Key Terms 11 - Economic Performance Flashcards
Demand Side
Relates to the impact of changes in aggregate demand on the economy. Associated with Keynesian economics.
Supply Side
Relates to changes in the potential output of the economy, which is affected by the available factors of production, e.g. changes in the size of the labour force, and the productivity of labour.
Trend Growth Rate
The rate at which output can grow, on a sustained basis, without putting upward or downward pressure on inflation. It reflects the annual average percentage increase in the productive capacity of the economy.
Economic Cycle
Upswing and downswing in aggregate economic activity taking place over 4 to 12 years.
Actual Output
Level of real output produced in the economy in a particular year - not to be confused with the trend level of output, which is what the economy is capable of producing when working at full capacity. Actual output differs from the trend level of output when there are output gaps.
Output Gaps
Show the level of actual real output in the economy either higher or lower than the trend output level.
Positive Output Gap
The level of actual real output in the economy is greater than the trend output level.
Negative Output Gap
The level of actual real output in the economy is lower than the trend output level.
Involuntary Unemployment
Occurs when workers are willing to work at current market wage rates but there are no jobs available.
Voluntary Unemployment
Occurs when workers choose to remain unemployed and refuse job offers at current market wage rates.
Frictional Unemployment
Unemployment that is usually short term and occurs when a worker switches between jobs.
Structural Unemployment
Long-term unemployment occurring when some industries are declining, even though other industries may be growing. Also occurs within a growing industry if automation reduces the demand for labour, and when production requires new skills not possessed by the workers who lose their jobs. Structural unemployment is associated with the occupational and geographical immobility of labour.
Cyclical Unemployment
Unemployment caused by a lack of aggregate demand in the economy, occurring when the economy goes into a recession or depression
Deindustrialisation
The decline of manufacturing industries, together with coal mining.
Seasonal Unemployment
Unemployment arising in different seasons of the year, caused by factors such as the weather and the end of the Christmas shopping period.
Real Wages
The purchasing power of the nominal (or money) wage; for example, real wages fall when inflation is higher than the rise in the nominal wage rate and real wages rise when the nominal wage rate increases more rapidly than inflation.
Real-Wage Unemployment
Unemployment caused by real wages being stuck above the equilibrium market-clearing real wage.
Equilibrium Unemployment
Exists when the economy’s aggregate labour market is in equilibrium. It is the same as the natural level of unemployment.
Natural Rate Of Unemployment
The rate of unemployment when the aggregate labour market is in equilibrium.
Demand-Pull Inflation
A rising price level caused by an increase in aggregate demand, shown by a shift of the AD curve to the right.
Cost-Push Inflation
A rising price level caused by an increase in the costs of production, shown by a shift of the SRAS curve to the left.
Quantity Theory Of Money
The oldest theory of inflation, which states that inflation is caused by a persistent increase in the supply of money.
Phillips Curve
Based on evidence from the economy, shows the apparent relationship between the rate of inflation and the rate of unemployment. Now known as ‘the short-run Phillips curve’.
