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Economics 2.5.3
Economics- Edexcel 2.5.3
| Term | Definition |
|---|---|
| boom | period when the rate of growth of real GDP is fast and higher than the estimated long term trend |
| depression | prolonged and persistent downturn and where a nation’s GDP falls by atleast 10 percent |
| recession | when an economy experiences 2 consecutive quarters of negative real GDP growth meaning there is a contraction in the real value of goods and services produced |
| recovery | phase after recession when real GDP starts to increase from the low point and unemployment begins to fall |
| slowdown | weakening / softening of the rate of growth, real GDP is still rising but increasing at a slower rate |
| trough | low point of economic cycle beyond which a recovery starts |
| causes of recession | external events or shocks/tightening of monetary or fiscal policy/fall in asset prices or supply of credit/drop in business and consumer confidence |
| why does higher interest rates lead to a recession? | more expensive loans and a fall in demand for consumer credit |
| why does higher taxation or cuts in government spending lead to a recession? | lower real disposable incomes |
| austerity | a set of economic policies a government imposes to control public sector debt |
| precautionary saving | saving (non-expenditure of a portion of income) that occurs in response to uncertainty regarding future income |
| recession caused by inward shift of AD | AD decreases leading to an increase in spare capacity, rising negative output gap and fall in real GDP(both neoclassical and Keynesian diagram) |
| recession causes(diagrams) | inward shifts of AS or AD |
| stagflation | persistent high inflation combined with high unemployment and stagnant demand in a country's economy |
| uncertainty | the situation where future outlook for the economy is unpredictable |
| what does uncertainty do to households? | job & income insecurity/prospect of pay cuts to protect jobs/real value of savings/access to credit/future for house prices |
| what does uncertainty do to businesses? | revenue/low confidence/cancelled or postponed investment |
| benefits from falling UK property prices | more affordable to first time buyers/improves geographical mobility of labour/less mortgage debt increases people’s disposable incomes/reduces demand-pull and cost-push inflationary risk(less pressure on wage rises) |
| risks from falling UK property prices | fall in household net worth leads to a decline in consumer demand & GDP growth (higher risk of recession)/less housebuilding means loss of jobs/UK housing stock continues to age without new homes/reduction in government tax |
| impact of recession depends on | business profits and capital investment(business fail & investment declines)/unemployment/government finances/inflation |
| long term economic effect of a recession | rising structural long-term unemployment & risk of regional economic decline/low rates of investment reduces size of capital stock/ageing capital inputs have negative impact on growth of labour productivity |
| long term social effects of a recession | falling real wages hit living standards and reduces AD/widens inequality of income, increases relative poverty & social deprivation/increases stress-related chronic illnesses/loss of social cohesion & threats to democratic institutions |
| hysteresis | an event in the economy that persists into the future, even after the factors that led to that event have been removed |
| hysteresis recession | when economy is disabled by recession there’s a risk of permanent loss of national output, e.g. loss of productive capacity, high rates of structural unemployment cause shrinking labour force |
| creative destruction | the process of innovation and technological change that leads to the destruction of existing economic structures, such as industries, firms, and jobs |
| depression results from | collapse in private sector demand, leads to sharp fall in employment with a resulting drop in real household income and spending power |
| signs that a recession turns to a depression | sudden stop/collapse in employment/negative multiplier effects/businesses cut investment/growing business failures |
Created by:
jessharris
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