Macro - Subject Specific Vocabulary Flashcards
1
Q
National income
A
The monetary value of all the goods and services that are produced by an economy in a given period of time.
It is also equal to total expenditure (C + I + G + X - M) and total factor incomes
2
Q
GDP (gross domestic product)
A
A measure of national income. The monetary value of the total output of an economy over a
given period of time, for example, one year.
3
Q
Real GDP
A
The monetary value of the total output of an economy with the effects of inflation removed.
4
Q
Nominal (money) GDP
A
The monetary value of the total output of an economy that has not been adjusted for the effects of inflation.
5
Q
Real GDP per capita
A
The average, or mean, real GDP per person. Calculated by dividing a country’s real GDP by its population.
6
Q
Index number
A
A statistic, with a base value of 100, used to measure changes in a selection of related variables.
7
Q
Consumer prices index (CPI)
A
A measure of the price level and inflation based on a weighted basket of goods and services.
8
Q
Standard of living
A
The ability of people to satisfy their needs and wants, including health care and education.
9
Q
Purchasing power parity (PPP) exchange rate
A
An exchange rate that reflects what the two currencies are able to buy in their domestic economies.
10
Q
Circular flow of income
A
A model of the economy that shows how money, goods and services flow between different sectors of an economy, including households, firms, the government and the foreign trade sector
11
Q
Injections
A
Types of expenditure that add to and increase the circular flow of income in an economy.
Injections are investment, government spending and exports.
12
Q
Withdrawals (leakages)
A
The part of household income that is not spent on goods and services produced by the economy. It is income that is not passed on around the circular flow of income.
Withdrawals are saving, taxation and imports.
13
Q
Aggregate demand
A
Total planned spending on goods and services produced in the domestic economy, aggregate
demand.
AD = C + I + G + (X – M)
14
Q
Demand-side shock
A
An event that leads to a sudden or unexpected change in aggregate demand.
15
Q
Supply-side shock
A
An event that leads to a sudden or unexpected change in aggregate supply.
16
Q
Consumption
A
Spending by households on goods and services to satisfy needs and wants.
17
Q
Investment
A
Spending that leads to an increase in the capital stock. .
Investment is an injection into the
circular flow of income
18
Q
Exports
A
Goods and services sold to other countries.
Exports are an injection into the circular flow of income.
19
Q
Saving
A
Income that is not spent.
Saving is a withdrawal from the circular flow of income.
20
Q
Taxation
A
Money that individuals and firms must pay to the government.
Taxation helps to finance
government sending and is a withdrawal from the circular flow of income.
21
Q
Imports
A
Goods and services bought from other countries.
Imports are a withdrawal from the circular flow of income
22
Q
Accelerator process
A
A theory that says investment depends on the rate of change in national income.
An increase in the rate of economic growth (national income) will lead to a proportionately larger increase in investment
23
Q
Multiplier
A
The extent to which a change in injections or withdrawals affects national income.
For example, if injections into the circular flow of income increase by £100 million and this leads to a £250 million increase in national income, the multiplier is 2.5.
24
Q
Marginal propensity to consume (MPC)
A
A measure of how a change in income affects consumption
The MPC is calculated by dividing
the change in consumption (∆C) by the change in income (∆Y) that caused the change in
consumption. MPC = ∆C ÷ ∆Y
25
Normal capacity level of output
The maximum output that an economy can continue to produce in the long run.
## Footnote
In the short run an economy may produce less than this level of output but can also produce more than its normal capacity level of output.
Economic growth will lead to an increase in an economy’s normal capacity level of output.
26
Short-run economic growth
The rate at which the total output of the economy is increasing, usually measured by the annual percentage change in real GDP.
## Footnote
Short-run economic growth is greater than long-run
economic growth when the amount of spare capacity is falling, and is below long-run
economic growth when spare capacity is increasing.
27
Long-run economic growth
The rate at which the productive capacity of the economy is increasing. Long-run economic
growth is determined primarily by supply-side factors.
28
Long-run (underlying) trend rate of economic growth
The average rate at which the productive capacity of the economy is increasing over a number
of years, usually 10 or more years.
