Macro Year 1 Flashcards
Aggregate
2.2.1 - The characteristics of aggregate demand
The sum or total
Aggregate demand
2.2.1 - The characteristics of aggregate demand
The total of all demands or expenditures in the economy at any given price
Aggregate demand curve
2.2.1 - The characteristics of aggregate demand
Shows the relationship between the price level and equilibrium national income. As the price level rises the equilibrium level of national income falls
Domestic economy
2.2.1 - The characteristics of aggregate demand
The economy of a single country
Average propensity to consume
2.2.2 - Consumption
The proportion of total income spent
C/Y
C - Consumption
Y - Income
Average propensity to save
2.2.2 - Consumption
The proportion of a total income which is saved
S/Y
S - Savings
Y - Income
Consumption
2.2.2 - Consumption
Total expenditure by households on goods and services over a period of time
Consumption function
2.2.2 - Consumption
The relationship between the consumption of hosueholds and the factors which determine it
Disposable income
2.2.2 - Consumption
Income remaining after deduction of taxes
Durable goods
2.2.2 - Consumption
Goods which are consumed over a long period of time, such as a television set or car
Marginal propensity to consume
2.2.2 - Consumption
The proprotion of a change in income is spent
ΔC/ΔY
ΔC - Change in consumption
ΔY - Change income
Marginal propensity to save
2.2.2 - Consumption
The proportion of a change in income which is saved
ΔS/ΔY
ΔS - Chang in amount saved
ΔY - Change in income
Non-durable goods
2.2.2 - Consumption
Goods which are consumed alomsot immediately like an ice cream or a packet of washing powder
Savings function
2.2.2 - Consumption
The relationship between the saving of households and the factors which determine it
Saving (personal)
The portion of households’ disposable income which is not spent over a period of time
Wealth effect
2.2.2 - Consumption
The change in consumption following a change in wealth
Accelerator coefficient
2.2.3 - Investment
The capital-output ratio
Accelerator theory
2.2.3 - Investment
The theory that the level of investment is related to past changes in income
Animals spirits
2.2.3 - Investment
Business confidence: the modd of managers and owners of firms about the future of their industry and the wider economy
Capital-output ratio
2.2.3 - Investment
The ratio between the amount of capital needed to produce a given quantity of goods and the level of output
Depreciation (of the capital stock)
2.2.3 - Investment
The value of the capital stock which has been used up or worn out
Gross investment
2.2.3 - Investment
The addition to capital stock, both to replace the existing capital stock which has been used up (depreciation) and the creation of additional capital
Investment
2.2.3 - Investment
The addition to the capital stock of the economy
Net investment
2.2.3 - Investment
Gross investment minus depreciation
Retained profit
2.2.3 - Investment
Profit kept back by a firm for its own use which is not distributed to shareholders or used to pay taxation
Trade balance
2.2.4/5 - Government expenditure and net trade
Exports minus imports
Aggregate supply curve
2.3.1, 2.3.2, 2.3.3 - Aggregate Supply
The relationship between the average level of prices in the economy and the level of total output
Full capacity
2.3.1, 2.3.2, 2.3.3 - Aggregate Supply
The level of output where no extra production can take in the long run with existing resources. The full capacity level of output for an economy is shown by the classical long run aggregate supply curve or the vertical part of a keynesian aggregate supply curve
Long- run aggregate supply curve
2.3.1, 2.3.2, 2.3.3 - Aggregate Supply
The aggregate supply curve which assumes that wage rates are variable, both upward and downards. Classical or supply side economisits assume that wage rates are flexible. Keynesian economists assume that wage rates may be ‘sticky downwards’ and hence the economy may operate at less than full employment even in the long run
Short run aggregate supply curve
2.3.1, 2.3.2, 2.3.3 - Aggregate Supply
The upward sloping aggregate supply curve which assumes that money wage rates are fixed
Supply-side shocks
2.3.1, 2.3.2, 2.3.3 - Aggregate Supply
Factors such as changes in wage rates or commodity prices which cause the short run aggregate supply curve to shift
Circular flow of income
2.4.1, 2.4.2 - National income
A model of the economy which shows the flow of goods, services and factors and their payments around the economy
Closed economy
2.4.1, 2.4.2 - National income
An economy where there is no foreign trade
Income
2.4.1, 2.4.2 - National income
Rent. interest, wages and profits earned from wealth owned by economic actors
Injections
2.4.1, 2.4.2 - National income
In the circular flow of income, spending which is not generated by households including investment, government spending and exports
National income
2.4.1, 2.4.2 - National income
The value of the output, expenditure of income of an economy over a period of time
Open economy
2.4.1, 2.4.2 - National income
An economy where there is trade with other countries
Wealth
2.4.1, 2.4.2 - National income
A stock of assets which can be used to generate a flow of production or income. For example, physical wealth such as factories and machines is used to make goods and services
Withdrawaks or leakages
