Theme 2 Definitions Flashcards
Actual Growth
Economic growth measured by changes in real GDP
Aggregate Demand (AD)
The total level of demand in an economy at any given price at a moment in time
Aggregate Supply (AS)
The total amount of output in the economy at any given price at a moment in time
Animal Spirits
Keynesian Concept - The level of confidence of business owners
Balance of Payments
A record of all financial dealings over a period of time between economic agents of one country and another
Base Year
A year chosen as a good comparison in series of data when building an index; it is automatically given an index figure of 100
Boom
The peak of the business cycle, when growth is high
Budget
Where the government lays out their spending and taxation plans
Budget Deficit
When the government spends more money than it receives
Budget Surplus
When the government receives more money than it spends
Circular Flow
A model of the economy which shows the flow of goods and services, the factors of production and money around the economy
Claimant Count
A measure of unemployment; the number of people receiving benefits for being unemployed
Consumer Price Index (CPI)
Official measure used to calculate the rate of inflation, using a weighted basket of goods
Cost Push Inflation
Inflation caused by a decrease in AS
Current Account
A record of the payments for the purchase and sale of goods and services, as well as income and transfers
Current Account Deficit
When more money leaves the country than enters, so the current account is negative
Current Account Surplus
When more money enters the country than leaves, so the current account is positive
Cyclical Unemployment
Unemployment caused by a lack of AD
Deflation
Unemployment caused by a lack of AD
Deflationary Policy
Fiscal or monetary policy which is aimed at reducing AD
Demand Pull Inflation
Inflation caused by an increase in AD
Depriciation
The reduction in the value of machinery/capital overtime
Direct Tax
Taxes paid straight to the government by the individual taxpayer
Disinflation
A reduction in the rate of inflation
Disposable Income
The money consumers have left to spend, after taxes have been taken away and benefits added
Economic Growth
An increase in the long term productive potential in the economy; an increase in the amount of goods and services which are produced, measured by an increase in real GDP
Employed
Someone who does more than 1 hour of paid work a week or is temporarily away from work, on a government supported training scheme or does a minimum of 15 hours unpaid work for their family business (ILO definition)
Expansionary Policy
Fiscal or monetary policy which is aimed at increasing AD
Exports
Goods or services sold to foreigners that bring income into the country
Export-Led Growth
Economic growth arising from an increase in exports
Fiscal Policy
The use of borrowing, government spending and taxation to manipulate the level of AD and improve macroeconomic performance
Frictional Unemployment
Unemployment caused when people move between jobs and enter the job market
Gross Domestic Product (GDP)
The value of goods and services produced in a country over a given period of time
GDP Per Capita
a Total GDP divided by the population
Gross Investment
Investment both to replace old machinery that has depreciated and to create/buy new ones
Gross Nation Income (GNI)
The value of goods and services produced by a country over a period of time plus net overseas interest payments and dividends
Gross National Product (GNP)
The value of goods and services produced by citizens of a country, whether they live in the country or not.
Government Spending
Spending by the government for the provision of goods and services
Imports
Goods and services bought from foreigners that takes income out of the country
Inactive
Those neither employed nor unemployed; those not participating in the job market
Income
A flow of assets
Index Number
Numbers allowing accurate comparisons over time to be made. The base year value is typically 100
Indirect Tax
Tax where the person charged with paying the money to the government is able to pass on the cost to someone else
Inflation
The general rise in prices of goods and services that erodes the purchasing power of money
Injection
Spending power entering the circular flow of income resulting from investment, government spending and exports
Interventionist Supply Side Policy
Policies designed to correct market failure, where the government intervenes in the market
Investment
Spending by businesses on capital goods, which leads to the creation of real goods
Consumption
Consumer spending on goods and services
Labour Force Survey
A measure of unemployment which surveys people to class them as unemployed, employed or inactive under the International Labour Organisation (ILO) definitions
Living Standards
The quality of life enjoyed by people in a country
Long Run
When all factors of production are variable
Long Run Aggregate Supply
The total output an economy can produce when operating at full output
Long Run Trend Growth Rate
The average sustainable rate of economic growth over a period of time
Marginal Propensity to Consume
The proportion of an increase in income spent on consumption
change in consumption divided by
change in income
Marginal Propensity to Import
The proportion of an increase in income spent on imports
Marginal Propensity to Save
The proportion of an increase in income that is saved
Marginal Propensity to Tax
The proportion of an increase in income that is taken away in tax
Marginal Propensity to Withdraw
The proportion of an increase in income that is withdrawn from the circular flow