29
The economic cycle
The fluctuations in economic activity around an economy’s long-run trend rate of economic
growth. The main phases of the economic cycle are: recovery, boom, recession and
depression (or slump).
30
Positive output gap
When a country’s equilibrium level of national income is greater than its normal capacity level
of national income.
31
Negative output gap
When a country’s equilibrium level of national income is below its normal capacity level of
national income
32
Employment
The number of people who are working, usually in exchange for a wage or salary.
33
Unemployment
The number of people who are willing and able to work but cannot find a job.
34
Claimant count measure of unemployment
The number of people who are out of work and claiming Job Seekers Allowance.
35
Labour Force Survey measure of unemployment
A measure of unemployment that is based on a sample of households, conducted by the
Labour Force Survey. An individual is counted as unemployed if:
* They do not have a job, they want to work, have actively sought work in the last four
weeks, and are able to start work within the next two weeks.
* They are out of work, have found a job, and are waiting to start it in the next two weeks.
36
Voluntary unemployment
There are jobs available but the individual is not willing to work at current market wage rates
37
Involuntary unemployment
When an individual is willing and able to work at current market wage rates but is unable to
find employment.
38
Seasonal unemployment
When people are unemployed at particular times of the year, for example, construction
workers are more likely to be unemployed when the weather is bad during the winter.
39
Frictional unemployment
Short-term unemployment when people are between jobs.
40
Structural unemployment
Long-term unemployment that occurs when the skills and location of the unemployed
workers do not match the jobs available. Structural unemployment persists due to the
occupational and geographical immobility of labour.
41
Cyclical unemployment
Occurs when an economy goes into a recession and people cannot find work because
aggregate demand is too low
42
Real wage unemployment
Unemployment that results when the wage rate in some labour markets is set above the
equilibrium wage rate, for example, as a consequence of a legal minimum wage or a high
wage that is the outcome of collective bargaining and trade union power.
43
Natural rate of unemployment
It is the rate of unemployment that exists when the labour market is in equilibrium. It includes
frictional, structural and real wage unemployment.
44
Price level
The average price of all goods and services in an economy.
45
Inflation
Occurs when the price level is rising.
46
Deflation
Occurs when the price level is falling.
47
Disinflation
When an economy is experiencing inflation but the rate of inflation is falling, for example,
when the rate of inflation falls from 5% to 3%.
48
Demand-pull inflation
When the rise in the price level is caused by increasing aggregate demand.
49
Cost-push inflation
When the rise in the price level is caused by increasing costs of production
50
Short-run Phillips curve
A model of the economy that maintains there is an inverse relationship between
unemployment and inflation.
51
Long-run (L-shaped or vertical) Phillips curve
A model of the economy that maintains that the inverse relationship between unemployment
and inflation only exists in the short-run and that if the economy is at the natural rate of
unemployment, the rate of inflation will be stable. The model also maintains that if
unemployment is above the natural rate, the rate of inflation will fall and if unemployment is
below the natural rate, inflation will accelerate.
52
Money
Primarily a medium of exchange or means of payment, but also a store of value.
53
Money supply
The stock of money that exists in an economy at a point in time.
54
Narrow money
Comprises those assets that are generally accepted as a medium of exchange. Narrow money
includes cash, commercial banks’ balances at the central bank and demand deposits in the
banking system (eg current account deposits).
55
Broad money
Includes narrow money and some less liquid assets that can be converted easily into assets
that are generally accepted as a medium of exchange, for example, deposits in savings
accounts that have a notice of withdrawal. Broad definitions of the money supply include
narrow money and some assets that are money substitutes.
56
Financial markets
Where economic agents borrow and lend money, and where they buy and sell financial assets
such as shares, bonds, foreign currencies and commodities.
57
Money market
The market that provides funds to economic agents who require short-term finance.
58
Capital market
The market that provides medium-term and long-term finance for individuals, firms and
governments.
59
Foreign exchange market
Where currencies are bought and sold and their prices determined.
60
Debt
Funds raised by borrowing. Debt finance includes bonds and other types of loan.
61
Equity
Funds provided by the owners of a business, for example, shares.
62
Shares
Securities that represent the ownership of part of a business. Shares pay dividends to the
holders that depend on the amount of profit made by the business. Shares are not usually
redeemed (repaid) by the business
63
Bonds
Securities that represent a loan to the government or organisation that issued the bonds.
