Economics Theme 2 Flashcards
Economic Growth
An increase in an economy’s productive potential. Usually measured as the rate of change of the Gross Domestic Product (GDP) or GDP per capita.
Purchasing Power Parity (PPP)
An adjustment of an exchange rate to reflect the real purchasing power of two currencies.
Gross Domestic Product (GDP)
The total value of all the goods and servies produced in a country in a year.
Gross National Product (GNP)
GDP + Net Income from abroad
Inflation
A sustained increase in the average price level of an economy.
Disinflation
A fall in the rate of inflation (prices are rising more slowly).
Deflation
A fall in the average price level of an economy.
What is the Retail Price Index (RPI)
An index used to measure inflation that includes housing costs such as mortgage repayments.
Demand-pull inflation
An increase in the average price level caused by increases in AD.
Cost-push inflation
An increase in the average price level as a result of increased production costs such as a rise in wages or a fall in the exchange rate (imports more expensive).
What is the claimant count?
A measure of unemployment using the number of claimants of Job Seekers Allowance (JSA).
What is the ILO measure of unemployment?
A measure of those out of work in the last 4 weeks and ready to start in the next 2 weeks.
Unemployment
When a person who is willing and available to work but is not currently employed.
Underemployment
A situation in which a worker is employed, but wants to work more hours.
Real wage unemployment
A measure of people unwilling to work at the going wage rate.
Structural unemployment
A measure of workers who lose jobs in a declining industry and do not have the skills to join other industries.
Frictional unemployment
A measure of people between jobs.
Seasonal unemployment
A measure of people who have jobs only at certain times of the year.
What are the 4 components that make up the Balance of Payments current account?
- Trade in goods
- Trade in services
- Investment income
- Transfers
Aggregate Demand (AD)
The total planned expenditure on goods and services produced in an economy. ( C+I+G+(x-m) )
Aggregate Supply (AS)
The total planned output of goods and services in an economy.
Consumer Spending (C)
The spending by households on goods and services. (Makes up around 60% of AD).
Investment Spending (I)
An increase in the capital stock (creating assets that will generate income in the future). Forms around 10-15% of AD.
Fiscal Policy
The deliberate manipulation of government spending and taxation in order to influence the level of AD in an economy.
Wealth Effect
The effect on incomes or spending when asset values change
What are the 3 injections in the circular flow?
- Investment
- Government spending
- Exports
What are the 3 withdrawals from the circular flow?
- Savings
- Taxation
- Imports
The mulitplier
1/(1-MPC)
Marginal Propensity to Withdraw (MPW)
A measure of how much of any extra pound earned is saved, taxed or spent on imports.
Marginal Propensity to Consume
A measure of how much of each extra pound earned is spent within the economy.
Actual economic growth
An increase in real GDP.
Potential economic growth
An increase in the productive potential of an economy.
Output Gap
The difference between actual and potential GDP or growth in GDP.
What are the Macroeconomic Objectives?
Economic Growth (Strong and Sustained) Inflation (2%) Low Unemployment Balance of Payments equilibrium Balanced government budget More equal distribution of income
Fiscal Deficit
The amount by which government spending exceeds revenues.
Deregulation
The process of reducing government rules and restrictions on businesses.
Monetary Policy
Government policy that involves controlling the total amount of ‘money’ in an economy (the money supply). It involves the manipulation of interest rates, exchange rates and restrictions on the supply of money.
Supply-side policy
Government policy that aims to increase AS in an economy. e.g spending on education.
