
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Absolute poverty
A situation where a household’s income is less than $1
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Actual growth
An increase in the amount of goods and services produced by an economy
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Recession = T down, G up
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Budget deficit
G>T
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Requires a PSNCR which increases the national debt
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Contractionary fiscal policy
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Business/Trade cycle
The periodic or regular fluctuations in national income/economic activity/GDP
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Capital Spending
Capital spending includes infrastructure spending such as new motorways and roads,
hospitals, schools and prisons
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Consumption
C
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The total of all household spending in the economy
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Cost push inflation decreases AS
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Helps decrease AD
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Increases the cost of borrowing
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Crowding out
A budget deficit financed by borrowing will decrease the amount of funds in bank
deposits etc
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This decreases AD (by reducing Investment and
Consumption)
Current Government Spending
This is spending on state-provided goods & services that are provided on a recurrent basis
every week, month and year
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Deflation
Sustained percentage fall in the general price level
Deflationary gap (negative output gap)
Occurs when real output is below the full employment level of output
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Disinflation
A decrease in the rate of inflation
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Disposable income
The money individuals have left over after income tax has been deducted from they
salary
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Examples,
Income Tax
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The spread of incomes between those paid the highest incomes and those paid the lowest
incomes
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Economic growth
The growth of real output in an economy overtime
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Exchange rate
The strength of one country’s currency measured in terms of another country’s currency
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Expansionary fiscal policy
G up and/or T down
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Expansionary monetary policy
I/r down
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Helps increase AD
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Factors of production
Land, Labour, Capital and Enterprise
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Gini Index
Measures the area between the diagonal line and the Lorenz Curve and represents it as a
percentage of the whole area under the diagonal line
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Range between 0 and 1
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1 = complete inequality
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The amount of money spent by the government on
health, education etc
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GDP
The value of all goods and services produced by an economy in a year (generated by
factors of production located in that country)
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Nominal GDP
The value of all goods and services produced by an economy in a year
Real GDP
The value of all goods and services produced by an economy in a year adjusted for
inflation
(Real) GDP per capita
(Real) GDP/population, the measure of the output of an economy in one year, per head
of the population (adjusted for inflation)
Gross National Income
GNI measures the goods and services produced by factors of production owned by
residents of a country i
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country A’s GNI is the goods and services produced by its
factor of production which are located in country A and those located abroad
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Inflation
Sustained percentage increase in the general price level
Measuring inflation
Calculated using the CPI
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Each good is given a weight
determined by the percentage of expenditure on that particular good
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The CPI uses an index to record the changes in
inflation
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Indirect tax
A tax on expenditure
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Index
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The purpose is to make it
easier to see what is happening to large numbers
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Inequity in the distribution of income
The belief that there is inequality in the distribution of income for reasons that are
unfair/unjust
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Occurs when real output is above the full employment level of output
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Interest rates
The cost of borrowing money
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Interventionist Supply Sided Policies
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SSPs
include Investment in Human Capital
Investment
I
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The spending by firms on capital equipment, adding to the capital stock of an economy
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Injections
I, G and X are injections into the circular flow
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Lorenz Curve
A graphical way of depicting the distribution of income within a country
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The curve shows the percentage of income earned by any given percentage of the
population
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Two types – Keynesian and Monetarists (which is vertical)
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Market Based Supply Sided Policies
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Minimum wage
A wage rate below which an employer cannot pay an employee
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Monetarist’s inflation
Any increase in the money supply that is not backed up by an increase in GDP will lead
to inflation
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Net exports (X-M)
The smallest component of AD
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If X > M then it is an injection
into the economy
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Output gaps
Positive output gap = when real output/GDP is above the potential level of output
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Inflationary
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Occurs in a slump
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Potential growth
An increase in the amount an economy can produce (increase in PPF)
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The greater the units of outputs per unit of input
the greater the productivity
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Public sector
Organisations which are run by the government
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Real Wages
Wages are the payment for labour
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Recession
Two consecutive quarters of negative economic growth
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Defined as household income below 50% of the median
household income
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RPI
Retail price index
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It weighted
prices in order to assess the significance of their changes
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Savings are a leakage from
the circular flow of income
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Successful supply side policies
shift the LRAS curve outwards, increasing potential output
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Sustainable development
Present development that allows future generation to access resources for further development
Transfer payments
A payment made by the government to individuals to redistribute income
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g
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Wealth effect
An increase in wealth will lead to an increase in consumption
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Types of tax
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Progressive
Corporation tax – a tax on companies’ profits
Indirect tax
A tax on expenditure
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Regressive
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Regressive tax
Takes a proportionally smaller percentage of income as income rises
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Rate of unemployment
The % of the labour force that is unemployed
Level of unemployment
The number of people in the labour force who are unemployed
Natural Rate of Unemployment
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It is usually made up of frictional, structural and
seasonal unemployment
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Types of unemployment
Structural unemployment
Caused by a change in the structure of the economy which causes a mismatch between
the skills of those out of work and the skills needed to fill the available vacant job
opportunities
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Types of structural
unemployment; technological, changes in the geographical location of industries and
changes in the demand for a particular labour skill
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Natural unemployment
Proportion of the workforce who remain unemployed when the labour market is in
equilibrium
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Frictional/search unemployment
Time spent whilst workers leave one job and find another
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Seasonal unemployment
Unemployment caused by the changing of the seasons
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The rate of unemployment that exists when the labour market is in equilibrium (no
cyclical or real wage unemployment)
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NAIRU (Non accelerating inflation rate of unemployment)
The rate of unemployment that exists when the labour market is in equilibrium (no
cyclical or real wage unemployment)
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Full employment
The level of unemployment at which all those who wish to work have found a job
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Counts those who looked for work in the
last 4 week and are available for work in the next 2 weeks
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Provides international comparisons because it
is used internationally (internationally recognised, where claimant count is not)
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Age range 18 – 60
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Unit Two Definitions (HL):…
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No trade off between inflation and unemployment
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Natural rate of unemployment
The rate of unemployment when the economy is at full capacity and where the labour
market is in equilibrium (only some frictional and voluntary unemployment exist)
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Formulas for the multiplier:
A
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1/MPS + MPM + MPT (MPW)
Short Run Phillip’s Curve
Represents the trade off between inflation and unemployment

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