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OCR Definitions for Paper 2

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Term
Definition
Economic growth   Growth in GDP (value of output).  
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Gross Domestic Product (GDP)   Total value of goods and services produced in an economy in a year.  
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GDP per capita   The total value of goods and services in a country divided by the population.  
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Investment   Spending on capital goods.  
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How changes in technology cause economic growth   Better technology leads to better quality of capital.  
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Size of workforce   A larger workforce means there is more labour (a factor of production).  
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Education and training   An increase in the skills of the workforce will improve the quality of labour.  
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Availability of natural resources   If there is the discovery of more natural resources, it enables an economy to grow.  
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Employment   Use of labour to produce goods and services.  
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Unemployment   When workers are willing and able to work but unable to find employment.  
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Claimant Count   A measure of unemployment counting the number of people who are claiming unemployment benefits.  
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The unemployment rate   The percentage of the workforce who are unemployed.  
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Cyclical unemployment   Unemployment when there is a lack of demand in the economy.  
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Frictional unemployment   Unemployment when workers are in between jobs.  
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Seasonal unemployment   Unemployment when there is a lack of demand during a certain period of the year.  
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Structural unemployment   Unemployment caused by a permanent decline in an industry.  
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Distribution of income   How incomes are shared out between individuals and households.  
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Income   The reward for a service provided by a factor of production.  
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Wealth   A stock of assets at a point in time.  
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Price stability   When the general level of prices stays constant.  
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Inflation   A sustained increase in the general price level.  
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CPI (Consumer price index)   Method used to calculate the rate of inflation.  
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Nominal value   The value of something in money terms.  
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Real value   The value of something when inflation is taken into account.  
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Government spending   Total amount of money spent by the government in a given period of time.  
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Government revenue   A source of revenue for government spending.  
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Direct taxes   A tax on income or wealth.  
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Indirect taxes   A tax on spending.  
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Balanced government budget   When tax revenue is equal to government spending.  
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Budget surplus   When tax revenue is greater than government spending.  
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Budget deficit   When tax revenue is less than government spending.  
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Fiscal policy   Use of government spending and taxation to have an impact on the economy.  
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Progressive taxes   Tax that takes a higher percentage of tax the higher the income.  
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Monetary policy   A policy aimed to control the total money supply in the economy.  
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Supply side policies   Policies that increase the productive potential of an economy.  
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Positive externalities   Beneficial effect of an economic activity on a third party.  
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Negative externalities   Harmful effect of an economic activity on a third party.  
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Incidence of tax   how the burden of tax is divided between consumers and producers.  
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Subsidies   Grant given by government to producers to encourage production of a good.  
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State provision   Expenditure for provision of public goods.  
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Legislation   Laws imposed, meaning action can be taken against those who break the rules.  
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Regulation   Rules to control/reduce negative behaviour by consumers and producers, that are enforced by legislation.  
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Information provision   Ensuring economic agents have access to the information they need.  
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Exports   Goods and services produced in one country and sold to another country.  
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Imports   Good and services that are brought into the country, when they have been produced elsewhere.  
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Free trade agreement   International trade without any restrictions such as trade barriers.  
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European Union   A political and economic union of member states that are located primarily in Europe.  
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Balance of payments   This records all the financial transactions between one country and other countries.  
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Current account deficit   When goods and services that have been imported are greater than those exported.  
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Current account surplus   When goods and services that have been exported is greater than those imported.  
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Exchange rate   The price of one currency in terms of another currency.  
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Currency   The system of money used in a country or group of countries.  
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Globalisation   The increasing integration of economies internationally, an expansion of world trade.  
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Development   The process of improving people’s standard of living and wellbeing over time.  
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Developed country   These are countries with a high GDP per capita and are industrialised.  
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Developing economy   These are countries that rely on labour- intensive industries and have a low GDP per capita.  
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