Definitions Flashcards
Aggregate Demand (AD)
the total demand for a country’s goods and services at a given price level and in a given time period
Aggregate Supply (AS)
the total amount that producers in an economy are willing and able to supply at a given price level in a given time period
allocative efficiency
when consumer satisfaction is maximised
automatic stabilisers
forms of government spending and taxation that change automatically to offset fluctuations in economic activity
average propensity to save (APS)
the proportion of disposable income saved. It is saving divided by disposable income
average propensity to consume (APC)
the proportion of disposable income spent. It is consumer expenditure divided by disposable income
balance of payments
a record of money flows coming in and going out of an economy
capacity utilisation
the extent to which firms are using their capital goods
capital
man-made aids to production
circular flow of income
the movement of spending and income throughout the economy
claimant count
a measure of unemployment that includes those receiving unemployment-related benefits
consumer confidence
how optimistic consumers are about future economic prospects
consumer expenditure
spending by households on consumer products
consumer prices index
a measure of changes in the price of a representative basket of consumer goods and services. Differs from the retail price index (RPI) in methodology and coverage
corporation tax
a tax on firms’ profits
cost-push inflation
increases in the price level caused by increases in the costs of production
current acccount deficit
when more money is leaving the country than entering it, as a result of sales of its exports, income and current transfers from abroad being less than imports, income and current transfers going abroad
cyclical unemployment
unemployment arising from a lack of aggregate demand
deflation
a sustained fall in the general price level
demand-pull inflation
increases in the price level caused by increases in aggregate demand
developed economy
an economy with a high level of income per head
developing economy
an economy with a low level of income per head
direct tax
one that taxes the income of people and firms and that cannot be avoided
disposable income
income after taxes on income have been deducted and state benefits have been added
dissave
spending more than disposable income
distribution of income
how income is shared out between househoulds in a country
economic cycle
the tendency for economic activity to fluctuate outside its trend growth rate, moving from a high level of economic activity (boom) to negative economic growth (recession)
economic efficiency
where both allocative and productive efficiency are achieved
economic growth
in the short run, an increase in real GDP, and in the long run, an increase in productive capacity, that is, in the maximum output that the economy can produce
economically inactive
people of working age who are neither employed nor unemployed
exchange rate
the price of one currency in terms of another currency or currencies
exports
products sold abroad
deflationary
policy measures designed to reduce aggregate demand
discretionary fiscal policy
deliberate changes in government spending and taxtation designed to influence aggregate demand
Fiscal drag
People’s income being dragged into higher tax bands as a result of tax brackets not being adjusted in line with inflation
Fiscal policy
The taxation and spending decisions of a government
Frictional unemployment
Short-term unemployment occurring when workers are in-between jobs
Full employment
A situation where those wanting and able to work can find employment at the going wage rate
Government bond
A financial asset issued by the central or local government
Government spending
Spending by the central bank and local government on goods and services
Gross domestic product(GDP )
The total output of goods and services produced in a country
Human capital
Education, training and experience that a worker, or group of workers, possess(es)
Hyperinflation
An inflation rate above 50 per cent
Hysteresis
Unemployment causing unemployment
Imports
Products bought from abroad
Inflation
A sustained rise in the price level;the percentage increase in the price level over a period of time
Inflationary rise
The distortion of price list alas caused by inflation
Injections
Additions of extra spending into the circular flow of income
International labour organisation (ILO)
A member organisation of the Unites Nations that collects statistics on labour market conditions and seeks to improve working conditions
Investment
Spending on capital goods
Labour
The quantity and quality of human resources
Labour force
The people who are employed and unemployed,that is, those who are economically active
Labour force survey
A measure of unemployment based on a survey using the ILO definition of unemployment
Labour productivity
Output of a good or service per worker in a given time period
Leakages
Withdrawals of possible spending from the circular flow of income
Long-term unemployment
Unemployment lasting for more than a year
Macroeconomic equilibrium
A situation where aggregate demand equals aggregate supply and real GDP is not changing
Menu costs
The costs of changing prices due to inflation
Macroeconomics
Looks at the economy as a whole
Monetary policy
Central bank and /or government decisions on the rate of interest, the money supply and the exchange rate
Monetary policy Committee
A Committee of the Bank of England with responsibility for setting the interest rate in order to meet the government’s inflation target
Multiplier effect
The process by which any change in a component of aggregate demand results in a greater final change in real GDP
Net exports
The value of exports minus the value of imports
Net savers
People who save more than they borrow
Nominal GDP
Output measured in current prices and so not adjusted for inflation
Occupational immobility of labour
Difficulty of moving from one type of job to another
Output gap
The difference between an economys actual and potential real GDP
Overheating
The growth in aggregate demand outstripping the growth in aggregate supply, resulting in inflation
Price level
The average of the prices of all the products produced in an economy
Privatisation
Transfer of assets from the public to the private sector
Productive potential
The maximum output that an economy is capable of producing
Productive efficiency
Where production takes a place using the least amount of scarce resources
Productivity
Output, or production, of a good or service per worker
Progressive tax
A tax that takes a higher percentage from the income of the rich
Protectionism
The protection of domestic industries from foreign competition
Quota
A limit on imports
Rate of interest
The charge for borrowing money and the amount paid for lending money
Real disposable income
income after taxes on income have been deducted and state benefits have been added and the result has been adjusted to take into account changes in the price level
Real GDP
The country’s output measured in constant prices and so adjusted for inflation
Real interest rate
The nominal interest rate minus the inflation rate
Recession
A fall in real GDP over a period of six months or more
Reflationary
of policy measures designed to reduce aggregate demand
Regressive tax
A tax that takes a greater percentage from the income of the poor
Retail prices index RPI
Measure of inflation that is used for adjusting pensions and other benefits to take account of changes in inflation and frequently used in wage negotiations. Differs from the consumer prices index CPI
Retained profits
Profit kept by firms to finance investment
Saving
Real disposable income minus spending
Savings ratio
Savings as a proportion of disposable income
Shoeleather costs
Costs in terms of the extra time and effort involved in reducing money holdings.
Structural unemployment
Unemployment caused by the decline of certain industries and occupations due to changes in demand and supply
supply side policies
policies designed to increase aggregate supply by improving the efficiency of labour and product markets
sustainable economic growth
economic growth that can continue over time and does not endanger future generations’ ability to expand productive capacity
target savers
people who save with a target figure in mind
tariff
a tax on imports
trade deficit
the value of imports exceeding the value of exports
trade surplus
the value of exports exceeding the value of imports
trend growth
the expecting increase in potential output over time. it is a measure of how fast the economy can grow without generating inflation
unemployment rate
the percentage of the labour force who are out of work
unemployment
a situation where people are out of work but are willing and able to work
voluntary export restraint (VER)
a limit placed on imports from a country with the agreement of that country’s government
World Trade Organisation(WTO)
an international organisation that promotes free international trade and rules on international trade disputes
