Macroeconomic Objectives

T2 CC1

GDP

The total value of all output / goods and services produced in the economy over a period of time.

Economic Growth

The increase in the value of the goods and services produced by an economy over a period of time. It is measured as the percentage rate of change in real GDP.

Recession

A fall in the value of the goods and services produced by an economy over a period of at least 6 months. It is measured by a decrease of real GDP for two consecutive quarters.

Inflation

The rise in average prices in an economy over a year

Disinflation

A fall in the rate of inflation which means that the rate of increase is lower BUT prices are still rising and so the cost of living of the typical household is rising less quickly. It does not mean falling prices.

Deflation

The fall in average prices in an economy over a year.

Consumer Price Index (CPI)

A measure of the price level used in the UK and all European Union countries, and used by the Bank of England to measure inflation against its target of 2%+-1 The inflation rate is calculated as the percentage change in the consumer price index. This is calculated relative to a base year set equal to 100.

Unemployment

The number of working age people who are out of work AND are looking for work within the last four weeks and are able to start work within the next two weeks.

Current Account of the Balance of Payments

A record of a country’s transactions in goods, services (exports, imports), investment income and current transfers with the rest of the world.

Exchange Rate

The value of a currency in terms of another.

Government Budget

The difference between annual tax revenue and government spending.

National Debt

The total stock of debt owed by the government. If more is spent in one year than tax revenue is raised then this is a budget deficit and the government must borrow the difference. This extra borrowing adds to the total outstanding national debt.

Income Inequality

The difference in incomes between those in the top 10% (or 1%) and those in the bottom 10% (or 1%)

Environmental Sustainability

Concerns whether environmental resources will be protected and maintained for future generations

Fiscal Policy

Involves the manipulation of government spending and taxation to affect total demand in the economy. It is a demand-side policy.

Monetary Policy

Involves the use of changes in the base rate of interest and the money supply to influence the rate of growth of total demand and the rate of price inflation. It is a demand-side policy.

Supply-side Policies

Are government policies designed to promote market forces in order to increase economic growth. They are policies which are aiming to shift the PPF for the economy outwards. Supply-side policies aim to increase productivity and/or competition in product or labour markets.

Income

A flow of money measured over a period of time (£ per year).

Wealth

A stock of assets measured at a point in time.

Aggregate Demand (AD)

The total of all spending in the economy at any given price level. AD=C+I+G+(X-M)

Consumption

The total spending by households on goods & services (G/S) in the domestic economy over a period of time, regardless of where these G/S are produced wholly or partly overseas.

Savings Ratio

It measures the amount of household disposable income that is saved, as a percentage of total disposable income.

Wealth Effect

The change in consumption following a change in asset prices (e.g. house prices).

Investment

The spending by firms on new capital goods / the addition to the capital stock of the country.

Interest Rate

The price of money, i.e. cost to borrowers & reward to savers

Government Spending

The spending by central and local government.

Net Exports

The difference between the money earned by exports less the money spent on imports (X-M).