2.4.1, 2.4.2 - National income
In the circular flow of income, spending by households which does not flow back to domestic firms. It includes savings, taxes and imports
Marginal propenisty to import (MPM)
2.4.4 - The multiplier
The increase in imports divided by the income that caused them
ΔM/ΔY
Marginal propensity to save (MPS)
2.4.3 - Equilibrium levels of real national output
The increase in saving divided by the increase in income that caused it
ΔS/ΔY
Marginal propensity to tax (MPT)
The increase in tax revenues divided by the increase in incomme that caused them
ΔT/ΔY
Marginal propensity to withdraw
2.4.3 - Equilibrium levels of real national output
The increase in withdrawals from the circular flow (save, tax, import) divided by the increase in income that caused them; this is the same as the sum of the marginal propensity to save, tax and import (MPS + MPT + MPM)
Multiplier
2.4.3 - Equilibrium levels of real national output
The figure used to multiply a change in an injection into the circular flow, such as investment, to find the final change in income (assuming the injecttion is not determined by income). It is the ratio of final change in income to the initial change in an injection.
Multiplier effect
2.4.3 - Equilibrium levels of real national output
An increase in investment or other injection will lead to an even greater increase in income (assuming the injection is not determined by income)
Green GDP
2.1.1 - Economic Growth
A measure of GDP which takes account of the environmental costs of production such as pollution and resource depletion
Gross domestic product (GDP)
2.1.1 - Economic Growth
A measure of the output or value added of an economy which does not include output or income from investments abroad or an allowance for the depreciation of the nation’s capital stock
Gross national income (GNI)
2.1.1 - Economic Growth
The value of the goods and services produced by a country over a period of time (GDP) plus net overseas interest payments and dividends (factor incomes)
Gross national product (GNP)
2.1.1 - Economic Growth
The market value of goods and services produced over a period of time through the labour or property supplied by citizens of a country both domestically (GDP) and overseas
Hidden, black or informal economy
2.1.1 - Economic Growth
Econommic activity where trade and exchange take place but which goes unreported to the tax authorities and those collecting national income statistics
Net national income
2.1.1 - Economic Growth
A measure of national income which includes both net income from investments abroad and an allowance for depreciation of the nation’s capital stock
Per capita
2.1.1 - Economic Growth
Per individual in a population
Purchasing power parities
2.1.1 - Economic Growth
An exchange rate of one currency for another which compares how much a typical basket of goods in one country costs compared to that of another country
Standard of living
2.1.1 - Economic Growth
How well off is an individual, household or economy, measured by a complex mix of variables such as income, health, the environment, particiaption in society and political freedoms
Transfer payments
2.1.1 - Economic Growth
Income for which there is no corresponding output, such as unemployment benefits or pension payments
Value and volume of national income
2.1.1 - Economic Growth
The value of national income is its monetary value at the prices of the day; the volume is national income for inflation and is expressed either as an index number or in money terms at the prices in a selected base year
Actual growth
2.5.1, 2.5.2, 2.5.3 - Causes of economic growth and the trade cycle
Economic growth as measured by recorded changes in real GDP over time
Boom or peak
2.5.1, 2.5.2, 2.5.3 - Causes of economic growth and the trade cycle
Period of time when the economy is growing strongly and is operating above its productive potential
Demand-side shock
2.5.1, 2.5.2, 2.5.3 - Causes of economic growth and the trade cycle
A sudden and large impact on aggregate demand
Depression or slump
2.5.1, 2.5.2, 2.5.3 - Causes of economic growth and the trade cycle
A period of the trade cycle when either economic growth or GDP itself is falling
Downturn
2.5.1, 2.5.2, 2.5.3 - Causes of economic growth and the trade cycle
A period of the trade cycle when either economic growth or GDP itself is falling
Economic growth
2.5.1, 2.5.2, 2.5.3 - Causes of economic growth and the trade cycle
A rise in output in an economy which can be either actual growth or potential growth
Economic recovery
2.5.1, 2.5.2, 2.5.3 - Causes of economic growth and the trade cycle
The movement back from where the economy is operating below its productive potential to a point where it is at its productive potential
Export-led growth
2.5.1, 2.5.2, 2.5.3 - Causes of economic growth and the trade cycle
A rise in aggregate demand caused by a rise in exports
Hysteresis
2.5.1, 2.5.2, 2.5.3 - Causes of economic growth and the trade cycle
The process whereby a variable does not return to its former value when changed. In terms of the trade cycle, it is used to describe the phenomenon of an economy failing to return to its former long term trend rate of growth after a severe recession
Output gap
2.5.1, 2.5.2, 2.5.3 - Causes of economic growth and the trade cycle
The difference between the actual level of GDP and the productive potential of the economy.
