Macroeconomics key words year 1 Flashcards
1
Q
Accelerator.
A
A change in the level of investment in new capital goods is induced by a change in the rate of growth of national income or aggregate demand.
2
Q
Actual Output.
A
Level of real output produced in the economy in a particular year, not to be confused with the trend level of output. The trend level of output is what economy is capable of producing when working at full capacity. Actual output differs from the trend level of output when there are output gaps.
3
Q
Aggregate Demand.
A
The total planned spending on the real output produced within the economy.
4
Q
Aggregate Supply.
A
The level of real national output that producers are prepared to supply on real at different average price levels.
5
Q
Availability of Credit.
A
Funds available for households and firms to borrow.
6
Q
Balance of Payments.
A
A record of all the currency flows into and out of a country in a particular time period.
7
Q
Balance of Payments Equlibrium (or Current Account Equlibrium).
A
Occurs when the current account more or less balances over a period of years.
8
Q
Balance of Trade.
A
The difference between the money value of a country’s imports and exports. Balance of Trade is the largest component of a country’s balance of payments on current account.
9
Q
Balance of Trade Deficit.
A
When the money value of a country’s imports exceeds the money value of its exports.
10
Q
Balance of Trade in Goods.
A
The part of the current account measuring payments for exports and imports of goods. The difference between the total value of exports and the total value of imports of goods is sometimes called the ‘balance of visible trade’.
11
Q
Balance of Trade in Services.
A
Is part of the current account and is the difference between the payments for the exports of services and the payments for the import of services.
12
Q
Balance of Trade Surplus.
A
When the money value of a country’s exports exceeds the money value of its imports.
13
Q
Balanced Budget.
A
Achieved when government spending equals government revenue.
14
Q
Bank of England.
A
The central bank in the UK economy which is in charge of monetary policy.
15
Q
Bank Rate.
A
The rate of interest the Bank of England pays to commercial banks on their deposits held at the Bank of England.
16
Q
Budget Deficit.
A
Occurs when government spending exceeds government revenue (G > T). This represents a net injection of demand into the circular flow of income and hence a budget deficit is expansionary.
17
Q
Budget Surplus.
A
Occurs when government spending is less than government revenue (G < T). This represents a net withdrawal from the circular flow of income and hence a budget surplus is contractionary.
18
Q
Central Bank.
A
Controls the Banking system and implements monetary policy on behalf of the government.
19
Q
Certainty.
A
One of the principles of taxation. Taxpayers should be reasonably certain the amount of tax they will be expected to pay.
20
Q
Claimant Count.
A
The method of measuring unemployment according to those people who are claiming unemployment-related benefits.
21
Q
Closed Economy.
A
An economy with no international trade.
22
Q
Consumer Price Index (CPI).
A
The official measure used to calculate the rate of consumer price inflation in the UK. The CPI calculates the average price increase of a basket of 700 different consumer goods and services.
23
Q
Consumption.
A
Total planned spending by households on consumer goods and services produced within the economy.
24
Q
Contractionary Fiscal Policy.
A
Uses fiscal policy to decrease aggregate demand and to shift AD to the left.
25
Contractionary Monetary Policy.
Uses higher interest rates and other monetary tools to decrease aggregate demand and to shift the AD curve to the left.
26
Convenience.
The principle of taxation which requires a tax to be convenient for taxpayers to pay.
27
Cost-Push Inflation (Cost Inflation).
A rising price level caused by an increase in the costs of production, shown by a shift of the SRAS curve to the left.
28
Credit Crunch.
Occurs when there is a lack of funds available in the credit market, making it difficult for borrowers to obtain financing and leads to a rise in the cost of borrowing.
29
Crowding Out.
A situation in which an increase in government or public spending displaces private sector spending, with little or no increase in aggregate demand.
30
Current Account Deficit
Occurs when currency outflows in the current account exceed currency inflows. It is often shortened to 'exports less than imports'.
31
Current Account of the Balance of Payments.
