Macro Definitons Flashcards
Accelerator effect
Where planned capital investment is linked positively to the past and expected growth
of consumer demand or national income
Aggregate supply
shock
Either an inflation shock or a shock to potential national output; adverse aggregate
supply shocks of both types reduce output and can increase the rate of inflation
Austerity
Economic policy aimed at reducing a government’s deficit (or borrowing). Austerity can
be achieved through increases in government revenues - primarily via tax rises - and/or
a reduction in government spending or future spending commitments.
Budget deficit
Occurs when government spending is greater than tax revenues. Reducing the deficit
can be achieved by tax increases or cuts in government spending or a period of
economic growth which brings about a rise in direct and indirect tax revenues
Claimant Count
The number of people claiming unemployment-related benefits
Classical LRAS
The classical LRAS curve is drawn as vertical because classical economists argue that a country’s productive capacity is determined by factors other than price and demand
such as investment and innovation
Consumer
confidence
Expectations about the future including interest rates, incomes and jobs
Consumer price
index
The consumer price index (CPI) is the government’s preferred measure of inflation
Cost push inflation
An increase in the price level caused by a sustained increase in firms’ costs of
production
Current account
The overall balance of credits minus debits for trade in goods, trade in services,
investment income and transfers
Cyclical
unemployment
Unemployment caused by a lack of aggregate demand for goods and services, where
national output < potential output leading to a negative output gap
Deflation
A persistent fall in the general price level of goods and services
Depression
Used to describe a severe recession which may become a prolonged downturn in the
economy and where a nation’s GDP falls by at least 10 per cent
Discouraged
workers
People often out of work for a long time who give up on job search
Economic cycle
Variations in the annual rate of growth of an economy over time
Economic growth
An increase in the real value of goods and services produced in a country or area as
measured by the annual % change in real national output. Also a long-run increase in a
country’s productive capacity
Economic shocks
Unpredictable events such as volatile prices for oil, gas and foodstuffs
Economic stability
When indicators such as growth, prices and unemployment do not change much from
one year to another
Exchange rate
The rate at which one currency can be exchanged for another.
Expansionary
monetary policy
A relaxation of monetary policy means an attempt to use an expansionary monetary
policy to boost aggregate demand, output and jobs – includes lower interest rates
Fiscal deficit
This happen when government expenditure is higher than the revenue from tax
receipts in a particular year
Fiscal policy
A government’s policy regarding taxation and public spending. It can be loose (with the
emphasis on increased spending and lower tax revenue to boost economic activity,
with the acceptance of a wider fiscal deficit) or tight (with the emphasis on cutting
spending and boosting tax revenue, resulting in a slower economy
Full employment
When there enough job vacancies for all the unemployed to take work
Gross Domestic
Product per capita
National income per head of population, a baseline measure of living standards
Immobility of labour
Barriers to the movement of people between areas and between jobs
Inflation
A sustained increase in the general price level for goods and services
Inflation target
The Bank of England has a CPI inflation target, which is currently 2 per cent
Inflationary
pressures
Demand and supply-side pressures that can cause a rise in the general price level.
Demand-pull inflationary pressure is greatest when actual GDP exceeds potential GDP
causing a positive output gap. Cost-push inflationary pressure can arise from increases
in unit wage costs, rising import prices and an increase in the prices of raw materials,
fuel and components used in production
Investment
Spending on capital goods including plant & machinery and infrastructure
Macroeconomic
performance
Macroeconomic
performance
Marginal propensity
to consume
The proportion of any change in income that is spent rather than saved
Marginal propensity
to save
The change in total saving as a result of a change in income
Multiplier effect
If there is an initial injection (e.g. a rise in exports) into the economy then the final
increase in aggregate demand and real GDP will be greater.
Output gap
Difference between actual and potential national output. A negative output gap means
that an economy has a large margin of spare productive capacity
Price stability
Price stability occurs when there is low inflation and the price changes that do occur
have little impact on day-to-day decisions of people
Productivity
A measure of efficiency e.g. output per person employed or output per person-hour
Propensity to save
Proportion of any change in income that is saved rather than spent
Real disposable
income
Income after taxes and welfare benefits, adjusted for the effects of inflation
Real income
Nominal income adjusted for price changes, expressed at constant prices
Recession
A period of at least six months when an economy suffers a fall in output. Or a broadlybased contraction in output, employment, investment and confidence
Recovery
A phase of the economic cycle, after a recession/depression, during which real GDP
starts to increase and unemployment begins to fall
Retail Price Index
RPI
The RPI is broadly similar to the CPI but includes mortgage repayments and some taxes,
and excludes the top 4 per cent of earners. It is used to calculate annual changes in
wages, state benefits and pensions
Saving ratio
The percentage of disposable income that is saved rather than spent
Structural
unemployment
Unemployment that results from the decline in a particular industry which leaves
people unemployed because they do not have the skills needed by the industries that
are growing
Under-employment
Workers are underemployed when they are willing to supply more hours of work than
their employers are prepared to offer.
