Notesale: Turn your study into money

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This occurs when the production and consumption of a good or service has an
effect upon a third party
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A good that will be undersupplied by the market and therefore, underconsumed; these g&s are over-priced and under-provided to the market
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The production and consumption of a good has an external cost to society
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These goods are over provided and under priced in the market
place
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This represents the misallocation of society’s resources; the extra units that get
produced beyond the socially optimal level in a negative externality or the too
few units that get produced compared to the socially optimal level in a positive
externality
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Public goods have two
essential characteristics: non-rivalries and non-excludable
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One condition for a public good; a good is non-excludable if it is impossible to
stop other people consuming it once it is provided
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The lack of a pricing mechanism for a common access resource means that the
resource will be overused/degraded/depleted as a result of activities of
producers and consumers who do not pay for the resource used
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The ability of the environment and the economy to continue to produce and
satisfy needs and wants into the future; sustainability depends crucially on
preservation of the environment over time
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When a party in the economic transaction possesses more information than the
other party
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Monopolies can
distort competition and charge a higher price and provide at a lower quantity
than a competitive market
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1

The level of overall economic activity
English
Definition
National income
It is the value of all the goods and services produced in an economy in a

given time period, normally one year
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National expenditure
It is what a country spends, as contrasted with national product, which is

what it produces
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It measures the wealth of an economy
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Income (GNI)

Nominal GDP
Measured at current prices

Real GDP
Measured at constant prices
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Per capital GDP
GDP/population

indicator of a country standard of living
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Green GDP = GDP- environmental costs of production
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- measured by changes in real GDP
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Recovery
Occurs when GDP and Unemployment are moving back from their slump

towards normal levels
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Depression
It is a prolonged recession
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2 Aggregate demand and aggregate supply

English
Aggregate demand


Investment

Price level

Aggregate supply

Short-run aggregate
supply

Long-run aggregate
supply


Full employment


Natural rate of
unemployment
Macroeconomic
equilibrium
Inflationary gap



Recessionary gap




















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AD=C(consumption)+I(investment)+G(government spending)+NX (X-M:
export-import)
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The general level of prices in an economy
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An upward sloping curve illustrating that if the average price level increases,
firms will be offering more output (because money wages are assumed fixed)
A vertical line at the economy's potential level of output,
illustrating that in the long run, the level of real output is Independent of
prices
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when every worker available for employment has a job
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Macroeconomic equilibrium in the short run exists at the level of real output
at which AD is equal to SRAS
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(When actual equilibrium output is greater than potential (full employment)
output
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(When equilibrium output is below the potential (FE) level of output
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- adult (16-65 in UK)
- actively seeking a job

% of the labour force that is unemployed
n of people unemployed/ labour force
Situation where there the labour market is in equilibrium
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Workers who are nominally employed but whose contribution to output is so
small as to be negligible
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U that results due to a long term decline for a particular product,
thus there is a decline in the demand for labour
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U that results as some people work only part of the year
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k
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increase in the overall price lever in a national economy
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Causes:
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Cost-push ↓SRAS
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A slowing in the rate of inflation
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Indicator of how the price level changes in a national economy
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↑Same
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AD rising faster than SRAS
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Due to a decrease of SRAS
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SR - Inverse: decrease in U will result to an increase In inflation and vice versa
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It is an increase in a country’s capacity to
produce
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•Increase in the efficiency of existing resources
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Refers to Increase in real GDP through time
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Shift outwards of the PPC
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Refers to the n of people living below the minimum income necessary to
satisfy basic physical needs
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The proportion of the population that is poor in comparison with the
consumption of the general population
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It is a tax imposed upon expenditure
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When a higher-income household pays proportionately more than a lowerincome household
It is used to redistribute income from higher income earners to low income
earners
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Indirect taxes are regressive taxes
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The ratio of the tax over the tax base (which can be income or spending)
(Total tax paid/income) x100

Average rate of tax


Marginal rate of tax (Change in total tax paid/change in income) x100

Lorenz Curve
Illustrates the distribution of income in an national economy
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ex
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CPI
Indicator of how the price level changes in a national economy
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2
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They include fiscal policy and monetary policy
Refers to the manipulation of the level of government spending (G) and
taxation (T) in order to affect AD
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To correct a recession
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To decrease inflation
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National debt
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The reduction in private investment that results from an increase in interestrate due to an increase in government borrowing
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Higher the MPS, lower the multiplier, and
lower the MPS, higher the multiplier
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Formula: MPC/(1-MPC)

Tax Multiplier



Marginal propensity MPC= ∆C/∆Y
to consume
MPC + MPS = 1

Marginal propensity MPS=∆S/∆Y
to save
MPC + MPS = 1

Disposable income Income left after tax
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Based on the

sticky wage theory
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4
Monetary policy

English
Monetary policy


Central Bank


Expansionary monetary
policy

Contractionary monetary
policy

Interest rate

Monetarism




2
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Supply-side policies


Interventionist supplyside policies

Infrastructure


Human capital


Market-based supply
side policies

Privatisation

Deregulation




Policies aimed to increase AS in order to affect growth, employment and
inflation
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To increase AD of an economy that is in or about to enter recession (to
close a deflationary gap)
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Price of money, reward for savings, cost of borrowing
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Based on the flexible wage theory
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Physical capital, typically financed by governments, which facilitates
economic activity
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These policies focus on allowing markets to operate more freely, with
minimal government intervention
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If governments have placed many regulations on the operations of
business then this may increase their costs of production, thereby
reducing potential output in the economy

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