Measures all the currency flows into and out of a country in a particular time period in payments for exports and imports, together with income and transfer flows (primary Income and secondary income flows).
32
Current Account Surplus.
Occurs when currency inflows in the current account exceed currency outflows. It is often shortened to 'exports greater than imports'.
33
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.
34
Cyclical Budget Surplus.
If the structural deficit were zero, a cyclical surplus would probably emerge in the upswing of the economic cycle.
35
Cyclical Unemployment (Keynesian Unemployment) (Demand Deficient Unemployment).
As the latter name suggests' it is unemployment caused by a lack of aggregate demand in the economy and occurs when the economy goes into a recession or depression.
36
Deficit Financing.
Deliberately running a budget deficit and borrowing to finance the deficit.
37
Deflation.
A persistent or continuing fall in the average price level.
38
Deindustrialisation.
The decline of manufacturing industries, together with coal mining.
39
Demand Side
Relates to the impact of changes in aggregate demand on the economy. Associated with Keynesian economics.
40
Demand-Pull Inflation (Demand Inflation).
A rising price level caused by an increase in aggregate demand, shown by a shift of the AD curve to the right.
41
Demand-Side Fiscal Policy.
Used to increase or decrease the level of aggregate demand (and to shift the AD curve right or left) Through changes in government spending, taxation, and the budget balance.
42
Deregulation.
Involves removing previously imposed regulations. it is the opposite of regulation.
43
Direct Tax.
A tax which cannot be shifted by the person legally liable to pay the tax onto someone else. Direct taxes are levied on income and wealth.
44
Discretionary Fiscal Policy.
Involves making discrete changes to G, T and the budget deficit to manage the level of aggregate demand.
45
Disinflation.
When the rate of inflation is falling but still positive and the price level is rising more slowly than predicted.
46
Distribution of Income.
The spread of different incomes among individuals and different income groups in the economy.
47
Economic Cycle (Business Cycle) (Trade Cycle).
Upswing and downswing in aggregate economic activity taking place over 4 to 12 years.
48
Economic Performance.
Success or failure in achieving economic goals.
49
Economic Recovery.
When short-run economic growth takes place after a recession.
50
Economic Shock.
An unexpected event hitting the economy. Economic shocks can be demand side or supply side (and sometimes both) and unfavorable or favorable.
51
Economy.
The principle of taxation which requires a tax to be cheap to collect in relation to the revenue it yields.
52
Efficiency (as a Principle of Taxation).
A tax should achieve its desired objective(s) with minimum unintended consequences.
53
Emerging-Market Country.
A country that is progressing towards becoming more economically advanced, by means of rapid growth and deindustrialization.
54
Equation of Exchange.
The stock of money in the economy multiplied by the velocity of circulation of money equals the price level multiplied by the quantity of real output in the economy. (MV=PQ)
55
Equilibrium Unemployment.
Exists when the economy's aggregate labor market is in equilibrium. It is the same as the natural level of unemployment.
56
Equilibrium National Income (Macroeconomic Equilibrium)
The level of real output at which aggregate demand equals aggregate supply (AD=AS). Alternatively, it is the level of income at which withdrawals from the circular flow of income equal injections into the flow.
57
Equity (As a Principal of Taxation).
Requires a tax to be fair.
58
Exchange Rate.
The price of a currency, E.G The pound, measured in terms of another currency such as the US dollar or the euro.
59
Expansionary Monetary Policy.
Uses lower interest rates and other monetary instruments, such as quantitative easing to increase aggregate demand to shift the AD curve to the right.
60
Expansionary Fiscal Policy.
Uses fiscal policy to increase aggregate demand and to shift the AD curve to the right.
61
Export-Led Growth.
In the short run, economic growth resulting from the increase in exports as a component of aggregated demand. In the long run, economic growth resulting from the growth and increased international competitiveness of exporting industries.
62
Exports.
Domestically produced goods and service sold to residents of other countries.
63
Fiscal Policy.
The use by the government of government spending and taxation to try and achieve the government's policy objectives.