Positive output gap
2.5.1, 2.5.2, 2.5.3 - Causes of economic growth and the trade cycle
When the actual GDP is above the productive potential of the economy and it is in boom
Negative output gap
2.5.1, 2.5.2, 2.5.3 - Causes of economic growth and the trade cycle
When actual GDP is below the productive potential of the economy
Potential growth
2.5.1, 2.5.2, 2.5.3 - Causes of economic growth and the trade cycle
Economic growth as measured by the cahnges in the productive potential of the economy over time
Recession
2.5.1, 2.5.2, 2.5.3 - Causes of economic growth and the trade cycle
A period of the trade cycle when output or growth in output falls. The technical definition now used by the UK government is that a recession occurs when growth in output is negative for two successive quarters (i.e. two periods of 3 months)
Spare capacity
2.5.1, 2.5.2, 2.5.3 - Causes of economic growth and the trade cycle
For a whole economy, this exists when long run aggregate supply is greater than aggregate demadn so there is a negative output gap
Supply-side shock
2.5.1, 2.5.2, 2.5.3 - Causes of economic growth and the trade cycle
A sudden and large impact on aggregate supply
Business cycle
2.5.1, 2.5.2, 2.5.3 - Causes of economic growth and the trade cycle
Regular flucuations in the level of economic activity around the productive potential of the economy. In business cycles, the economy veers from recession, when it is operating well below its productive potential, to booms when it is likely to be at or even above its productive potential
Sustainable growth
2.5.4 - The impact of economic growht7
Growth in productive potential of the economy today which does not lead to a fall in the productive potential of the economy for future generations
Anticipated inflation
2.1.2 - Inflation
Increases in prices which economic actors are able to predict with accuracy
Consumer Prices Index (CPI)
2.1.2 - Inflation
A measure of the price level used across the European Union and used by the Bank of England to measure inflation against its target
Cost-push inflation
2.1.2 - Inflation
Inflation caused by increases in the costs of production in the economy
Deflation
2.1.2 - Inflation
A fall in the price level
Demand-pull inflation
2.1.2 - Inflation
Inflation which is caused by excess demand in the economy
Disinflation
2.1.2 - Inflation
A fall in the rate of inflation
Hyper-inflation
2.1.2 - Inflation
Large increases in the price level
Indexation
2.1.2 - Inflation
Adjusting the value of economic variables such as wages or the rate of interest in line with inflation
Inflation
2.1.2 - Inflation
A general rise in prices
Price level
2.1.2 - Inflation
The average price of goods and services in the economy
Retail Prices Index (RPI)
2.1.2 - Inflation
A measure of the price level which has been calculated in the UK for over 60 years and is used in a variety of contexts such as by the government to index welfare benefits
Unacticipated inflation
2.1.2 - Inflation
Increases in prices which economic actors like consumers and firms fail to predict accurately and so thier decisions are based on poor informion
Active population
2.1.3 - Employment and unemployment
Those in work or activelt seeking work; also known as the labour force
Participation rate
2.1.3 - Employment and unemployment
The number of those in work or unemployed divided by the population of working age expressed as a percentage
Cyclical or demand-deficient unemployment
2.1.3 - Employment and unemployment
When there is insufficient demand in the economy for all workers who wish to work at current wage rates to obtain a job
Employed
2.1.3 - Employment and unemployment
Those in paid work
Employment rate
2.1.3 - Employment and unemployment
The number of those in work divided by the population of working age expressed as a percentage
Frictional unemployment
2.1.3 - Employment and unemployment
When workers are unemployed for short lengths of time between jobs
Full-time workers
2.1.3 - Employment and unemployment
Workers who work hours and the days which are the norm for a particular job
Hidden unemployed
2.1.3 - Employment and unemployment
Partly those in the population who would take a job if offered, but are not in work and are not currently seeking work; and partly those who are underemployed
Inactive
2.1.3 - Employment and unemployment
The number of those not in work and not unemployed
Inactivity rate
2.1.3 - Employment and unemployment