Market-Based Supply-Side Policies
Policies which are designed to remove anything which prevents the free market system working efficiently
Monetary Policy
The attempts of the central bank/regulatory authority to control the level of AD by altering base interest rates or the amount of money in the
economy
Monetary Policy Committee (MPC)
9 economists who meet monthly to set the Bank rate as well as other monetary instruments
Monetary Supply
Stock of money in the economy
Multiplier
An increase in an injection will lead to an even greater increase of national income
Multiplier (k) = 1/1-MPC = 1/MPW
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, capital and enterprise
National Output
The value of the flow of goods and services from firms to households
Negative Output Gap
When GDP is lower than predicted; the economy is producing below full output
Net Exports
Exports minus imports
Net Investment
Investment adjusted for depreciation; gross investment minus depreciation
Nominal GDP
GDP which does not take inflation into account; GDP at current prices
Output Gap
The difference between the long term trend rate of growth and actual growth
Positive Output Gap
When GDP is higher than predicted; the economy is producing above full output
Potential Growth
A change in the productive potential of the economy
Purchasing Power Parity
Exchange rate of one currency to another that compares the cost of living in different countries through comparing a typical basket of goods
Quantitative Easing
When the central banks buys assets in exchange for money in an attempt to increase the money supply
Real GDP
GDP which strips out the effect of inflation
Real Wage Unemployment
Unemployment caused when wages are set above the equilibrium wage rate
Recession
The trough of the business cycle, when growth is low. The government defines it as where real GDP falls in at least two successive quarters
Retail Price Index (RPI)
An old measure of inflation which has lost its national statistic status
Savings
The decision by consumers to postpone consumption
Seasonal Unemployment
Unemployment caused when an industry only operates during certain times of the year
Short Run
When at least one factor of production is fixed
Short Run Aggregate Supply (SRAS)
Aggregate supply when at least one factor of production is fixed
Short Run Phillips Curve
Shows the relationship between unemployment and inflation: higher levels of unemployment lead to lower levels of inflation
Structural Unemployment
Unemployment caused by the long-term decline of an industry
Supply-Side Policies
Government policies aimed at increasing the productive potential of the economy and shifting LRAS to the right
Total GDP
The GDP of the whole country
Trade/Business Cycle
The tendency of economic growth to rise and fall above and below the trend rate of economic growth, causing booms and busts
Underemployment
Those who are working part time, on zero hour contracts or on government training schemes but would prefer to be full time or those employed in areas under their skill level e.g. a graduate working at a bar
Unemployed
Those who are without work, able to start work in the next 2 weeks and have actively sought work for the last 4 weeks (ILO definition)
Value of GDP
Nominal values of GDP; GDP at current prices
Volume of GDP
Real values of GDP; the size of the basket of goods
Wealth
A stock of assets
Withdrawal
Spending power leaving the circular flow of income resulting from savings, taxation and imports
Easterlin Paradox
The hypothesis that happiness increases with average incomes, but only up to a point
Full Employment
A situation where people who are economically active in the workforce and willing and able to work at going wage rates are able to find employment
Human Capital
The stock of skills and expertise that contribute to a worker’s productivity; it can be increased through education and training
Monetary Supply
Stock of money in the economy
Interventionist Policies
Policies by which the government intervenes to stimulate aggregate supply
Involuntary Unemployment
Situation arising when an individual who would like to accept a job at the going wage rate is unable to find employment
Keynesian School
Economists who believed that the macroeconomy could settle at an equilibrium that was below full employment
Natural Rate of Output
The long-run equilibrium level of output to which monetarists believe the macroeconomy will always tend
Natural Rate of Unemployment
The unemployment rate that will exist when the economy is in long-run equlibrium
Real Balance Effect
An effect by which an increase in the average price level reduces purchasing power and thus the quantity of real output demanded
Real Wage Inflexibility
An argument that if real wages do not adjust downwards the result would be persistent unemployment
Seasonal Adjustment
A process by which seasonal fluctuations in a variable are smoothed to reveal the underlying trend
Stagflation
A situation describing an economy in which unemployment and inflation are high at the same time
Sustainable Development
Development that meets the needs of the present without compromising the ability of the future generations to meet their own needs
Total Factor Productivity
The average productivity of all factors, measured as the total output divided by the total amount of inputs used
Transmission Mechanism of Monetary Policy
The process by which a change in the bank rate affects inflation
Voluntary Employment
A situation arising when an individual chooses not to accept a job at the going wage rate
Workforce
People who are economically active - either employed or unemployed
