Theme 2 Definitions Flashcards
Factor of production
An input to the production process (i.e. land, labour, capital and enterprise).
Gross Domestic Product (GDP)
The total market value of all goods and services produced in a country in one year and can be measured by adding up all of an economy’s incomes (wages, interest, profit and rents) or expenditures (consumption, investment, government spending and net-exports). It does not include earnings by its residents while outside of the country.
Real GDP
GDP adjusted for inflation; nominal GDP – inflation
Nominal GDP
GDP calculated at current prices; not adjusted for inflation (real GDP + inflation)
GDP per capital
GDP divided by the population
Gross National Income (GNI)
The value of all goods and services produced by a country in a year (GDP) plus net overseas interest payments and dividends (factor income).
Gross National Product (GNP)
The total market value of all goods and services produced by domestic residents (GDP) in a year, plus income that residents have received from abroad, subtract income claimed by non-residents.
Purchasing Power Parities (PPP)
An exchange rate of one currency for another which compares how much a typical basket of goods in one country costs compared to that of another country.
GDP PPP
GDP converted to international dollars using purchasing power parity rates in order to adjust for differences in the cost of living between countries.
Standard of living
How well off is an individual, household, or economy, measured by a complex mix of variables such as income, health, the environment, participation in society and political freedoms.
Easterlin Paradox
Once a developed country passes a threshold average income, more growth doesn’t increase average reported happiness. For developed countries, higher levels of a countries GDP per capita did not relate to a higher level of happiness reported by citizens.
Inflation
A sustained increase in the average price level over time. It implies a falling value of money. As prices rise, the purchasing power of money decreases.
Deflation
A sustained fall in the average price level over time.
Disinflation
A fall in the rate of inflation; prices are still rising but at a slower rate.
Demand-pull inflation
Inflation which is caused by excess demand in the economy. Too much spending in the economy relative to limited production capacity bids up prices. If AD increases and there is no increase in AS, then DP inflation is likely to occur.
Cost-push inflation
Inflation caused by increases in the costs of production in the economy, which are passed on to consumers as higher prices.
Hyperinflation
When the prices of goods and services rise by over 50% a month.
Price-level
The average price of goods and services in the economy
Price index
A measure of average prices in one period relative to average prices in another period. It measures changes in the value of a basket of commonly consumed goods.
CPI
The CPI (consumer price index) is the official measure of inflation in the UK
RPI
A measure of the price level which has been calculated in the UK for over 60-years and used in a variety of contexts such as by the government to index welfare benefits.
Anticipated inflation
Increases in prices which economic actors are able to predict with accuracy.
Unanticipated inflation
Increases in prices which economic actors like consumers and firms fail to predict accurately and so their decisions are based on poor information.
Stagflation
A period of rising inflation but falling output and rising unemployment. Stagflation is often caused by a rise in the price of commodities, such as oil; it occurred in the 1970s following the tripling in the price of oil.
Active population
Those in work or actively seeking work; also known as the labour force.
Activity rate/participation rate
The number of those in work or unemployed divided by the population of working age expressed as a percentage.
Employed
The number of people in paid work.
Employees
Workers employed by another individual or firm.
Employment
Those in paid work
Employment rate
The number of those in work divided by the population of working age expressed as a percentage.
Full-time workers
Workers who work hours and the days which are the norm for a particular job.
Part-time workers
Workers who only work a fraction of the hours and the days which are the norm for a particular day.
Hidden unemployed
Partly those in the population who would take a job if offered, but are not in work and are currently not seeking work; and partly those who are unemployed.
Economically inactive
The number of those not in work and not unemployed.
Inactivity rate
The number of those not in work and not unemployed divided by the population of working age, expressed as a percentage.
Long-term unemployed
In the UK, those unemployed for more than 1-year.
Short-term unemployed
In the UK, those unemployed for less than a year.
Population of working-age
The total number of people aged between the statutory school leaving age and the state retirement age.
Self-employed
Workers who work on their own account and are not employees.
Underemployed
Those who would work more hours if available or in jobs which are below their skill level.
Unemployed
Without a job, have actively sought work in the last four weeks and are available to start work in the next two weeks, or out of work, have found a job and are waiting to start it in the next two weeks.
Unemployment rate
The number of those not in work, but seeking work, divided by the labour force, expressed as a percentage.
Natural rate of unemployment
The equilibrium rate of unemployment (i.e. the rate of unemployment where real wages have found their free market level and where the aggregate supply of labour is in balance with the aggregate demand for labour).
Cyclical unemployment
Cyclical unemployment occurs when there is insufficient demand in the economy for all workers who wish to work at current wage rates to obtain a job.
Frictional unemployment
When workers are unemployed for short lengths of time between jobs.
Seasonal unemployment (Demand-side)
When workers are unemployed at certain times of the year, such as construction workers or agricultural workers in the winter.
Structural unemployment (Demand-side
When the pattern of demand and production changes, leaving workers unemployed in labour markets where demand has shrunk.
Real-wage unemployment
Exists when real wages are stuck at a level above that needed to reduce unemployment any further.
Domestic economy
The economy of a single country
Aggregate Demand
The total demand for good and services produced within the economy over a period of time. C+I+G+(X-M).
Consumption
The total expenditure by households on goods and services over a period of time.
Disposable income
The income that an individual that an individual receives after any direct taxes and having received any transfer payments/benefits. There is a positive relationship between disposable income and consumption.
Investment
The addition to the capital stock of the economy
Gross investment
The addition of capital stock, both to replace the existing capital stock which has been used up (depreciation) and the creation of additional capital.
Net investment
Gross investment minus depreciation
Retained profit
Profit kept back by a firm for its own use which is not distributed to shareholders or used to pay taxation, and can be used to fund investment.
Depreciation of capital stock
The value of capital stock which has been used up or worn out.
Short-run
The period of time when money wage rates and the prices of all other factor inputs in the economy are fixed.
SRAS curve
The upward sloping AS curve which assumes that money wage rates are fixed.
Supply-side shock
Factors such as changes in wage rates or commodity prices which cause the SRAS curve to shift.
LRAS curve
The long-run aggregate supply curve which assumes that wage rates are variable, both upwards and downwards.
Productive capacity
The maximum possible output of an economy.
Full-productive capacity
The level of output where no extra production can take place in the long-run with existing resources.
Indexation
Adjusting the value of economic wages such as wages or interest rates in line with inflation.