The number of those not in work and not unemployed divided by the population of working age expressed as a percentgae
Labour force
2.1.3 - Employment and unemployment
Those in work or actively seeking work; also know as the active population
Long-term unemployed
2.1.3 - Employment and unemployment
In the UK, those unemployed for more than one year
Part-time workers
2.1.3 - Employment and unemployment
Workers who only work a fraction of the hours and the days which are the norm for a particular job
Population of working age
2.1.3 - Employment and unemployment
The total number of people aged between the statutory school leaving age and the state retirement age
Real wage unemployment
2.1.3 - Employment and unemployment
When workers are unemployed because real wages are too high and inflexible downwards, leading to insufficient demadn for workers from employers
Seasonal unemployment
2.1.3 - Employment and unemployment
When workers are unemployed at certain times of the year, such as building workers or agricultural workers in the winter
Self-employed
2.1.3 - Employment and unemployment
Workers who work on their own account and are not employees
Short-term unemployed
2.1.3 - Employment and unemployment
In the UK, those unemployed for less than a year
Structural unemployment
2.1.3 - Employment and unemployment
When the pattern of demand and production changes leaving workers unemployed in labour markets where demand has shrunk. Examples of structural are regional unemployment, sectoral unemployment or technological unemployment
Underemployed
2.1.3 - Employment and unemployment
Those who would work more hours if available or are in jobs which are below their skill level
Unemployed
2.1.3 - Employment and unemployment
Those not in work but seeking work
Unemployment
2.1.3 - Employment and unemployment
Occurs when individuals are without a job but are activelt seeking work
Unemployment rate
2.1.3 - Employment and unemployment
The number of those not in work, but seeking work, divided by the labour force expressed as a percentage
Balance of payments account
2.1.4 - Balance of payments
A record of all financial dealings over a period of time between economic agents of one country and all other countries
Balance of trade
2.1.4 - Balance of payments
The value of visible exports minus visible imports
Capital and financial accounts
2.1.4 - Balance of payments
That part of the balance of payments account where flows of savings, investment and currency are recorded
Current account
2.1.4 - Balance of payments
That part of the balance of payments account where payments for the purchase and sale of goods and services are recorded
Current balance
2.1.4 - Balance of payments
The difference between the value of total exports (visible and invisible) and total imports
Current account deficit or surplus
2.1.4 - Balance of payments
A deficit exists when imports are greater than exports; a surplus exists when the value of exports are greater than imports
Invisibles
2.1.4 - Balance of payments
Trade in services, transfers of income and other payments or receipts
Visibles
2.1.4 - Balance of payments
Trade in goods
Balanced budget
2.6.2 - Demand-side policies
A statement of spedning and income plans by government where spending is equal to its receipts, mainly tax revenues
Bank of England base rate
2.6.2 - Demand-side policies
The rate of interest charged by the Bank of England to banks to borrow money overnight. It is the most important interest rate in the UK financial system because it influences other interest rates in the UK such as savings rate and rates of interest on loans by banks
Budget
2.6.2 - Demand-side policies
A statement of the spending and income plans of an individual firm or government spending and taxation plans in the UK
Budget deficit
2.6.2 - Demand-side policies
A deficit which arises because government spedning is greater than its receipts. Government therefore has to borrow money to finance the difference
Budget surplus
2.6.2 - Demand-side policies
A government surplus arising from government spending being less than its receipts. Government can use the difference to repay part of the national debt
Contractionary fiscal policy
2.6.2 - Demand-side policies
Fiscal policy which leads to a fall in aggregate demand
Contractionary monetary policy
2.6.2 - Demand-side policies
Monetary policy which leads to a fall in aggregate demand
Direct tax
2.6.2 - Demand-side policies
A tax levied directly on individuals or companies such as income tax or corporation tax
