Growth of real output resulting from using idle resources, including labour, thereby taking up slack in the economy. Shown by a movement of a point inside the PPF to a point on the PPF Short-Run Economic Growth
An increase in the economy's potential level of real output. Shown by an outward shift of the PPF Long-Run Economic Growth
The sum of all the goods and services produced in an economy over a period of time Gross Domestic Product (GDP)
GDP measured at the current market prices, without removing the effects of inflation Nominal GDP
GDP adjusted for inflation or price changes Real GDP
A target or goal that policy makers aim to achieve Policy Objective
A fall in real GDP for 6 months or more Recession
Occurs when 3% or less of the labour force is unemployed Full Employment (Beveridge's Definition)
Occurs at the level of employment occurring at the market-clearing real-wage rate, where the number of workers whom employers wish to hire equals the number of workers wanting to work Full Employment (Free Market Definition)
The method of measuring unemployment according to those people who are claiming unemployment related benefits Claimant Count
A quarterly sample survey of households in the UK. Its purpose is to provide information on the UK labour market. The survey seeks information on respondents' personal circumstances and their labour market status during a period of 1-4 weeks Labour Force Survey
A persistent or continual rise in the average price level over time Inflation
A persistent or continual fall in the average price level over time Deflation
When the rate of inflation is falling but is still positive (It is rising more slowly than previously) Disinflation
An index number showing the extent to which a price, or a 'basket' of prices have changed over a month, quarter or year in comparison with the prices in the base year Price Index
The official measure used to calculate the rate of consumer price inflation in the UK.
It calculates the average price increase of a basket of 700 different consumer goods and services Consumer Prices Index (CPI)
An older measure used to calculate the rate of consumer price inflation in the UK. Retail prices index (RPI)
A record of all the currency flows into and out of a country in a particular period of time Balance of payments
Measures all the currency flows into and out of a country in a particular period of time in payment for exports and imports, together with income and transfer flows Current account of the balance of payments
Domestically produced goods or services sold to residents of other countries Exports
Goods or services produced in other countries and sold to residents of this country Imports
The difference between the money value of a country's imports and its exports. Balance of trade
Value of Imports > Value of Exports Balance of trade deficit
Value of Imports < Value of Exports Balance of trade surplus
Government Spending = Government Tax Revenue Balanced Budget
Government Spending > Government Tax Revenue Budget Deficit
Government Spending < Government Tax Revenue Budget Surplus
Occurs when two policy objectives cannot both be achieved at the same time Policy Conflict
Followers of the economist John Maynard Keynes, who generally believe that governments should manage the economy, particularly through the use of fiscal policy Keynesian Economists
Opponents of Keynesian economists, who dislike government intervention in the economy and who prefer the operation of free markets Pro-free market economists
The use by the government and its agent, the Bank of England, of interest rates ad other monetary instruments to try and achieve the government's policy objectives Monetary Policy
Provides information for judging the success or failure of a particular type of government policy such as fiscal or monetary policy Performance Indicator
Provide information about the future state of the economy, which stems from the way people are currently forming their expectations. For example through consumer and business confidence, and statistics for house building starts and the number of people who have booked and expensive holiday Lead Indicators
Provide information about the past and possibly current economic performance and the extent to which policy objectives being met Lag Indicators
The stock of capital goods, such as buildings and machinery, in the economy that has accumulated over time and is measured at a point in time National Capital Stock
A stock of assets which have value at a point in time Wealth
A flow generated over a period of time Income
The stock of all the goods that exist at a point in time that have value in the economy National Wealth
The flow of new output produced by the economy in a particular period of time e.g. one year National Income
Total planned spending by households on consumer goods and services produced within the economy Consumption
Total planned spending by firms on capital goods produced in the economy Investment
An economy with no international trade Closed Economy
An economy open to international trade Open Economy
Income which is not spent Saving
A leakage of spending power out of the circular flow of income into savings, taxation or imports Withdrawal (leakage)
Spending entering the circular flow of income was a result of investment, government spending and exports Injection
C + I + G + (X-M) = AD Aggregate Demand Formula
Policies that increase aggregate demand with the intention of increasing real output and employment Reflationary Policies
The level of real output at which AD=AS
Alternatively, it is the level of income at which withdrawals equal injections. Also known as MACROECONOMIC EQUILIBRIUM Equilibrium National Income
The total planned spending on real output within the economy Aggregate Demand
The level of real national output that producers are prepared to supply at different average price levels Aggregate Supply
An unexpected event hitting the economy, disturbing either AD or AS or both. Economic shocks can be favourable or unfavourable Economic Shock
The reward for saving and the cost of borrowing Interest
Interest Rates
Level of Income
Expected Future Income
Wealth
Consumer Confidence
Availability of Credit
Distribution of Income
Expectations of future inflation Factors influencing consumption
A theory that explains consumption and saving in terms of how people expect their incomes to change over the whole of their life cycles Life-cycle theory of consumption
Funds available for households and firms to borrow Availability of credit
Occurs when there is a lack of funds available in the credit market, making it difficult for borrowers to obtain financing, and leads to a rise in the cost of borrowing Credit Crunch
The spread of incomes among individuals and different income groups in the economy Distribution of income
Realised or actual personal saving
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Personal disposable income Personal Savings Ratio
o Expected future sales revenue from the investment
o Expected future costs of production
o The future profit yield of the investment
o The relative prices of capital and labour
o The nature of technical progress
o The adequacy of financial institutions supply of investment funds
o The impact of government policies and activities on investment by the private sector Factors affecting investment
A change in the level of investment in new capital goods is induced by a changed in the rate of growth of national income or aggregate demand Accelerator
The relationship between an initial change in a component of aggregate demand and the resulting usually larger change in national income Multiplier
Change in national income
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Change in the component of aggregate demand Multiplier formula
The fraction of an increase in disposable income that people plan to spend on domestically produced consumer goods Marginal Propensity to Consume (MPC)
k = 1
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1 - MPC Value of Multiplier formula
real national income x average price level Nominal National Income
Aggregate supply when the level of capital is fixed, though the utilisation of existing factors of production can be altered so as to change the level of real output Short-Run Aggregate Supply (SRAS)
Aggregate supply when the economy is producing at its production potential. If more factors of production become available or productivity rises, the LRAS curve shifts to the right Long-Run Aggregate Supply (LRAS)
higher/lower costs of production
increase/decrease in unit labour costs
increase/decrease in labour productivity
increase/decrease in indirect taxes
increase/decrease in subsidies
technical progress Causes of shifts in SRAS
technical progress
quantities of available CELL