Macro key terms - FULL

Define inflation

A sustained increased in the general price level leading to a fall in the purchasing power of money

Define deflation

A sustained fall in the price level of goods and services, which leads to an increase in purchasing power

Define disinflation

A decrease in the rate of inflation where the rate is falling but continues to be positive

Define GDP

The total value of all goods and services produced in a country over a period of time

Define GNP

The value of all goods and services produced by a country’s citizens domestic and overseas

Define GNI

GDP plus net overseas interest payments and dividends (factor incomes)

What are the two measures of unemployment?

The claimant count and the UK Labour Force Survey

How does the claimant count measure unemployment?

It counts the number of people eligible and claiming the Job Seeker’s Allowance unemployment benefit

Define actual economic growth

An increase in the real GDP of the economy

Potential economic growth

An increase in the productive capacity of the economy

What is the Balance of payments?

It records all financial transactions that are made between consumers, businessses, and the governement in the UK with people across the rest of the world

What does the National income measure?

It measures the money value of all goods and services produced in an economy within a period of time

Define the marinal propensity to consume

The rate at which consumers increase demand as income rises

Define consumer durables

Items that provide a flow of services to a consumer over a period of time e.g. a car

What is the wealth effect?

When the value of a stock of assets increases in value and causes an increase in consumer spending

What is the savings ratio

The level of people’s savings as a percentage of their disposable income

What does aggregate supply measure?

It measures the volume of goods and services produced within the economy at a given price level

What does the Short run aggregate supply (SRAS) show?

It shows the total planned output when prices in the economy can change but the prices and productivity of all factor inputs are constant

What is a Negative output gap?

It occurs at low levels of real national income where actual GDP < potential GDP and firms have a large degree of spare capacity

What is a Positive output gap?

As national output expands and the economy heads towards full capacity so supply bottlenecks and shortages start to appear, workers require overtime and SRAS is more inelastic

What is the Labour force survey?

It covers people who are without any kind of job as well as people working part time, but who have looked for work in the past month and are able to start work in the next two weeks. It also includes people who have found a job but are waiting to start in the next two weeks

Define Frictional unemployment

Trasitional unemployment due to people moving between jobs

Define Structural unemployment

It occurs when there is a long run decline in demand in an industry leading to a reduction in employment perhaps because of increasing international competition

Define cyclical unemployment

Occurs due to a lack of demand for goods and services

What is International competitiveness?

It is the ability of a country to sell its goods and services abroad

What is ULC and what does it measure?

It is the relative unit labour cost and measures the aggregate cost of labour per unit of output

What are the five stages of a trading bloc?

Preferential trading area, free trade area, customs union, single market, and monetary union

Define terms of trade

The amount of imported goods and services an economy can perchase per unit of exported goods and services

How is terms of trade calculated?

Price index of exported goods/ price index of imported goods

What are two arguments for trade barriers?

Leads to downward pressure on wages, jobs not lost to other countries with comparative advantage

What are four arguments against trade barriers?

Higher prices for consumers, regressive effect on income inequality, risk of retaliation/ possible trade war, incentives to by-pass controls in shadow markets

Define consumer surplus

The difference between what consumers are willing and able to spend compared to the price that they actually pay

What are Non-tarriff barriers?

Trade restrictions or obstacles that do not involve the importation of a direct tax or duty on imported goods

Define comparative advantage

When a country has a lower relative ooportunity cost when it decides to specialise in a particular good