Bonds pay interest to the holder and are usually redeemed at a specified date in the future.
64
Coupon
The interest paid on a bond, expressed as a percentage of the face value of the bond
65
Yield
For an irredeemable bond, the yield is the coupon expressed as a percentage of the market
price of the bond. It represents the rate of return a buyer will earn on the bond.
66
Maturity date
When the loan is due to be repaid.
67
Commercial bank
A commercial bank, also known as a high street bank, is a financial institution that accepts
deposits, provides loans and a variety of other financial services to individuals and businesses.
68
Investment bank
A financial institution that helps businesses, and sometimes governments, carry out complex
financial transactions such as issuing new shares or assisting with mergers.
69
Central bank
A financial institution that is responsible for monetary policy and maintaining a stable
financial system. The central bank is often regarded as the government’s bank but is
independent of the government in many countries.
70
Monetary policy
The use of interest rates, the supply of money and credit, and the exchange rate to influence
the economy and help the government achieve its objectives.
71
Bank rate
The base rate of interest set by the Monetary Policy Committee of the Bank of England. It
affects the rate of interest the Bank of England will charge when lending to other banks and
thereby the level of interest rates in the UK economy.
72
Monetary policy transmission mechanism
Ways in which monetary policy affects aggregate demand, economic activity, inflation and the
other objectives of government macroeconomic policy.
73
Quantitative easing
When the central bank makes large-scale purchases of government and/or corporate bonds.
74
Quantitative tightening
When the central bank sells its holdings of government and/or corporate bonds.
75
Liquid assets
Cash or other assets that can be converted into cash easily
76
Liquidity ratio
A bank’s liquid assets as a proportion of its customer deposits and other short-term liabilities.
77
Capital ratio
A bank’s capital (share capital and retained profit) as a proportion of its assets, weighted
according to their riskiness. It is a measure of a bank’s financial strength and ability to absorb
losses.
78
Moral hazard
When an economic agent has an incentive to take more risks because they do not bear the
full cost of the risks.
79
Systemic risk
The possibility that the failure of a large financial institution, or other large organisation, could
have a very damaging effect on other financial institutions and/or the real economy.
80
Fiscal policy
The use of government spending and taxation to influence the economy and help the
government achieve its economic policy objectives.
81
Budget balance
The difference between government expenditure and taxation.
82
Budget deficit
When government expenditure is greater than the revenue the government receives from
taxation and other sources.
83
Budget surplus
When government expenditure is less than the revenue the government receives from
taxation and other sources.
84
Pattern of economic activity
How an economy’s factors of production are allocated between different uses, reflecting the
types of goods and services produced.
85
Public expenditure
Spending by central and local government on goods, services and debt interest
86
Direct tax
A tax levied on income and wealth. The burden of a direct tax cannot be passed on to
someone else.
87
Indirect tax
A tax levied on spending. The burden of an indirect tax can be passed on to someone else, for
example, by raising the price of the product on which the tax is levied.
88
Progressive tax
Where the percentage of income paid in tax increases as income increases. The marginal rate
of tax is higher than the average rate.
89
Proportional tax
Where the percentage of income paid in tax is the same at all levels of income. The marginal
rate of tax is the same as the average rate.
90
Regressive tax
Where the percentage of income paid in tax falls as income increases.
91
National debt
The accumulated total of past government borrowing. The total amount of money that the
government owes at a point in time.
92
Cyclical budget deficit
A budget deficit that is caused by a fall in economic activity and the economy going into
recession.
93
Cyclical budget surplus
A budget surplus that is caused by a rise in economic activity leading to higher tax revenues
and a fall in government spending on welfare
94
Structural budget balance
The underlying budget deficit or surplus after the effects of cyclical fluctuations in economic
activity upon government spending and taxation have been removed.
95
Supply-side policies
Policies introduced by the government to increase economic incentives, make markets work
better and increase the productive capacity of the economy, shifting the long-run aggregate
supply curve to the right.
96
Supply-side improvements
Increases in productivity and efficiency that lead to reductions in costs, increase productive
capacity and improve competitiveness. Supply-side improvements often result from
individuals and firms acting independently of the government.
