Theme 2 Flashcards
Actual economic growth
The rate of growth of GDP in a period
Aggregate demand
The total amount of spending on goods and services produced in an economy during a period of time
Aggregate demand (AD) curve
The relationship between the level of aggregate demand and the overall price level; it shows planned expenditure at any given possible overall price level
Monetary Policy Committee
The body within the Bank of England responsible for the conduct of monetary policy
Voluntary unemployment
Situation arising when an individual chooses not to accept a job at the going wage rate
Automatic stabilisers
Effects by which government expenditure adjusts to offset the effects of recession and boom without the need for active intervention. For example, during an economic boom, the government will receive more tax revenues because people earn more, and so pay more income tax (note the tax rate doesn’t change, the amount received just becomes higher). During an economic boom, there will also be a fall in unemployment so the government will spend less on unemployment benefits.
Average propensity to consume
The proportion of income that households devote to consumption. Note the difference between the average and the marginal propensity to consume.
Withdrawals
Where money flows out of the circular flow in the form of savings, taxation, and imports
Balance of payments
A set of accounts showing the transactions conducted between residents of a country and the rest of the world
Bank rate
The interest rate that is set by the Monetary Policy Committee of the Bank of England in order to reach its inflation target through demand management
Business cycle
A phenomenon whereby GDP fluctuates around its underlying trend, following a regular pattern
Capital productivity
A measure of output per unit of capital
Circular flow of income, expenditure and output
A model of the economy which shows the movement of goods and services between households and firms and their corresponding payments in money terms
Claimant count of unemploymnet
The number of people claiming the Jobseeker’s Allowance each month
Consumer price index (CPI)
A measure of the general level of prices in the UK, the rate of change of which has been used as the government’s inflation target since January 2004
Consumption
Total planned household spending
Consumption function
The relationship between consumption and disposable income. Its position depends on the other factors that affect how much households spend on consumption
Cost-push inflation
Inflation initiated by an increase in the costs faced by firms, arising on the supply side
Crowding out
A process by which an increase in government expenditure crowds out private sector activity by raising the cost of borrowing
Cyclical unemployment
Unemployment that arises during the downturn of the economic cycle, such as a recession
Deflation
A fall in the average level of prices (negative inflation)
Demand-deficient unemployment
Unemployment that arises because of a deficiency of aggregate demand in the economy, so that the equilibrium level of output is below full employment
Demand-pull inflation
Inflation initiated by an increase in aggregate demand
Depreciation
The fall in value of physical capital equipment over time due to wear and tear
Discouraged workers
People who have been unable to find employment and who are no longer looking for work
Disinflation
A fall in the rate at which inflation is increasing
Disposable income
The income that households have to devote to consumption and saving, after taking into account payments of direct taxes and transfer payments
Economically inactive
Those people of working age who are not looking for work, for a variety of reasons
Exchange rate
The price of one currency in terms of another
Export-led growth
A strategy for achieving rapid economic growth through the promotion of export activity
Fiscal policy
Decisions made by the government on its expenditure, taxation, and borrowing
Workforce
People who are economically active - either in employment or unemployed
Frictional unemployment
Unemployment associated with job search (i.e. people who are between jobs)
Full employment
A situation where people who are economically active in the workforce and are willing and able to work (at going wage rates), are able to find employment
GNI per capita
The average level of GNI per head of population
Government budget deficit (surplus)
The balance between government expenditure and revenue
In employment
People who are either working for firms or other organisations, or self-employed
Marginal propensity to save (MPS)
The proportion of each added dollar of income that is saved rather than spent
Income
A flow concept - the amount of income that is earned during a period
Index number
A device for comparing the value of a variable in one period or location with a base observation. Calculated as the new value divided by the base value x 100
Inflation
The rate of increase in the average price level in an economy
Injections
Where money flows into the circular flow in the form of consumption C, investment I, government spending G, and exports X
Interventionist policies
Policies by which the government intervenes to stimulate aggregate supply
Investment
Expenditure undertaken by firms to add to the capital stock
Involuntary unemployment
Situation arising when an individual willing to accept a job at the going wage rate is unable to find employment
Multiplier
The ratio of a change in equilibrium real income to the autonomous change that brought it about; it is defined as 1 divided by the marginal propensity to withdraw (MPW)
Labour productivity
A measure of of output per worker, or output per hour worked
ILO unemployment rate
A measure of the percentage of the workforce who are without jobs, but are available for work, willing to work, and looking for work
Macroeconomics
The study of the interrelationships between economic variables at an aggregate (macroeconomic) level
Human capital
The stock of skills and expertise that contribute to a worker’s productivity; it can be increased through education and training
Marginal propensity to import (MPM)
The proportion of additional income that is spent on imports of goods and services
Marginal propensity to tax
The proportion of additional income that is taxed
Marginal propensity to withdraw (MPW)
The proportion of additional income that is withdrawn from the circular flow. It is the sum of leakages out of the circular flow: the marginal propensity to save, the marginal propensity to import, and the marginal propensity to tax
Market-based policies
Supply-side policies that rely on allowing markets to work more freely and providing incentives for enterprise and initiative in order to increase aggregate supply
Keynesian school
A group of economists who believed that the macroeconomy could settle at an equilibrium that was below full employment
Monetary policy
The decisions made by government regarding monetary variables such as the money supply of the interest rate
Money supply
The quantity of money in the economy
Natural rate of unemployment
The unemployment rate that will exist when the economy is in long-run equilibrium
Unemployed
People who are economically active but are not in employment
Net investment
Gross investment minus depreciation
Nominal value
The value of an economic variable based on current prices, without taking into account the change in prices over time
New Classical Monetarist school
A group of economists who believed that the macroeconomy always adjusts rapidly to the full employment level of output, and that monetary policy should be the prime instrument for stabilising the economy
Output gap
The difference between actual real GDP and potential real GDP
Phillips curve
An empirical relationship suggesting that there is a trade-off between unemployment and inflation
Potential economic growth
An expansion in the productive capacity of the economy
Productivity
A measure of the efficiency of a factor of production
Quantitative easing
A process by which liquidity in the economy is increased when the Bank of England purchases assets from banks
Real rate of output
The long-run equilibrium level of output to which monetarists believe the macroeconomy will always tend
Real value
The value of an economic variable, taking into account the change in prices over time
Recession
When GDP falls for two or more consecutive quarters
Retail price index (RPI)
A measure of the average level of prices of specific retail goods and services in the UK
Short-run aggregate supply curve
A curve showing how much output firms would be prepared to supply in the short run at any given overall price level
Gross national income (GNI)
GDP plus net income from abroad
Seasonal unemployment
Unemployment that arises in seasons of the year when demand is relatively low
Gross domestic product (GDP)
A measure of the economic activity carried out in the domestic economy over a period
Stagflation
A situation describing an economy in which both unemployment and inflation are high at the same time
Structural unemployment
Unemployment arising because of changes in the pattern of economic activity within an economny
Supply-side policies
A range of policies intended to have a direct impact on aggregate supply and on the potential capacity output of the economy. They may be interventionist or market-based
Sustainable development
‘Development that meets the needs of the present without compromising the ability of future generations meet their own needs’ (Brundtland Commission, 1987)
Total factor productivity
The average productivity of all factors, measured as total output divided by the total amount of inputs used
Transmission mechanisms of monetary policy
The process by which a change in the bank rate affects inflation through consumption and investment
Underemployment
Where an individual is employed in a second-choice occupation or is only able to work part-time but would like to work full-time
Wealth
A stock concept - the accumulation of assets, such as property or shares
