42 terms in 2
Aggregate Demand
Aggregate demand (AD) is the total spending on goods and services produced within an economy at different overall price
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Aggregate Supply
Aggregate supply (AS) represents the total output firms are willing to supply at different price levels. It includes sho
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Balance of Payments
The balance of payments (BoP) is an accounting statement recording all economic transactions between a country and other
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Bank of England
The Bank of England is the UK's central bank, operating independently (since 1997) from government. The Monetary Policy
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Boom
A boom is an expansion phase of the business cycle with rapid real GDP growth, falling unemployment, rising investment,
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Circular Flow
The circular flow of income is a model representing how money and goods flow in an economy. Firms pay wages to workers w
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CPI
The Consumer Price Index (CPI) measures inflation by tracking price changes in a basket of goods and services purchased
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Deflation
Deflation is a persistent fall in the general price level, where inflation is negative. Prices fall and the purchasing p
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Disinflation
Disinflation is a reduction in the rate of inflation. Prices continue increasing but at a slower pace. For example, infl
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Economic Growth
Economic growth is the annual percentage increase in real GDP, reflecting increased output capacity. Actual growth is th
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Exports
Exports are goods and services produced within a country but sold to foreign buyers. They represent demand for domestic
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GDP
Gross Domestic Product (GDP) is the market value of all final goods and services produced within a country's borders in
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GNI
Gross National Income (GNI) is the total income earned by nationals of a country, including income from investments abro
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Government Spending
Government spending (G) includes expenditure on goods and services (NHS, education, defence), investment (infrastructure
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Imports
Imports are goods and services produced in foreign countries but purchased by domestic residents and firms. They reduce
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Inflation
Inflation is a persistent rise in the general price level of goods and services, reducing the purchasing power of money.
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Injections and Withdrawals
Injections are income additions from outside the households-firms circuit: investment (I), government spending (G), and
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Interest Rates
Interest rates are the price of borrowing. The central bank (Bank of England) sets the base rate, influencing all other
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Investment
Investment (I) comprises business spending on capital goods (machinery, buildings, vehicles) to produce future output. I
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Marginal Propensity to Consume
Marginal propensity to consume (MPC) is the ratio of change in consumption to change in income. It shows how much of an
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Monetary Policy
Monetary policy involves central bank actions to control money supply and interest rates, aiming to achieve stable price
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Multiplier
The multiplier is the ratio of total change in national income to the initial change in autonomous spending. A multiplie
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Multiplier Effect
The multiplier describes how initial spending changes translate into larger output changes. The multiplier = 1/(1-MPC) w
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Net Exports
Net exports (X - M) equals exports minus imports. Positive net exports (exports exceed imports) contribute to AD; negati
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Nominal GDP
Nominal GDP measures gross domestic product using current-year prices. It grows whenever prices increase (inflation) or
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Phillips Curve
The Phillips curve shows the relationship between inflation and unemployment. The original inverse relationship (lower u
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Productivity
Productivity measures output produced per unit of input (labour, capital). Labour productivity (output per worker) is mo
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Real GDP
Real GDP measures gross domestic product using prices from a base year, eliminating the effect of inflation. It shows ho
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Recession
A recession is a contraction phase of the business cycle characterised by declining real GDP, rising unemployment, and f
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RPI
The Retail Price Index (RPI) measures inflation similar to CPI but includes housing costs such as mortgage interest paym
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2.2.2: Consumption
Consumption (C) is household spending on goods and services. It is the largest component of AD in most developed economi
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2.2.2: Consumption
Aggregate demand shifts result from changes in consumption (from income, wealth, confidence, interest rates), investment
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2.3.2: SRAS
Short-run aggregate supply (SRAS) shows the positive relationship between the price level and the quantity of output fir
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2.3.2: SRAS
Short-run AS shifts result from input cost changes (wages, raw material prices, energy), exchange rates, and tax rates.
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2.5.3: Output Gap
The output gap is the difference between actual real GDP and potential (full capacity) output. Positive gap (actual abov
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2.5.3: Output Gap
The business cycle describes regular patterns of economic expansion (boom), peak, contraction (recession), and trough. P
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2.6.5: Policy Conflicts and Trade-Offs
Policy conflicts arise because macroeconomic objectives (stable prices, full employment, growth, balanced trade) cannot
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2.6.5: Policy Conflicts and Trade-Offs
Macroeconomic objectives (growth, low unemployment, price stability, balanced payments) often conflict. Pursuing one may
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