Expansionary fiscal policy
2.6.2 - Demand-side policies
Fiscal policy which leads to an increase in aggregate demand
Expansionary monetary policy
2.6.2 - Demand-side policies
Monetary policy which leads to a rise in aggregate demand
Fiscal policy
2.6.2 - Demand-side policies
The use of taxes, government spending and government borrowing by government to achieve its objectives
Fiscal stance or budget position
2.6.2 - Demand-side policies
Whether fiscal policy is expansionary, contractionary or neutral
Indirect tax
2.6.2 - Demand-side policies
A tax levied on goods or services, such as value added tax, excise duties or council tax
Instrument of policy
2.6.2 - Demand-side policies
An economic variable, such as the rate of interest, income tax rate or government spending on education, which is used to achieve a target of government policy
Monetary policy
2.6.2 - Demand-side policies
The manipulation by government of monetary variables, such as interest rates and the money supply, to achieve its objectives
National Debt
2.6.2 - Demand-side policies
The total accumulatedd borrowing of government which remains to be paid to lenders
Neutral fiscal policy
2.6.2 - Demand-side policies
When changes to government spedning and taxation leave the overall budget surplus or deficit unchanged and have no effect on aggregate demand
Public sector net borrowing (PSNB)
2.6.2 - Demand-side policies
The official name given to the difference between government spending and its receipts in the UK
Public sector net debt (PSND)
2.6.2 - Demand-side policies
The official name given to the national debt in the UK
Quantitative easing
2.6.2 - Demand-side policies
A monetary policy instrument where the central bank buys financial assets in exchange for money in order to increase borrowing and lending in the economy
Rate of interest
2.6.2 - Demand-side policies
The price of money, determined by the demadn and supply of funds in a money market where there are borrowers and lenders
Bottlenecks
2.6.3 - Supply-side policies
Supply-side constraints in a particular market in an economy which prevent higher growth for the whole economy
Deregulation
2.6.3 - Supply-side policies
The process of removing governments controls from markets
Industrial policy
2.6.3 - Supply-side policies
Government policy to promote and support individual firms which it considers are important for the growth of the economy
Interventionist policies
2.6.3 - Supply-side policies
Government policies designed to correct market failures that are reducing the growth rate of the economy
Labour market flexibility
2.6.3 - Supply-side policies
The degree to which demand and supply in a labour market respon to external changes (such as changes in demand for a product or in population size) to return to equilibrium
Market-based policies
2.6.3 - Supply-side policies
Government policies designed to promote economic growth by reducing barriers to the efficient working of free markets
Minimum wage
2.6.3 - Supply-side policies
The least amount an employer can pay one of its workers, usually expressed an an hourly wage rate
Poverty or earnings trap
2.6.3 - Supply-side policies
Occurs when an individual is little better off or even worse off when gaining an increase in wages because of the combined effect of increased tax and benefit withdrawal
Privatisation
2.6.3 - Supply-side policies
The sale of government organisations or assets to the private sector
Red tape
2.6.3 - Supply-side policies
Rules and regulations issued by government which firms must adhere to operate legally
Supply-side economics
2.6.3 - Supply-side policies
The study of how changes in aggregate supply will affect variables such as national income; in particular, how government microeconomic policy might cahnge aggregate supply through individual markets
Supply-side improvements
2.6.3 - Supply-side policies
Changes in individual markets, such as investment by firms or improvements in the skills of workers which lead to an increase in long run aggregate supply withotu necessarily the intervention of government
Supply-side policies
2.6.3 - Supply-side policies
Government policies designed to increase the productive potential of the economy and push the long run aggregate supply curve to the right
Unemployment trap
2.6.3 - Supply-side policies
Occurs when an individual is little better off or even worse off when getting a job after being unemployed because of the combined effect of increased tax and benefit withdrawal