64
Flexibility.
The principle of taxation that requires a tax to be easy to change to meet new circumstances.
65
Frictional Unemployment. (Transitional Unemployment).
Unemployment that is usually short-term and occurs when a worker switches between jobs.
66
Full Employment.
According to Beveridge's definition, full employment means 3% or less of the labour force unemployed. According to its free-market definition, it is the level of employment occurring at the market-clearing real-wage rate, where the number of workers whom employers wish to hire equals the number of workers wanting work.
67
Geographical Immobility of Labour.
When workers are unable or unwilling to move from one area to another in search of work.
68
Gross Domestic Product (GDP).
The sum of all goods and services, or level of output, produced in the economy over a period of time, E.G one year.
69
Import-Cost Inflation.
A rising price level caused by an increase in the cost of imported energy, food, raw materials, and manufactured goods, shown by a shift of the SRAS curve to the left.
70
Imports.
Goods or services produced in other countries and sold to residents of this country.
71
Index Number.
A number used in an index, such as the Consumer Price Index, to enable accurate comparisons over time to be made. The base year index number is typically 100. In subsequent years, percentage decreases cause the index number to fall below the index number for the previous year, and percentage increases cause the index number to rise above the index number recorded for the previous year.
72
Indexation.
The automatic adjustment of items such as pensions and welfare benefits to changes in the price level. Through the use of a price index.
73
Indirect Tax.
A tax which can be shifted by the person legally liable to pay the tax onto someone else, for example through raising the price of a good being sold by the taxpayer. Indirect taxes are levied on spending.
74
Inflation.
A persistent or continuing rise in the average price level.
75
Inflation Rate Target.
The CPI inflation rate target set by the government for the Bank of England to try to achieve. The target is currently 2%.
76
Injection.
Spending entering the circular flow of income as a result of investment, government spending and exports.
77
Interventionist Policies.
Occur when the government intervenes in, and sometimes replaces, free markets. Interventionist supply-side policies include government funding of research and development.
78
Investment.
Total planned spending by firms on capital goods produced within the economy.
79
Involuntary Unemployment.
When workers are willing to work at the current market wage rates but there are no jobs available.
80
Keynesian Economists.
Followers of the economist John Maynard Keynes, who generally believe that governments should manage the economy, particularly through the use of fiscal policy.
81
Labour Force Survey.
A quarterly sample of households in the UK. Its purpose is to provide information on the UK labour market. The survey seeks information on respondents' personal circumstances and their labour market status during a period of 1-4 weeks.
82
Life Cycle Theory of Consumption
A theory that explains consumption and saving in terms of how people expect their incomes to change over the whole of their life cycles.
83
Liquidity.
Measures the ease with which assets can be turned into cash quickly without a loss in value. Cash is the most liquid of all assets.
84
Long Run Aggregate Supply (LRAS).
Aggregate supply when the economy is producing at its production potential. If more factors of production become available or productivity rises, the LRAS curve shifts to the right.
85
Long-Run Economic Growth.
an increase in the economy's potential level of real output, and an outward movement of the economy's production possibility frontier.
86
Macroeconomics.
Involves the study of the whole economy at the aggregate level.
87
Marginal Propensity to Consume (MPC).
The fraction of an increase in disposable income (after tax) that people plan to spend on domestically produced consumer goods.
88
Marketisation (Commercialisation).
Involves shifting provision of goods or services from the non-market sector to the market sector.
89
Monetarists.
Economists who argue that prior increases in the money supply are the cause of inflation.
90
Monetary Policy.
The use by the government and its agents, the Bank of England, of interest rates and other monetary instruments to try to achieve the government's policy objectives.
91
Monetary Policy Committee (MPC).
Nine economists, chaired by the governor of the Bank of England, who meet once a month to set Bank Rate, the Bank of Englands key interest rate, and also decide whether other aspects of monetary policy neede changing.
92
Money.
An asset that can be used as a medium of exchange; it is used to buy things.
