definitions Flashcards
the multiplier
the process by which any change in a component of aggregate demand results in a greater final change in real GDP
MPS (marginal propensity to save)
the proportion of additional income that is saved by households
MPC (marginal propensity to consume)
the proportion of disposable income that households devote to consumer spending (expenditure)
APC (Average propensity to consume)
the proportion of disposable income spent in a economy. CONSUMER EXPENDITURE / DISPOSABLE INCOME
APS ( average propensity to save )
the proportion of disposable income saved in an economy. SAVINGS / DISPOSABLE INCOME
accelerator effect
a rise in national income can lead to a proportionally greater final rise of investment
aggregate demand
The total demand for a countries, goods and services at a given price level, and in a given time period
aggregate supply
The total amount that produces in an economy are willing and able to supply at a given price level in a given time period
balance of payments
 A record of the money flows into an out of a country in a year
claimant count
A monthly count of people claiming unemployment benefits. JSA in the UK
Consumer price index
A measure of the changes in the price of a representative basket of consumer goods and services differs from RPI methodology and coverage
Current account
Trade in goods, trade in services, income flows, and transfers on the balance of payments
deflation
A situation in which the average level of prices falling (negative inflation)
Circular flow of income
A model of the movements of spending and income throughout the economy which shows the impact of injections and withdrawals on real GDP
disposable income
Total personal income minus total personal taxes
Economic growth
In the short run, an increase in real GDP. In the long run and increase in productive capacity.
economic stability
Avoiding volatility in economic growth rates, inflation, employment, and exchange rates
Exchange rate
The value of one currency in terms of another currency
Expenditure method
Add up all the spending on goods and services in a year
exports
The value of goods and services sold abroad
Full employment ( keynesian)
Full employment is achieved when there is no cyclical unemployment
Full employment ( monetarist )
Full employment is the level of involuntary unemployment that the central bank judges to be acceptable or necessary to keep inflation low
GDP
The value of output produced in a country in a year
Government spending
Current expenditure by the central government and local government on goods and services
Imports
The value of goods and services bought from abroad
income method
add up all the factor incomes earned in a country in a year
income redistribution
The transfer of income from the rich to poor to ensure greater access to the necessities
inflation
Sustained rise in the general price level
injections
Additions of extra spending into the circular flow of income in the form of government spending investment and exports
investment
Business and government spending on capital goods
keynesian school
A group of economists believe that the macroeconomy can settle at an equilibrium that is below full employment
Leakages
Withdrawals of possible spending from the circular flow of income in the form of savings, taxation and imports
macroeconomic equilibrium
A situation where aggregate demand equals aggregate supply and real GDP is not changing
Marginal propensity to import
The proportion of an increase in disposable income household spend on imported goods and services
Marginal propensity to tax
The proportion of an increase in disposable income that households pay As tax
monetarist school
A group of economists, believe that the macroeconomy always adjusts rapidly to a full employment level of output
net exports
The value of exports minus the value of imports
Output method
Add up the total value, added or final value of goods and services produced in a year
Price level
The average prices of all the product produced in an economy
Real GDP
The country output measured in constant prices and so adjusted for inflation
Shock
A shock is an unexpected or unpredictable event that affects economy, either positively or negatively
Unemployment
People without a job who have been actively seeking work in the past four weeks and available to start working in the next two weeks
equation for multiplier
K = 1/MPW
MPW = MPS + MPT + MPM
4 main macroeconomic objectives
- low inflation
- low unemployment
- stable balance of payments
- economic growth
Development
A process that leads to an improvement in peoples economic well-being, and an increase in quality of life
Disinflation
A decrease in the rate of inflation
Economic development
A process that leads to improvement in peoples economic well-being, and increasing quality life
economically inactive
People without a job who have not actively sought work in the last four weeks, and are not available to start work in the next two weeks