97
Free-market supply-side policies
Measures to make markets work better and increase incentives to work and enterprise by
reducing government involvement in the economy. Such measures include: cutting taxes,
reducing spending on welfare, privatisation and deregulation
98
Interventionist supply-side policies
Measures taken by the government to compensate for weaknesses in the market mechanism
and correct market failures that may reduce the underlying rate of growth of the economy.
Such measures include: industrial policy, spending on education and training, subsidising
research and development.
99
Globalisation
The process through which the economies of different countries become increasingly
integrated and interdependent, as reflected in the growth in international trade, capital flows,
international migration and multinational corporations
100
Multinational corporation (MNC
An enterprise that owns assets, produces and sells goods and/or services in more than one
country. Also known as a transnational corporation (TNC)
101
Comparative advantage
When a country (region or individual) has a lower opportunity cost of producing a good or
service than another country (region or individual).
102
Absolute advantage
When a country (region or individual) can produce a given amount of a good or service with
fewer resources than another country (region or individual). Or, when a country can produce
more of a good or service than another country with the same amount of resources.
103
Terms of trade
The rate at which one product is exchanged for another product, for example, one mango is
traded for two apples.
104
Protectionist policies
Adopting measures to restrict imports and artificially promote exports. Examples of
protectionist policies include: tariffs, quotas and export subsidies.
105
Tariff
An indirect tax on imports
106
Quota
A limit on the quantity, or value, of a product that can be imported.
107
Customs union
A trading bloc where member countries do not have any restrictions on trade with each other
and where each member has the same restrictions on trade with non-member countries.
108
Single European Market (SEM)
The SEM comprises mainly of the 27 members of the European Union (EU). The market has
four freedoms that allow: free movement of goods, free movement of capital, freedom to
provide services and the free movement of people
109
The balance of payments
A record of a country’s financial transactions with the rest of the world
110
The current account of the balance of payments
A record of a country’s trade in goods, trade in services, income flows (primary income) and
transfers (secondary income).
111
Deficit on the current account of the balance of
payments
When the imports of goods and services plus outflows of investment income and transfers
are greater than exports of goods and services plus inflows of investment income and
transfers
112
Surplus on the current account of the balance of
payments
When the exports of goods and services plus inflows of investment income and transfers are
greater than imports of goods and services plus outflows of investment income and transfers
113
Expenditure-switching policy
Measures that change the relative prices of exports and imports to persuade people to buy
fewer imports and to make exports more attractive to people abroad.
114
Expenditure-reducing policy
Measures to reduce aggregate demand to reduce spending on imports and hence reduce a
deficit on the current account of the balance of payments. Also known as expendituredampening policy
115
Exchange rate
The price of one currency in terms of another currency
for example, £1 = $1.15 means the
price of £1 is $1.15.
116
Freely floating exchange rate system
Where the price of a currency is determined by the demand for and supply of the currency on
the foreign exchange market, without any government intervention.
117
Managed floating exchange rate system
An exchange rate system where central banks intervene in the foreign exchange market to
influence the value of their country’s currency
118
Fixed exchange rate system
Where country’s peg (fix) the value of their currency against another currency or against a
basket of other currencies or perhaps gold. Central banks intervene in the foreign exchange
market to maintain the value of the currency, usually within a narrow pre-declared band.
119
Currency union
Where a group of countries share the same currency. For example, many of the countries who
are members of the European Union have adopted the euro as their currency.
120
Economic development
Where there is a sustained improvement in the economic wellbeing and quality of life of
people.
121
Human development index (HDI)
A measure of economic development that is based on life expectancy, indicators of
educational attainment and the level income per capita.
122
Infrastructure
The physical structures and assets needed to support the efficient operation of an economy
and society. It includes transport, energy, water and digital communication systems as well as
social infrastructure, such as the housing stock and the capital assets used to provide
education and health care.
123
Human capital
The knowledge, skills and experience of people
124
Overseas (foreign) aid
The assistance given by more economically developed countries (MEDCs) to less economically
developed countries (LEDCs). The donors include governments, various non-governmental
and international organisations. Aid can take many forms, for example, it can include grants,
loans, training and gifts of food.
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