MACRO DEFINITIONS Flashcards
macroeconomy
The economy in aggregate – the sum of all of the individual markets that make up the economy.
macroeconomic objectives
The four aims of government when managing the macroeconomy are usually:
- Strong and sustained economic growth (higher GDP)
- low unemployment,
- low and stable inflation,
- satisfactory trade position.
GDP
The value of all of the output (= income) generated in the domestic economy over a given time period.
GNP
The income flowing to the residents of an economy over a given period. GDP + net property income from abroad.
economic growth
The increase in GDP over a given time period.
inflation
The sustained increase in the general price level of an economy. The reduction in the purchasing power of money.
unemployment
Unemployment consists of all those of a working age who are actively seeking work at going wage rates but do not have a job.
current account of Balance of payment
A record of the international income and expenditure for economic agents in an economy over a given period of time.
visibles
Entries into the current account relating to trade in goods.
primary income
Interest, profit and dividends generated by investments abroad.
secondary income
International transfers, such as remittances made by migrant workers.
invisibles/
Entries into the current account relating to trade in services and primary and secondary income.
Real GDP
The value of GDP adjusted to remove the effects of inflation. Real GDP is measured ‘at constant prices.’ An increase in real GDP represents an increase in the volume of output generated in the economy.
nominal GDP
The value of GDP without adjustment for inflation. Nominal GDP is measured ‘at current prices.’ An increase in nominal GDP could be cause either by an increase in the volume of output or by inflation.
real GDP/capita
Real GDP divided by population.
index
An index represents all values relative to a base, which is given the value 100. Index numbers have no units. Index number = (Value/base value) x 100.
weighted index
A composite index adjusted to take account of the relative importance of its components. For example, a price index such as the RPI may be constructed from the prices of many products and weights attached to each product to reflect the proportion of consumer expenditure accounted for by the product.§
CPI?
The Consumer Price Index is a weighted price index and is used to calculate the official inflation rate.
RPI?
The Retail Price Index is an alternative weighted price index that differs from the Consumer Price Index mainly in the goods and services that are used to calculate it and the mathematical method for calculating the index. The RPI tends to rise less quickly than the CPI
claimant count
The claimant count is a measure of unemployment based on all those claiming Job Seeker’s Allowance, the main benefit received by those who are unemployed.
ILO measure?
The International Labour Organisation’s measure of unemployment, which is based on survey data. It is designed to give a more accurate measure of unemployment than the claimant count.
living standards
Living standards are usually measured using real GDP/capita. More accurately this may be said to be a measure of material standards of living, while living standards are also affected by a range of non-material factors, such as the value of human relationships and political freedoms.
the circular flow of income
A model of the economy in which households supply factors of production to firms in return for factor incomes (wages, interest, rent and profits), while firms provide goods and services to households in return for consumer expenditure (c). Consumer expenditure is returned to households as factor income, setting up a circular flow.
injections
Injections into the circular flow are sources of expenditure from outside of the flow, namely investment (I), government expenditure (G) and exports (X).
injections
Injections into the circular flow are sources of expenditure from outside of the flow, namely investment (I), government expenditure (G) and exports (X).
withdrawels?
Withdrawals from the circular flow occur when income received by households is not returned to firms as consumer expenditure. Withdrawals are caused by saving (S), taxes (T) and import (M).
the natonal income identity
Income is identical to output is identical to expenditure. This is because income, output and expenditure are the same flow measured at three different points.
aggregate demand
The total demand for the goods and services produced in an economy over a given period of time. AD = C + I + G + X – M.
consumption (c)
Expenditure by households on goods and services. That part of disposable income that is not saved.
disposable income
Income after tax and benefits.
discretionary income?
Income left after providing for basic needs and meeting ongoing commitments such as mortgage and utility payments.
discretionary income?
Income left after providing for basic needs and meeting ongoing commitments such as mortgage and utility payments.
discretionary income?
Income left after providing for basic needs and meeting ongoing commitments such as mortgage and utility payments.
discretionary income?
Income left after providing for basic needs and meeting ongoing commitments such as mortgage and utility payments.
determinants of consumption
These include: disposable income, discretionary income, the interest rate (lower interest rates discourage saving and encourage borrowing to finance consumption – the interest rate is the opportunity cost of consumption), consumer confidence, house prices.
wealth effect
The effect on consumption as wealth increases. For example, when house prices increase, home owners may engage in mortgage equity withdrawal to finance consumption.
saving (s)
That part of disposable income that is not consumed.
saving (s)
That part of disposable income that is not consumed.
saving (s)
That part of disposable income that is not consumed.
saving ratio
The proportion of national income that is saved: (S/Y) x 100
determinants of saving
These include: Interest rates, income, income distribution (those with low incomes have a lower propensity to save), age distribution (see life-cycle hypothesis), inflation (high levels of inflation may discourage saving), confidence (the precautionary motive for saving is stronger when confidence in future economic prospects is low).
investment (i)
Expenditure by firms on additional to the capital stock. This consists of fixed capital such as buildings and machinery and circulating capital such as unfinished products.
determinants of investment
These include: levels of retained profits, the interest rate (as investment is often funded by borrowing), the growth of output (see accelerator) and business confidence.
