National and international Economy vocabulary test Flashcards
Macro Economics
The study of behaviour of an economy as a whole
Additional Information:·
Concerning e.g. what determines inflation in UK?
Micro Economics
The study of behaviour of parts of the economy
Additional Information:
Concerning individual markets, firms or industries e.g.
what determines the price of TVs in UK?
Gross Domestic
Product (GDP)
The value of output produced by domestic based
resources per year
Additional Information:
Understates true output since DIY etc not counted but
overstates it if net external costs are generated; per capita
GDP is a simple measure of average living standards;
differs from GNP (gross national product) only because
GDP excludes the net income flow arising from foreign
ownership of assets (i.e. interest, dividends &.profits)
Economic Growth
Rate of increase in national output per year
Additional Information:
National output = gross domestic product i.e. the value of
output produced by domestic based resources p.a.; this
term is usually associated with real growth
Real Growth
Growth of GDP after inflation has been accounted for (i.e.
at constant prices)
Additional Information:
This is the key measure of national economic
performance; is on the horizontal axis of AD/ AS theory
and is therefore stimulated by an increase (shift right) in
either AD or AS
Nominal Growth
Growth of GDP before inflation has been accounted for (i.e. a current prices)
Additional Information:
Nominal growth rate - inflation rate= real growth rate (approximately)
Inflation (P)
The rate of change in the average price level
Additional Information:
RPl measures level of retail prices at a point in time; inflation (year 1-2) = RPI (year 2) - RPI (year 1) / RPI
(year 1 ~ x 100; RPI includes all retail prices (weighted in
proportion to household spending); RPIX excludes
mortgage repayments (therefore if interest rates increase
RPI rises but RPIX doesn’t)
Consumer Price
Index (CPI)
An index number measuring a weighted average for the
price of consumer goods and services at a point in time
Additional Information:
Replaced RPIX as a target for inflation by the Bank of
England after 2003 as more internationally comparable
and broader (includes financial services; but excludes
council tax)
Retail Price Index (RPI)
Weighted average of the retail price level at a point in time (expressed as an index number)
Additional Information:
Weights reflect % household spending; arguably .-
overstates the cost of living since the Weights are slow to
change & quality of goods generally increases (so value
rises despite increase in price)
Underlying
Inflation (RPIX)
RPI excluding mortgage repayment costs
Weighted average of the retail price level at a point in time (expressed as an index number)
Additional Information:
The Bank of England targeted RPIX at 2.5% between
1997-2003, when considering interest rate change. After
2003 it targeted the related measure of Consumer Prices
Index (CPI) at 2.0%; RPIY is another measure of
underlying inflation (= RPIX - indirect tax)
