macroeconomics key terms Flashcards
macroeconomics
a branch of economics that studies the overall performance and behaviour of the economy
inflation
a persistent or continuing rise in the average price level
economic growth
an increased potential level of real output the economy can produce over a period of time
circular flow
contunious movement of money, goods and services between households and firms
injections
spending entering the circular flow as a result of investment, government spending and exports
withdrawals
a leakage of spending power out of the circular flow into savings, taxation and imports
aggregate demand
total planned spending on real outout in the economy at different price levels
aggregate supply
the level of real national output that producers are prepared to supply at different average price levels
Consumption
Total plan spending by households on consumer goods and services produced within the economy
Investment
Total planned spending by firms on capital goods produced within the economy
Exports
Domestically produce goods or services sold to residents of other countries
Imports
Goods or services produced in other countries sold to residents of this country
Trade surplus
Occurs when a country’s exports exceeds its imports
Trade deficit
When a country’s imports exceed its exports
Budget surplus
Occurs when the government spending is less than the government revenue this represents a net withdrawal from the circular flow
Budget deficit
Because when the government spending exceeds government revenue this represents a net injection of demand into the circular flow
GDP
Gross domestic product - the sum of all goods and services or the level of output produced in the economy over a period of time
GNI
Gross national income - The total income earned by countries residents including income from abroad
Savings ratio
The proportion of income that individuals or households save rather than spend
Multiplier effect
The relationship between the change in aggregate demand and the resulting generally large change in national income
Interest rate
Cost of borrowing money or the return on savings/investment
Transfer payments
Payments made by the government to individuals or groups without expecting any goods or services in return for example welfare payments
Productive capacity
Maximum level of output that an economy can produce using its available resources and technology
Capital spending
Expenditure made by businesses or governments on acquiring or improving physical assets such as machinery
Current spending
Expenditure made by individuals or businesses or governments on goods and services for immediate consumption including wages utilities and Day to day operations
net trade
Difference between a country’s exports and imports of goods and services
External shocks
Unexpected events from outside of the economic system that have a significant impact on it
Foreign direct investment
Investment in capital assets in a foreign country by business with headquarters in another country
Human capital
Skills and knowledge and experience Possessed by the population which individuals contribute to the economy through work
Hysterics
Situation where the effects of a temporary shock that carry on after the initial cause has been removed
Infrastructure
Result of past investment common buildings, roads, bridges (Fixed capital), Needed for the economy to operate efficiently
Net inward migration
The difference between the number of people imigrating into a country and the number of people emigrating from the country
Positive output gap*
The level of actual real output in the economy is greater than the trend output level
Negative output gap*
Level of actual rule output in the economy is lower than the Trend output level
Productivity
Measure of output produced per unit of input
Research and development
Activities by firms to innovate and create new ideas or improve
Stagflation
Situation where there is both high inflation and high unemployment
Sustainable growth
Steady and balanced increase in economic activity over a long period of time
Innovation
Coming up with new ideas
short run growth
growth of real output resulting from using scarce resources including Labour thereby taking up the slack in the economy
long run growth
An increase in the economy’s potential level of rare output and outward movement of the economy’s ppf
Productive capacity
Maximum level of output that an economy is capable of producing with resources available
Economic cycle
Fluctuations of Economic activity in an economy over time
boom
A period of rapid economic growth and expansion of real output rising faster than the trend rate of growth
slowdown
The right of growth day accelerates reducing economic activity after a boom
Recession
six months or more of negative economic growth or declining real national output
Recovery*
A period of economic Improvement following a recession
Trend growth rate
Right at which output can grow on a sustained basis without inflationary Pressures
public sector borrowing
Amount of money borrowed by the government to finance its expenditures when its revenue falls short
Demand side fiscal policy
Use to increase or decrease the level of aggregate demand and shift the AD curve to the right or left through changes in government spending, taxation and the budget balance
Deficit financing
Deliberately running a budget deficit and then borrowing to finance the deficit
Expansionary fiscal policy
Uses fiscal policy to increase aggregate demand and to shift the A D curve to the right
Contractionary fiscal policy
Uses fiscal policy to decrease aggregate demand and shift the aggregate demand curve to the left
Discretionary fiscal policy
Involves making discrete changes to government spending and taxation and the budget deficit to manage their level of aggregate demand
sovereign Debt problem
This situation where a country is unable to meet its debt obligations which are payments it needs to make on its outstanding loans or bonds
Supply side fiscal policy
Used to increase the economy’s ability to produce and supply goods through creating incentives to work, save, invest and be entrepreneurial. Interventionists supply side fiscal policies such as financing of retraining Schemes for unemployed workers are also designed to improve supply side performance
