Unit 2 Definitions Flashcards
Aggregate supply
Total amount of output in an economy
Aggregate demand
AD = C + I + G + (X-M)
Balance of payments
Record of a countries transactions with the world
Base year
Year chosen as a good comparison in a series of data when holding an index
Bottlenecks
Constraint on the supply side of the economy which causes costs of AS to rise as the economy grows e.g qualified builders for Olympics making costs rise in the area
Business cycle
Tendency of economic activity to rise above and below the trend rate of economic growth
Budget
Annual statement by the gov of its intentions to tax and spend in future years. Comes out in March
Budget surplus
Amount by which tax revenue exceeds gov spending
Budget deficit
Amount by which gov spending exceeds tax revenue
Claimant count
A measure of those claiming unemployment benefits
Circular flow of income
Simple model of the economy which shows the movement of goods and services between households and firms and their payments in terms of money
Constant prices
Where the effects of inflation have been taken out
Consumer price index (CPI)
Measures average price levels. Increases in CPI are known as inflation and this is used as a target for monetary policy.
Consumption
Total planner household spending.
Cost of living
Measure of how much money will buy. Measure by comparing the price of the basket of goods
Current account of the balance of payments
Record of a countries trade in goods, trade in services, current transfers and investment income
Current prices
The effects of inflation have been left in
Demand side policies
Policies used by the gov to shift AD. Main ones are monetary policy and fiscal policy.
Economic growth
Measure of the increase in real GDP or potential GDP
Equilibrium national income
Level of income or output at which AD equals AS
Exchange rate
The price of one currency in terms of another
Exports
Value of goods and services sold abroad. Shown in circular flow of income as an injection
Flow
Movement of products or the money used to pay for them over a time period
Fiscal deficit
Inflationary fiscal policy where gov spending is more than tax receipts
Fiscal policy
Governments manipulation of its spending and taxation in order to shift AD
Fiscal surplus
Deflationary fiscal policy where gov spending is less than tax receipts
Government expenditure
Spending by central and local government
Gross domestic product
GDP - total output in an economy measure by total production by firms, total incomes by the factors of production or by total spending
Hot money
Short term speculative flows of money between countries. Nah distort exchange rates so they don’t reflect the real purchasing power parity. Motivation for these movements is changes in IR
Human development index (HDI)
Measurement of economic development. 3 parts equally weighted index numbers. Health, education and GDP per capita
International Labour Organisation (ILO)
Measure of unemployment used in most rich countries. 51,000 households (101,000 people) by phone Questions are; Got job? Looking for one in last 4 weeks? Ready start in next 2 weeks?
Imports
Value of products bought from abroad. Shown in circular flow of income as withdrawals
Income
Reward paid for the use of a factor of production: rent wages interest or profit
Income inequality
Measures the gap between the incomes e.g lowest and highest decile might have a difference of 90%
Index
Simple way to compare data with a base year
Inflation
General and persistent increase in the price level
Inflation targeting
Narrowly focused monetary policy which seeks to keep rate of inflation within a certain band
Injections
When money flows into the circular flow of income. Investment, gov spending and exports
Interest rate
Cost of borrowing
Reward for saving
Investment
Increase in capital stock. Determined by interest rates, confidence and the availability of credit
Labour productivity
Output per worker or output per hour worked
Monetary policy
Decisions made using monetary policy instruments such as the interest rates