93
Money Supply.
The stock of money in the economy, made up of cash and bank deposits.
94
Multiplier.
The relationship between a change in aggregate demand and the resulting usually larger change in national income.
95
National Capital Stock.
The stock of capital goods, such as buildings and machinery, in the economy that has accumulated over time and is measured at a point in time.
96
National Debt.
The stock of all past central government borrowing that has not been paid back.
97
National Income.
The flow of new output produced by the economy in a particular period (E.G a year).
98
National Output.
The same as national income, namely the flow of new output produced by the economy in a particular period (E.G a year).
99
National Product.
Another name for national income and national output.
100
National Wealth.
The stock of all goods that exist at a point of time that have value in the economy.
101
Natural Rate of Unemployment (NRU).
The rate of unemployment when the aggregate labour market is in equilibrium.
102
Negative Output Gap.
The level of actual real output in the economy is lower than the trend output level.
103
Net Investment Income.
The difference between inward and outward flows of investment income. when the net investment income is positive, the UK is earning more income generated by the direct and portfolio investments held abroad than it is paying to overseas owners of capital assets in the UK. Investment income is the main component of primary income flows in the current account of the balance of payments.
104
Nominal GDP.
GDP measured at the current market prices, without removing the effect of inflation.
105
Non-Interventionist Supply-Side Policies.
Free up markets, promote competition and greater efficiency, and reduce the economic role of the state.
106
Occupational Immobility of Labour.
When workers are unwilling or unable to move from one type of job to another, for example, because different skills are needed.
107
Open Economy.
An economy open to international trade.
108
Output Gap.
The level of actual real output in the economy is greater or lower than the trend output level.
109
Performance Indicator.
Provides information for judging the success or failure of a particular type of government policies such as fiscal policy or monetary policy.
110
Phillips Curve.
Based on evidence from the economy, showing the apparent relationship between the rate of inflation and the rate of unemployment. Now known as the short run Phillips Curve.
111
Policy Conflict.
Occurs when two policy objectives cannot both be achieved at the same time: the better the performance in achieving one objective, the worse the performance in achieving the other.
112
Policy Instrument.
A tool or set of tools used to try to achieve a policy objective.
113
Policy Objective.
A target or goal that policy-makers aim to 'hit'.
114
Positive Output Gap.
The level of actual real output in the economy is greater than the trend output level.
115
Price Index.
An index number showing the extent to which a price, or a 'basket' of prices, has changed over a month, quarter or year, in comparison with the price(s) in a base year.
116
Principal of Taxation (Canon of Taxation).
A criterion used for judging whether a tax is good or bad.
117
Privatisation.
Involves shifting ownership of state-owned assets to the private sector.
118
Pro-Free market Economists.
Opponents of Keynesian Economists, who dislike government intervention in the economy and who much prefer the operation of free markets.
119
Progressive Tax.
A tax is progressive if, as income rises, a larger proportion of income is paid in tax.
120
Proportional Tax.
When the proportion of income paid in tax stays the same as income increases.
121
Public Sector Borrowing.
Borrowing by the government and other parts of the public sector to finance a public deficit.
122
Quantity Theory of Money.
Oldest theory of inflation, incorporated into monetarism, which states that inflation is caused by a persistent increase in the supply of money.
123
Rate of Intrest.
The reward for lending savings to somebody else (E.G a bank) and the cost of borrowing.
124
Real GDP.
A measure of all the goods and services produced in an economy, adjusted for inflation. The adjustment changes in nominal GDP, which is measured in money terms, into a measure that reflect changes in the total output of the economy.
125
Real Wage.
The purchasing power of the nominal(or money) wage, for example, real wages fall when inflation is higher than the rise in the nominal wage rate and real wages rise when the nominal wage rate increases more rapidly than inflation.
126
Real-Wage Unemployment
Unemployment caused by real wages being stuck above the equilibrium real wage.
127
Recession.
A fall in real GDP for 6 months or more.
128
Reflationary policies.
