Macroeconomic Definitions Flashcards
Macroeconomic equilibrium
A situation where aggregate demand = aggregate supply and GDP is constant. Or where injections = leakages in the circular flow, leaving GDP unchanged.
Economic stability
A situation in which the main macroeconomic variables are not changing rapidly e.g. when economic growth is steady and sustainable and when inflation is around 2%
Unemployment
Occurs when labour is out of work, willing and able to work and actively seeking work.
Unemployment rate
The percentage of the labour force that is willing and able to work, actively seeking work but not currently in work
Labour force survey
The internationally recognised method of calculating the unemployment rate, measured by sampling the number of workers out of work, willing and able to work and actively seeking work.
Claimant Count
The narrow measure of calculating the unemployment total that includes only those who are out of work, willing and able to work, actively seeking work AND in receipt of unemployment benefit.
Inflation
A sustained rise in the price level over time as measured by changes in the Consumer Price Index.
Inflation rate
The percentage increase in the price level measured over the course of one year when prices are rising on a sustained basis
Injections
Any money that adds to consumer spending in the circular flow in the form of investment, government spending or exports.
Leakages
Any money that is withdrawn from the circular flow in the form of saving, taxes or import spending.
Consumer spending
Spending by households or individuals on goods and services in order to get utility
Investment
Spending by firms on capital in the form of plant, equipment or machinery
Government spending
Any injection of funds into the circular flow by the public sector
Net exports
The difference between the value of exports and imports (X-M)
Aggregate demand
Total expenditure on goods and services at any given price level in the form of C +I+G+X-M
Aggregate supply
The total output of all goods and services at any given price level
GDP
The total value of output produced by an economy in one year
GDP per capita
The total value of output produced by an economy in one year divided by the population
Exports
Any goods or services sold to other nations that results in an inflow of income into the circular flow
Imports
Any purchase of foreign goods and services that leads to an outflow of money from the domestic economy
Balance of payments/Balance of trade/Current account balance
The record of the inflows and outflows of currency across a nation’s borders in the form of trade flows for goods, services and capital movements.
Current account surplus
When there is a net inflow of earnings resulting from international trade (X>M)
Current account deficit
When there is a net outflow of money resulting from international trade (M>X)
Protectionism
Any attempt to restrict the free trade of goods and services across international borders e.g. by imposing tariffs or quotas on imports
Free trade
The unrestricted movement of goods and services across international borders due to an absence of any protectionism
Tariffs
Taxes placed on foreign imports as they enter the home country that are designed to raise their market price
Export subsidies
Grants given to UK firms by the government designed to lower the cost and the price of the goods/services sold abroad.
Quota
A physical limit on the quantity of imports allowed into a country in a given period of time
Economic growth
An increase in the value of GDP over one year
Economic growth rate
The percentage increase in the value of GDP over time
Recession
When there are two consecutive quarters of falling GDP
Budget surplus
When the government collect more tax revenue than it spends, enabling it to repay part of the National Debt
National debt
The running total of all previous budget deficits that have not yet been repaid
Budget deficit
When the government is spending more than it collects in tax revenue thereby adding to the National Debt
Government borrowing
The amount of money required by the government when it has a budget deficit, financed by selling bonds
Fiscal policy
The manipulation of tax rates, government spending and borrowing to achieve macroeconomic objectives
Monetary policy
The manipulation of interest rates, the exchange rate or the money supply in order to achieve macroeconomic objectives
Supply side policies
Any policy designed to increase the productive potential of an economy by shifting the aggregate supply curve to the right
Expansionary policy
Any measure designed to increase the level of economic activity in an economy often by boosting aggregate demand
Contractionary policy
Any measure designed to reduce the level of economic activity in an economy by reducing aggregate demand, usually to reduce inflation
Deflation
A fall in the average price level over time
Dis-inflation
A fall in the inflation rate (a fall in the rate of increase of prices) i.e. rising prices at a slowing rate
Rate of interest
The cost of borrowing or the reward for saving
Exchange rate
The price of one currency expressed in terms of another
Currency appreciation
A rise in the value of one currency against another
Currency depreciation
A fall in the value of one currency against another
De-regulation
A supply side policy that abolishes rules or laws that force firms to behave in a particular way
Corporation tax
A direct tax levied on a firm’s profits by the government
Direct tax
A tax levied on profit, wealth or income