National debt
The stock of all past government borrowing that has not been paid back
Cyclical budget deficit
The part of the budget deficit which rises in the downswing of the economic cycle and falls in the upswing of the cycle
Cyclical budget surplus*
When a government’s revenue exceeds its expenses during a period of economic growth It’s called cyclical because it’s influenced by the ups and downs of the economic cycle during times of economic expansion tax revenues tend to increase due to higher incomes and spending
Structural budget deficit
The part of the budget deficit which is not affected by the economic cycle but results from structural change in the economy affecting the government’s finances and also from long term government policy decisions
Progressive taxation
System where the tax rate increases as the income level of an individual or household increases in other words the more money someone earns the higher percentage of their incomes they are required to pay in taxes
Principle of taxation
Also known as canon of taxation a criterion used for judging whether a tax is good or bad
Regressive taxation
When the proportion of Income paid in tax falls as an income increases
Proportional taxation
When the proportion of income paid in the tax stays the same as income increases
Tax threshold
Income level at which an individual or or household becomes liable to pay income tax
Direct tax
Attacks that cannot be Shifted by the person legally liable to pay the tax on to someone else. Taxes are levied on income and wealth
Indirect tax
a tax that can be shifted by the person legally liable to pay the tax on to someone else for example through raising the price of a good being sold by the tax payer and direct taxes are levied on spending
bank rate
The rate of interest that the Bank of England pays to commercial banks on their deposits held at the Bank of England
Central bank
The National Bank that provides financial and banking services for its country’s Government and banking system as well as implementing the government’s monetary policy and issuing currency. the Bank Of England is the uk central Bank
Dividend
A dividend is a payment made by corporation to its shareholders usually in the form of cash or additional shares of stock
Financial sector
Part of the economy that deals with the management creation and exchange of its financial assets
Interest
Additional amount of money that is charged or earned when borrowing or lending money
Monetary policy
The use by the government and its agent the Bank of England of interest rates and other monetary instruments to achieve the government’s policy objectives
Quantitative easing
Monetary policy tool used by central banks to stimulate the economy involves the purchase of government bonds or other financial assets by the central bank which increases the money supply and lowers interest rates
supply side policies
Government economic policies which aim to make markets more competitive and efficient increase production potential and shift the long run aggregate supply curve to the right.
Supply side economics
A branch of free market economics arguing that the government policy should be used to improve the competitiveness and efficiency of markets and through this the performance of the economy
Interventionist policies
involve government intervention to overcome market failure. For example, higher government spending on transport, education and communication
noninterventionist supply side policys
involve policies to increase competitiveness and free-market efficiency. For example, privatisation, deregulation, lower income tax rates, and reduced power of trade unions
privatisation
selling of state owned assets to the private sector. For example, BT and Royal mail.
Marketization / commercialisation
Involves shifting provision of goods or services from the non market sector to the market sector
Deregulation
Involved removing previously imposed regulations opposite of regulation
frictional unemployment/ transactional
Caused by workers seeking a better job or who are in a time in between jobs usually short term
Geographical immobility of Labour
When workers are unwilling or unable to move from one area to another in search of work
Occupational immobility of Labour
When workers are unwilling or unable to move from one type of job to another e.g., because different skills are needed
Structural unemployment
A immobility of Labour due to long term change in the structure of an industry
deindustrialization
The decline of manufacturing industries, together with coal mining
Cyclical unemployment
Unemployment caused by the ups and downs of the economic cycle/ caused by lack of aggregate demand in the economy when the economy goes into a recession or depression
Keynesian unemployment
type of unemployment that occurs when aggregate demand in an economy is insufficient to create enough jobs for all willing and able workers.
seasonal unemployment
Unemployment arising in different seasons of the year, caused by factors such as the weather and the end of the Christmas shopping.
Real wage
wage rate adjusted for inflation or changes in purchasing power over time.
real wage unemployment
Unemployment is caused by wages being too high (above equilibrium market clearing real wage) relative to the productivity of workers, employers are unwilling to hire workers at the current wage level because they believe the workers aren’t worth that much
Voluntary unemployment
occurs when individuals choose not to work at the current wage rate and are capable of and willing to work. - economically inactive
Involuntary unemployment
Occurs when workers are willing to work at the current market wage rates but there are no jobs available
Equilibrium unemployment
the level of unemployment that exists when the labor market is in a state of equilibrium, where the number of job seekers matches the number of job vacancies available.- Such as structural, frictional, seasonal.
Natural rate of unemployment
The rate of unemployment when the aggregate labour market is in equilibrium
HDI
life expectancy, educatiion and GDP per capita,
eco growth vs eco development