Policies that increase aggregate demand with the intention of increasing real output and employment.
129
Regressive Taxation.
When the proportion of income paid in tax falls as income increases.
130
Reindustrialise.
Growth of manufacturing industries to replace industries which have disappeared or declined significantly in size (Opposite of deindustrialisation).
131
Retail Prices Index (RPI)
The RPI is an older measure used to calculate the rate of consumer price inflation in the UK. Currently, the UK government uses the CPI for the indexation of state pensions and welfare benefits and for setting a monetary policy target, and the RPI for uprating each year the cost of TV and motor vehicle licences, together sometimes with taxes on goods such as alcoholic drinks.
132
Saving.
Income which is not spent.
133
Seasonal Fluctuation.
Variation of economic activity resulting from seasonal changes in the economy.
134
Seasonal Unemployment.
Unemployment arising in different seasons of the year, caused by factors such as weather and the end of Christmas Shopping period.
135
Short-Run Aggregate Supply (SRAS).
Aggregate supply when the level of capital is fixed, though the utilisation of existing factors of production can be altered so as to change the real output.
136
Short-Run Economic Growth.
Growth of real output resulting from using idle resources, including labour, thereby taking up the slack in the economy.
137
Sovereign Debt Problem.
Sovereign debt is the part of the national debt owned by the people or institutions outside the country that has sold the debt to them. The Sovereign debt problem stems from the difficulties governments face when trying to finance budget deficits by borrowing on international financial markets.
138
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 finance, and also from long-term government policy decisions.
139
Structural Unemployment.
Long-term unemployment occurring when some industries are declining, even though other industries may be growing. Also occurs within a growing industry if automation reduces the demand for labour, and when production requires new skills not possessed by the workers who lose their jobs. structural unemployment is associated with the occupational and geographical immobility of labour.
140
Supply-Side.
Relates to changes in the potential output of the economy which is affected by the available factors of production, E.G changes in the size of the labour force, and the productivity of the economy.
141
Supply-Side Economics.
A branch of free-market economics arguing that government policy should be used to improve the competitiveness and efficiency of markets and, through this, the performance of the economy.
142
Supply-Side Fiscal Policy.
Used to increase the economy's ability to produce and supply good, through creating incentives to work, save, invest and be entrepreneurial. Interventionist supply-side fiscal policies, such as financing the retraining schemes for unemployed workers, are also designed to improve supply-side performance.
143
Supply-Side Improvement.
Reforms undertaken by the private sector to reduce costs to enable firms to become more productive efficient and competitive. Supply-side improvements often result from more investment and innovation, often undertaken by firms without prompting from the government.
144
Supply-Side Policies.
Aim to improve national economic performance by creating competitive and more efficient markets and through interventionist policies such as government finance of labour retraining schemes.
145
Tax Threshold.
The basic tax threshold is the level of income above which people pay income tax. Income below the basic tax threshold is untaxed.
146
Technical Progress.
New and better ways of doing things.
147
Trade-Offf between policy objectives.
The extent to which one policy objective has to be sacrificed in order to achieve another objective.
148
Transfers.
Payments flowing between countries in forms such as foreign aid, grants, private transfers and gifts and payments to or from the EU budget. They are payments that are made without anything of economic value being received in return. Not to be confused in this context with part of government spending in which tax revenues are paid to people such as pensioners, without any output being produce in return.
149
Trend Growth Rate.
The rate at which output can grow, on a sustained basis, without putting upward or downward pressure on inflation. it reflects the annual average percentage increase in the productive capacity of the economy.
150
Voluntary Unemployment.
Occurs when workers choose to remain unemployed and refuse job offers at current market wage rates.
151
Wage-Cost Inflation.
A rising price level caused by an increase in wages and salaries, shown by a shift of the SRAS curve to the left.
152
Wealth.
The stock assets which have value at a point in time, as distinct from income which is a flow generated over a period of time.
153
Withdrawal.
A leakage of spending power out of the circular flow of income into savings, taxation or imports.
