The macroeconomy (AS level) Flashcards
National income
a country’s total output
National income statistics
measures of the total output (income and expenditure ) of an economy
Gross domestic product (GDP)
the total output produced in a country
Gross national income (GNI)
GDP plus net income from abroad
Net property income from abroad
receipts of profit, rent and interest earned on the ownership of foreign assets minus payments of profit, rent and interest to non-residents
Compensation of employees
income of workers who work in another country for a short period of time.
Gross national disposable income
GNI plus net transfers of workers’ income to their relatives to and from other countries.
Multinational companies (MNCs)
firms that operate in more than one country
Circular flow of income
a simplified view of how income flows around the economy
Output method
a way of measuring GDP by calculating the total production of goods and services of the country
Value added
the difference between the price at which products are sold and the price of goods and services used in their production
Income method
a way of measuring GDP by totalling all the incomes earned in producing the country’s output.
Expenditure method
a way of calculating GDP by totalling all the spending on the country’s output
Market prices
Prices paid by consumers; they take into account indirect taxes and subsidies.
Basic prices
prices charged by producers before the addition of indirect taxes and the deduction of subsidies
Gross investment
total spending on capital goods
Net domestic product (NDP)
GDP minus depreciation
Net national income (NNI)
gross national income (GNI) minus depreciation
Net investment
additions to the capital stock
Depreciation (of capital goods)
the value of capital goods that have worn out or become out of date
Open economy
an economy that is involved in trade with other economies
Closed economy
an economy that does not trade with other countries
Injections
additions to the circular flow of income
Leakages
withdrawals from the circular flow of income
Aggregate demand (AD)
the total demand for an economy’s goods and services at a given price level in a given time period
Consumer expenditure
spending by households on goods and services
Dissaving
consumer expenditure exceeds income with people or countries drawing on past savings or borrowing
Saving
Income minus consumption
Investment
spending on capital goods
Government spending
the total of local and national government expenditure on goods and services
Net exports
exports minus imports
Exchange rate
the price of one currency in terms of another
Aggregate supply
The total output (real GDP) the producers in an economy are willing and able to supply at a given price level in a given time period
Short-run aggregate supply
the total output of an economy that will be supplied when there has not been enough time for the prices of factors of production to change
Long-run aggregate supply
the total output of a country supplied in the period when prices of factors of production have fully adjusted
Average cost
the cost per unit of output
Supply-side shocks
large and unexpected changes in short-run aggregate supply
Keynesians
people who agree with the view of economist John Maynard Keynes that government intervention is needed to achieve full employment
New classical economists
economists who think that the LRAS curve is vertical and that the economy will move toward full employment without government intervention
Macroeconomic equilibrium
the output and price level achieved where AD equals AS
Economic development
an increase in welfare and quality of life
Nominal (or money) GDP
total output measured in current prices
Real GDP
total output measured in constant prices
Base year
the reference point in time. It is the starting year in an index and is given a value of 100
Constant prices
prices by base year
Price index
a way of comparing changes in the price level over time. The value of the first year in the index (base year) is set at 100 and the value of each following year is a percentage of it
GDP deflator
the price index of all domestically produced goods and services
Recession
a decline in real GDP over at least two consecutive quarters
Unemployment
the state of being willing and able to work but not having a job
Homemakers
people who look after the households of their own families
Economically inactive
people who are not in the labour force
Labour force
the employed and the unemployed
Economically active
people in the labour force
Labour force participation rate
the proportion of the population that are of working age and who are either working or actively seeking work
Levels of unemployment
the number of workers who are unemployed
Unemployment rate
unemployed workers as a percentage of the labour force
Employment rate
employed workers as a percentage of the population of working age
Discouraged workers
workers who would like a job but who have given up actively seeking work after a period of trying to find work
Claimant count measure
a measure of unemployment based on those claiming unemployment benefits
Labour force survey measure
a measure of unemployment based on a survey that identifies people who are actively seeking a job
Sampling error
the people being surveyed having different characteristics or experiences to the rest of the population
Frictional unemployment
unemployment that is temporary and arises when workers are in-between jobs
Voluntary unemployment
unemployment resulting from the unemployed choosing not to accept jobs at a going wage rate
Search unemployment
unemployment that exists when people take time looking for a job they are willing to accept
Casual unemployment
unemployment that occurs when people have left one short-term job and before they take up another short-term job
Seasonal unemployment
Unemployment arising at particular times of the year when demand for the product falls
Structural unemployment
unemployment caused as a result of the changing structure of economic activity
Regional unemployment
unemployment arising from a decline in job vacancies in a particular area of the country
technological unemployment
unemployment caused by advances in technology
International unemployment
unemployment arising when a country loses its international competitiveness in producing a product or products
Cyclical unemployment
unemployment that results from a lack of aggregate demand
Underemployment
a situation where people are working fewer hours than they would like or working in jobs that they are overqualified for
Barter
direct exchange of goods and services for other goods and services
Price stability
a low and stable inflation rate
Inflation rate
the percentage rise is an economy’s price level over a period of time
Inflation
a sustained increase in an economy’s price level over a period of time
Price level
the average of all prices in an economy
Creeping inflation
a low rate of inflation
Hyperinflation
a very high rate of inflation, which may result in people losing confidence in the currency
Deflation
a sustained fall in the price level
Disinflation
a fall in the inflation rate
Annual average method
a way of calculating the inflation rate by comparing the average level of prices during the twelve-month period with the average level in the previous twelve months
Year-on-year method
a way of calculating the inflation rate by comparing the percentage change in the price level for a given month with that of the same month of the previous year
Consumer price index (CPI)
a measure that shows the average change in the prices of representative basket of products purchased by households
Money values
values at the prices operating at the time
Real data
data adjusted for inflation
Cost-push inflation
inflation caused by increases in costs of production
Wage-price spiral
higher wages causing prices to rise which, in turn, push up wages and so on
Demand-pull inflation
inflation caused by increases in aggregate demand not matched by equivalent increases in aggregate supply
Monetarists
economics who consider that inflation is caused by excessive growth in the money supply
Menu costs
costs to firms of having to change prices due to inflation
Shoe leather costs
costs of moving money around in the search of the highest interest rate
Fiscal drag
the income of people and firms being pushed into higher tax brackets as a result of inflation
Inflationary noise
confusion over relative prices caused by inflation
Total cost
the sum of fixed costs and variable costs
Debtors
people, firms or governments who owe money
