government and the macroeconomy

economic growth

an increase in the output of an economy and in the long run, an increase in the economy's productive potential

actual economic growth

an increase in the output of an economy

potential economic growth

an increase in an economys production capacity

aggregate demand

the total demand for a country's product at a given price level. it consists of consumer expenditure, investment, government spending and net exports (exports-imports)

aggregate supply

the total amount of goods and services that domestic(local) firms are willing to supply at a given price level

full employment

the lowest level of unemployment possible

economically inactive

people of working age who are not in the labour Force

economically active

being a member of the labour force

stable prices

the price level in the economy not changing significantly over time

inflation rate

the percentage rise in the price level of goods and services over time

inflation

a rise in the average price of goods and services over time

balance of payment

the record of a country's economic transactions with other countries

government budget

the relashionship between government revenue and government spending

government budget deficit

government spending is higher than government revenue

government budget surplus

government revenue is higher than government spending

multiplier effect

the final impact on the total (aggregate) demand being greater than the initial change

national debt

the total amount the government has borrowed over time

progressive tax

tax that takes a larger percentage of the income or wealth of the rich

proportional tax

tax that takes the same percentage of the income or wealth of all taxpayers

regressive tax

tax that a larger percentage of the income or weath of thise living in poverty

fiscal policy

decisions on government spending and taxation designed to influence aggregate demand

flat taxes

taxes with a single rate

expansionary fiscal policy

rises in government expenditure and/or cuts in taxation designed to increase aggregate demand

contractionary fiscal policy

cuts in government expenditure and/or rises in taxation designed to reduce aggregate demand

foreign exchange rate

the price of one currency in terms of another currency or currencies

monetary policy

decisions on the money supply, the rate of interest and the foreign exchange rate taken to influence aggregate demand

expansionary monetary policy

increases and the money supply and/or the rate of interest designed to increase aggregate demand

contractionary monetary policy

cuts in the money supply or growth of the money supply and/or rises and the rate of interest design to reduce aggregate demand

supply side policy

measuers designed to increase aggregate supply

deregulation

the removal of rules and regulations

gross domestic product

the total output of a country

circular flow income

the movement of expenditure, income and output around the economy

value added

the difference between the sales revenue received and the cost of raw materials used

transfer payments

transfers of income from one group to another not in return for providing a good or service

nominal gdp

gdp at current market prices and so not adjusted for inflation

real gdp

gdp at constant prices and so adjusted for inflation

informal economy

that part of the economy that is not regulated, protected or taxed by the government

subsistence agriculture

the output of agricultural goods used for farmers personal use

international monetary fund IMF

an international organisation which promotes international cooperation and helps countrys with balance of payments problems

sustainable economic growth

economic growth that does not endanger the countries ability to grow in the future

recession

a reduction in real gdp over a period of six months or more

income tax

people or businesses pay on the money they earn

corporate/corporation/profit tax

tax on a companys profit

capital gain tax

tax on the profit made on assets when they are sold for a higher price than what they were brought for

inheritance tax

tax on wealth above a certain amount which is passed on to other people ehrn a person dies

sales tax

added to a price of goods/services when people buy them

excise duty

on certain goods made within a country, often considered harmful/luxary items

tariff

tax on imported goods

licence

money paid to government to get permission to do something (drive,run a business etc)

direct tax

paid straight to government by person or businesses its charged on

business rates

on property of local businesses/firms

municipal tax

tax on houses

local sales tax

tax on goods and services sold within a specific area

local tax

collected locally by city or muncipal authorities, used to pay for local services

MNC multi national company

operates in more than 1 country

deficit balance of payment

imports>exports

surplus balance of payment

exports>imports

appreciation

rise in value of currency

depreciation

fall in value of currency

ways of measuring gdp

1. output method

2. income method

3. expenditure

real gdp per head/capita

measurement of the total economic output of a country divided by the number of people and adjusted for inflation

real gpd upon population

real gdp billion (9)

population million (6)

when does AD increase

1. increse in population

2. intrest rate falls

3. exchange rate falls

4. confidence rises

reasons for govt spending

1. to influence economic activity

2. to reduce market failure

3. govt spending as a powerful govt measure

4. to improve equity/fairness

5. to pay intrest on national debt

6. encourage environmental sustainability

reasons for taxation

1. redistribute income

2. discourage consumption of demerit goods

3. put taxes on imported goods

4. encourage environmental sustainability

5. to influence aggregate demand

supply side policy measures

1. education and training

2. infrastructure spending

3. labour market reforms

4. lower direct taxes and improving incentives to work and invest

5. deregulation

6. privatization

7. subsidies

macroeconomic aims of government

1. economic growth

2. full employment

3. stable prices/low inflation

4. bop stability

5. redistribution of income

6. environmental sustainability