Keywords Flashcards
Economic growth
The increase in the potential level of real output the economy can produce over a period of time
PPF/PPC curve
a curve depicting the various combinations of two products that can be produced when all the available resources are fully and efficiently employed
GDP
the sum of all goods and services, or level of output, produced in an economy over time
Inflation
a persistent or continuous rise in the average price level
Disinflation
when the rate of inflation id falling but still positive and the price level is rising slower than previously
Deflation
a persistent or continuing fall in the average price level
Hyperinflation
a rapid and out of control rise in the average price level
Balance of payments
a record of all the currency flows into and out of a country in a particular time period
Imports
goods or services produced in other countries, sold to residents of this country
Exports
domestically produced goods or services sold to residents of other countries
Current account
measures all the currency flows into and out of the country in a particular time period in payment for exports and imports together with income and transfer flows
Surplus
occurs when government spending is less than government revenue
Deficit
occurs when government spending is more than government revenue
Unemployment
when not all of those who are willing to work and able to work are employed
LFS
a quarterly sample survey of households in the UK. provides information on the labour market. gets information on personal circumstances and labour market status during a period of 1-4 weeks
Claimant count
the method of measuring unemployment according to those people who are claiming unemployment-related benefits
Structual unemployment
long term unemployment occurring when industries are declining. also happens within a growing industry if automation reduces the demand for labour. associated with occupational and geographical immobility of labour
Fiscal unemployment
unemployment which is usually short term and occurs when a worker switches between jobs. also known a transitional unemployment
Cyclical unemployment
unemployment caused by a lack of aggregate demand and occurs when a country goes into a recession or a depression
AD
C+I+G+(X-M)
Aggregate demand
the total planned spending on real output produced within the economy
SRAS
aggregate supply when the level of capital is fixed, though the utilisation of existing factors of production can be altered so as to change the level of real output
LRAS
aggregate supply when the economy is producing at its production potential. if more factors become available or productivity rises, the curve shifts to the right
Index numbers
a number used in an index to enable accurate comparisons over time to be made.
Base number
normally 100.
Index numbers formula
(number in current year/number in base year) X 100
Economic cycle
upswing and downside in aggregate economic activity taking place over 4-12 years
Boom
occurs when real national output is rising at a faster rate then the trend rate of growth
Recession
a fall in real GDP for 6 months or more
Slump/ depression
prolonged and deep recession leding to a significant fall in output and average living standards- more than 25%
Trend growth
the rate at which output can grow on a sustained basis without putting pressure on inflation. reflects the annual average percentage increase in the productive capacity of the economy
Lag indicators
an economic statistic that tends to have a delayed reation to a changein the economic cycle
Lead indicators
an economic statistic that tends to predit future changes in the economic cycle
Policy conflict
occurs when two policy objectives cannot both be achieved at the same time: the better the performance in achieving one objective, the worse the performance in achieving another
Income tax
tax levied directly on personal income
VAT
tax that is dependant on the good or sevice. 20% in the UK
Policy objective
a target or goal that policy-makers aim to hit
Real GDP
a measure of all the goods and services produced in an economy, adjusted for price changes or inflation
Nominal GDP
GDP measured at the current market prices without removing the effects of inflation
Full employment
3% or less of the labour force are unemployed. also is the level of unemployment occurring at the market-clearing real wage rate, where the number of workers whom employers wish to hire equals the number of workers wanting to work
Price index
an index number showing the extent to which a price or a basket of prices has changed over a month, a quarter of a year or year in comparison to the base year
Consumer price index
the official measure used to calculate the rate of consumer price inflation in the UK. calculates the average price increases of a basket of 700 different consumer goods and services. the government currently uses the CPI for the indexation of state pensions and welfare benefits and for setting monetary policy targets
Retail price index
an older measure of consumer price inflation in the UK. the government currently uses the RPI for uprating each year the cost of TV and motor vehicle licences, together sometimes with goods like alcoholic drinks
Indexation
the automatic adjustment of items such as pensions and welfare benefits to changes in the price level through the use of a price index
Balance of trade
the difference between the money value of a country’s imports and its exports. the largest component of a country’s balance of payments on the current account
Trade-off between policy objectives
although it may be impossible to achieve two desirable objectives at the same time. policy-makers may be able to choose an acceptable combination lying between the extremes
Keynesian economists
followers of the economist John Maynard Keynes who generally believe that governments should manage the economy particularly through the use of fiscal policy
Pro-free market economists
opponents of Keynesian economists who dislike government intervention in the economy and who much prefer the operation of free markets
Monetary policy
the use by the government and its agent the bak of England of interest rates and other monetary instruments to try to achieve the government’s policy objectives
Fiscal policy
the use by the government spending and taxation to try to achieve the government’s policy objectives
Performance indicator
provides information for judging the success or failure of a particular type of government policy such as fiscal policy or monetary policy
National capital stock
the stock of capital goods such as buildings and machinery in the economy that has accumulated over time and is measured at a point in time
Wealth
the stock of assets which have value at a point in time as distinct from income which is a flow generated over a period of time
National wealth
the stock of all goods that exist at a point in time that have value in the economy
National income
the flow of new output produced by the economy in a particular period
National output
the same as national income namely the flow of new output produced by the economy in a particular period
National product
another name for national income and national output
Consumption
total planned spending by households on consumer goods and services produced within the economy
Closed economy
an economy with no international trade
Saving
income which is not spent
Withdrawl
a leakage of spending power out of the circular flow of income into savings, taxation or imports
Investment
total planned spending by firms on capital goods produced within the economy
Injection
spending entering the circular flow of income as a result of investments government spending and exports
Open economy
an economy open to international trade
Reflection policies
policies that increase aggregate demand with the intention of increasing real output and employment
Equilibrium national income
the level of real output at which aggregate demand equals aggregate supply. it is the level of income at which withdrawals from the circular flow of income equals the injections into the flow also known as macroeconomic equilibrium
Aggregate demand
the total planned spending on real output produced within the economy
Aggregate supply
the level of real national output that producers are prepared to supply at different average price levels
Economic shock
an unexpected event hitting the economy. economy shocks can be demand-side or supply-side shocks and unfavourable or favourable
Consumption
total planned spending by households on consumer goods and services produced within the economy
Rate of interest
the reward for lending savings to somebody else and the cost oof borrowing
Life-cycle theory of consumption
a theory that explains consumption and savings in terms of how people expect their incomes to change over the whole of their life cycle
