The macroeconomy (A level) Flashcards
Multiplier
a numerical estimate of a change in spending in relation to the final change in spending
Marginal propensity to save (mps)
the proportion of extra income which is saved
Marginal propensity to consume (mpc)
the proportion of extra income that is spent
Aggregate expenditure
the total amount spent in the economy at different levels of income
Marginal propensity to import (mpm)
the proportion of extra income spent on imports
Consumption
spending by households on goods and services
Average propensity to consume (apc)
the proportion of income that is consumed
Average propensity to import (apm)
the proportion of income that is spent on imports
Consumption function
the relationship between income and consumption
Savings function
the relationship between income and saving
Autonomous investment
investment that is made independent of income
Induced investment
investment that is made in response to changes in income
Accelerator theory
a model that suggests investment depends on the rate of change in income
Capital-output ratio
a measure of the amount of capital used to produce a given amount, or value, of output
Inflationary gap
the excess of aggregate expenditure over potential output (equivalent to a positive output gap)
Deflationary gap
a shortage of aggregate expenditure so that potential output is not reached (equivalent to a negative output gap)
Actual economic growth
an increase in real GDP
potential economic growth
an increase in the productive capacity of the economy
Output gap
a gap between actual and potential output
Negative output gap
a situation where actual output is below potential output
Positive output gap
a situation where actual output is above potential output
Business cycle
fluctuations in economic activity; also known as trade cycle
Depression
a fall in real GDP that lasts several years
Gig economy
a labour market based on short-term contracts
Sustainable economic growth
economic growth that does not threaten future generations’ ability to experience economic growth
Climate change
a change in the weather of a region over a period of time
Greenhouse gases
carbon dioxide, methane, nitrous oxide
Global warming
a rise in the temperature of the world’s atmosphere arising from the emission of greenhouse gases
Polluter pays principle
a policy that makes those responsible for causing damage to the environment pay for that damage
Full employment
the level of employment corresponding to where all who wish to work have found jobs, excluding frictional unemployment
Equilibrium unemployment
the unemployment which exists when the labour market is in equilibrium. It includes voluntary, frictional and structural unemployment
Voluntary unemployment
unemployment that arises when workers are not willing to work at the current wage rate.
Disequilibrium unemployment
unemployment that arises when the aggregate supply of labour is greater than the aggregate demand for labour at the current wage rate
Natural rate of unemployment
the rate of unemployment that exists when the aggregate demand for labour equals the aggregate supply of labour at current wage rate and price level
Hysteresis
unemployment causing unemployment due to workers becoming deskilled and demotivated when they are out of work for a long time.
Long-term unemployed
those who have been unemployed for a year or longer
Labour mobility
ability of workers to change where they work and in which occupation
Self-employed
those working for themselves
Occupational mobility of labour
the ability of workers to move from one occupation to another occupation
Geographical mobility of labour
the ability of workers to move to a job in a different location
Money
an item which is generally acceptable as a means of payment
Double coincidence of wants
a situation where two people each have something the other one wants
Money supply
the total amount of money in an economy
Narrow money
money that can be spent directly
Broad money
money used for spending and saving
Quantity theory of money
the theory that links inflation in an economy changes in the money supply
Fisher equation
the statement that MV = PT
Demand deposit account
a bank account that allows the holder to make and receive payments
Savings deposit account
a bank account which pays interest and may require notice to be given before money can be withdrawn from it
Government securities
bills and bonds issued by the government to raise money
Equities
shares in firms
Overdraft
permission to spend more than is in a demand deposit account
Loan
a sum of money lent at an agreed rate of interest for a specific time period
Reserve ratio
the proportion of liquid assets to total liabilities
Capital ratio
a bank’s available financial capital as a percentage of its riskier assets
Liquid
the ability to turn an asset into cash quickly and without loss
Bank credit multiplier
the process by which banks can make more loans than deposits available
Quantitative easing
a situation where a central bank buys government and private securities from the private sector in order to increase the money supply and so stimulate economic activity
Total currency flow
the net amount of money that flows into or out of the country as a result of international transactions
Economic and monetary union
co-ordination of policies and the operation of a single currency by a group of countries
Liquidity preference
a Keynesian concept that explains why people demand money
Transactions motive
the desire to hold money for the day-to-day buying of goods and services
Precautionary motive
a reason for holding money for unexpected or unforeseen events
Active balances
the amount of money held by households or firms for possible near-future use
Speculative motive
a reason for holding money with a view to make future gains from buying financial assets
Idle balances
the amount of money held temporarily as the returns from holding financial assets are too low
Liquidity trap
a situation where interest rates cannot be reduced any more in order to stimulate an upturn in economy activity
