macroeconomics

Economic growth

An increase in real GDP over time showing the economy is producing more goods and services

Real GDP

Gross domestic product adjusted for inflation showing true economic growth

Gross domestic product GDP

Total value of goods and services produced in a country in one year

Living standards

The level of material well being of people often measured by real GDP per capita

GDP per capita

GDP divided by population used to compare living standards

Low unemployment

A macroeconomic objective aiming to have most people who want work employed

Unemployment

People of working age who are able and willing to work but cannot find a job

Unemployment rate

Percentage of the labour force that is unemployed

Low inflation

A macroeconomic objective aiming for stable prices over time

Inflation

The sustained increase in the general price level

Inflation rate

The percentage increase in the price level over a period of time

Balance of payments stability

A macroeconomic objective where exports and imports are balanced

Balance of payments

A record of a country’s trade and financial transactions with the rest of the world

Causes of economic growth

Increase in factors of production or productivity

Factors of production

Land labour capital and enterprise used to produce goods and services

Productivity

Output per worker over a given time period

Costs of economic growth

Environmental damage congestion and resource depletion

Benefits of economic growth

Higher incomes improved public services and higher employment

Demand pull inflation

Inflation caused by excess demand in the economy

Cost push inflation

Inflation caused by rising costs of production

Imported inflation

Inflation caused by rising prices of imported goods

Effects of inflation on consumers

Reduces purchasing power of money

Effects of inflation on firms

Creates uncertainty and may reduce investment

Effects of inflation on savers

Savings lose real value over time

Cyclical unemployment

Unemployment caused by low demand during economic downturns

Structural unemployment

Unemployment caused by changes in the structure of industries

Frictional unemployment

Short term unemployment between jobs

Seasonal unemployment

Unemployment caused by seasonal patterns of work

Costs of unemployment to individuals

Loss of income lower living standards and skills

Costs of unemployment to government

Higher benefit payments and lower tax revenue

Current account

Records trade in goods services income and transfers

Trade balance

Difference between exports and imports of goods

Trade deficit

When imports exceed exports

Trade surplus

When exports exceed imports

Causes of a trade deficit

Low competitiveness strong currency or high domestic demand

Effects of a trade deficit

May cause currency depreciation and job losses

Fiscal policy

Government use of taxation and spending to manage the economy

Expansionary fiscal policy

Increasing government spending or cutting taxes to boost demand

Contractionary fiscal policy

Raising taxes or cutting spending to reduce inflation

Monetary policy

Control of interest rates and money supply by the central bank

Interest rates

Cost of borrowing money

Expansionary monetary policy

Lowering interest rates to increase spending

Contractionary monetary policy

Raising interest rates to reduce inflation

Supply side policies

Policies aimed at increasing productive capacity of the economy

Examples of supply side policies

Education training privatisation and deregulation