Theme 2 definitions Flashcards
Index number
Used to track each economic factor
Nominal value
Price without removing inflation
Real value
Price with removing inflation
Economic growth
An increase in the productive potential of an economy
GDP
- Gross Domestic Product
- Represents the total output of an economy during a period of time.
GDP per capita
The average GDP per head of population
GNI
- Gross National Income
- Takes into account income flows between countries
Long run economic growth
Expansion of the economy capacity to produce goods and services
Short run growth
Increase in real GDP over a period of time
Power purchasing parity
The measurement of prices in different countries that uses the prices of specific goods to compare the purchasing power of the countries’ currencies.
Inflation
An increase in the overall level of prices in an economy.
Deflation
Negative inflation
Disinflation
A period in which inflation falls relative to the previous period
Basket of goods and services
A fixed set of consumer products and services whose price is evaluated on a regular basis, often monthly or annually.
Hyperinflation
Very high inflation and usually accelerating rates of inflation
Consumer Price Index (CPI)
- It is the price of a weighted average market basket of consumer goods and services purchased by households
- Main measure of inflation
Shrinkflation
Changing the size of products rather than the price
Redistribution effect
Inflation redistributes income away from certain groups in the economy and towards other groups
Menu costs
Costs incurred by firms when they have to print new menus due to changes in prices
Money illusion
Refers to the idea that some people feel better off when their nominal income increases, even though the price level may increase at the same rate and possibly even faster
Demand pull inflation
When aggregate or total demand rises and there is no increase in aggregate supply
Cost pull inflation
When aggregate supply decreases
Money supply
The amount of money flowing in the economy
Employment
The state of being paid to work for a company or organisation
Unemployment
The state of being out of work while being willing and able to work
Long term unemployment
It accounts for people who have been out of work for at least one year
Cyclical unemployment
Cyclical unemployment is caused by low levels of aggregate demand, reducing the demand for labour
Frictional unemployment
Frictional unemployment is caused by workers seeking a better job or who are in-between jobs.
Structural unemployment
Caused by lack of suitable skills for the jobs available
Unemployment trap
This is a situation in which there is little financial incentive for someone who is unemployed to start working because the combined loss of benefits and a need for them to pay taxes may lead to them being worse off
Real wage unemployment
When real wage rates are stuck at a level above that needed to reduce unemployment any further
Economically active
Those who are of working age but are neither in work or actively seeking work
Discouraged workers
People who have failed to find work and have given up looking
Underemployment
Those who would prefer to work longer hours or are in a job below their skill set, they are under-utilised
Labour force survey
Identifies the number of people available for work, and seeking work, but without a job
Claimant count measure
The total number of recipients of JSA and UC
Balance of payment accounts
They record all financial transactions between residents of a country and the rest of the world over a time period
Balance of trade
The difference between the value of visible exports and visible imports
Current balance
Difference between the value of total exports and total imports
Current account
It records money flow between the UK and the rest of the world arising from trade in goods and services, income from owning overseas assets and overseas transfers
Trade in goods (visible)
These are goods traded in or out of the country, known as visible
Trade in services (invisibles)
These are services traded in or out of the country, known as invisibles.
Exports
Goods and services sold to foreigners by UK firms
Imports
Goods and services bought by UK residents and firms from foreigners
Current account surplus
When there are more inflows than outflows
Current account deficit
When there are more inflows than outflows
Primary income
Income from the loan of factors of production abroad
Secondary income
A range of mainly government transfers to and from overseas organisations
Open economy
An economy in which there is foreign trade
Closed economy
An economy in which there is no foreign trade
National output
e value of the flow of goods and services from firms and households
National expenditure
The value of spending by households on goods and services
National income
The value of income paid by firms to households in return for land, labour and capital
Aggregate demand
It is the total demand for goods and services in an economy at a given time
Wealth
Wealth is the value of a stock of assets owned by someone
Income
Income is the flow of money going to factors of production
Injection
An injection into the circular flow is a monetary addition to the economy
Investment
Spending by firms on new capital equipment like factories offices and machinery
Government spending
Spending by central, local and other government agencies
Withdrawal
Where money is removed from the economy
Savings
Money which is saved and not spent by households or firms
Consumer spending
How much consumers spend on goods and services.
X-M (Exports - imports)
This is the value of the current account on the balance of payments.
Wealth effect
Refers to when changes in the price level affect the real value of peoples wealth
International trade effect
The international trade effect speaks about the change in value of exports and imports
Interest rate effect
Refers to when changes in the price level affect the rate of interest
Depreciation
Depreciation is the decrease in the value of stock
Gross investment
Measures investment before depreciation
Net investment
Measures investment after depreciation
Investment in human capital
Investment in the education and training of workers
Investment in physical capital
Investment in factories and machinery
Retained profit
Savings that firms keep and do not distribute to their owners
Capital spending
Investment spending by the government`
Exchange rate
An exchange rate is the price of one country’s currency in terms of another country’s currency
Level of trade protection
It refers to restrictions to international trade imposed by governments
Aggregate supply
The total amount of goods and services that producers are willing and able to supply at a given price over a given time period
SRAS
A period in which at least one factor of production is fixed
Supply side shock
When there is a large change in wage rates, material prices or taxation.
LRAS
A period in which all factors of production are variable and technological change is possible
Positive output gap
Actual GDP is more than the potential GDP.
Negative output gap
Actual GDP is less than the potential GDP
Multiplier effect
When injections into the circular flow of income eventually lead to an even bigger increase in national income
Multiplier ratio
Measures the proportionate change in national income in response to a change in withdrawals and injections
Positive multiplier
When an increase in injections leads to a greater final increase in real GDP
Negative multiplier
When a decrease in injections leads to a greater final decrease in real GDP
MPC
The proportion of any extra income that is spent on goods and services
MPS
The proportion of any extra income that is saved
MPT
The proportion of any extra income that is paid as taxes
MPW
The proportion of any extra income that is withdrawn from the economy
Land
Not only as the land itself but also all the natural resources that come with it
Participation rates
Participation rates are the proportion of the population of a certain age who are either in work or seeking work
Economic efficiency
The way in which the factors of production are combined to produce goods and services
Demand side shock
A shock which affects aggregate demand
Supply side shock
A shock which affects aggregate supply
Output gap
The difference between the actual level of real GDP and is estimated long term trend at a specific point
Easterlin paradox
The idea that increases in GDP do not lead to increases in happiness
Non marketed output
Output of goods and services that are not sold in the market and do not generate any income
Underground market
Where a buying/selling transaction is unrecorded and are therefore not included in GDP/GNI
Purchasing power
It refers to the quantity of goods and services that can be bought with money
Excise duties
Excise duties are indirect taxes on the sale or use of specific products, such as alcohol, tobacco, and energy.
