ECON PAPER 2 - definitions

• NATIONAL INCOME

  total spending on goods and services
• CIRCULAR FLOW OF INCOME:

  money flows around the economy between consumers / households and firms
• PURCHASING POWER PARITIES

  the rate at which the currency of one country would have to be converted into that of another country to buy the same round of goods and services in each country, taking into account different costs of living
• CLAIMENT COUNT

  the number of people claiming unemployment benefits / jobseekers allowance
• INCOME

  a flow of money in the form of salaries / wages / dividends / profits

  can create wealth
• REAL

  adjusted for inflation / purchasing power of income
• DEFLATION

  a decrease in general level prices
• UNDEREMPLOYMENT

  when a worker is working fewer hours than they would like to work, underutilised in terms of ability
• Real GDP

  value of total output

  final amount of final goods and services

  total income / expenditure
• DIRECT TAX

  tax on income / earnings

  tax on business profits
• NET TRADE

  (X-M)

  Difference between total value of country's exports and imports
• CONSUMER PRICE INDEX

  representative basket of goods and services used by average households, compared to base year

  inflation rate measures change in average prices in an economy over a year
• GDP

  total value of goods and services produced in an economy
• RECESSION

  negative economic growth / falling GDP for two consecutive quarters
• AGGREGATE DEMAND

  total amount of planned spending on goods and services at any price level in an economy

  AD = C + I + G + (X-M)
• BUDGET DEFICIT

  when government spending exceeds tax revenue
• COMPARATIVE ADVANTAGE

  countries specialise in goods in which they have a lower opportunity cost in producing
• CURRENT ACCOUNT

  exports of goods and services minus imports of goods and services
• ABSOLUTE POVERTY

  lacking basic necessities to survive
• RELATIVE POVERTY

  in comparison to the rest of the country
• INJECTION

  Money flowing into the CFI of economy
• SPARE CAPACITY

  equilibrium level of output can occur below the full employment level of output / economy is not operating at full capacity / employment
• PRICE LEVEL

  average of the current prices of goods and services in the economy
• INDEX NUMBER

  an economic data figure that reflects price / quantity compared with the base year
• WEALTH

  a stock of assets / value of assets

  can create income
• INFLATION

  increase in the average price level
• INTEREST RATE

  cost of borrowing & reward for saving
• GROSS NATIONAL INCOME

  GDP plus net income paid into the country by other countries for things such as dividends or interest
• BALANCED GOV BUDGET

  gov sending = tax revenue
• MULTIPLIER EFFECT

  where an initial change in AD can have a greater final impact on equilibrium national income
• AUTOMATIC STABILISERS

  government spending/taxation vary without direct government

  decision-making over the course of the economic

  cycle, built into the means-tested welfare support progressive tax bands
• DISCRETIONARY FISCAL POLICY

  deliberate/direct alteration of government expenditure/taxation

  designed to achieve its economic objectives
• NOMINAL

  not adjusted for inflation / figures at current prices / market value
• SUBJECTIVE HAPINESS

  happiness that may differ between individuals

  as real incomes rise happiness increases
• EXCHANGE RATE

  the value / price of one currency in terms of another
• INVESTMENT

  an increase in capital stock of the economy to raise productivity / LRAS