Macroeconomics Year 1

Macroeconomics

Macroeconomics

involves the study of the whole economy at the aggregate level

Policy Objective

a target or goal that policy-makers aim to 'hit'

Short-Run Economic Growth

growth of real output resulting from using idle resources

Long-Run Economic Growth

an increase in the economy's potential level of real output

GDP

the sum of all goods and services

Real GDP

a measure of all the goods and services produced in an economy

Nominal GDP

GDP measured at the current market prices

Recession

a fall in real GDP for 6 months or more

Full Employment

when demand and supply for labour in an economy are in equilibrium (at the price of market wages)

Claimant Count

the method of measuring unemployment according to those people who are claiming unemployment related benefits (Jobseeker's allowance)

Labour Force Survey

a quarterly sample survey of households in the UK. Its purpose is to provide information on the UK labour market.

Inflation

a persistent or continuing rise in the average price level

Deflation

a persistent or continuing fall in the average price level

Disinflation

when the rate of inflation is falling

Price Index

an index number showing the extent to which a price

Consumer Prices Index (CPI)

the official measure used to calculate the rate of consumer price inflation in the UK. The CPI calculates the average price change in a 'basket' of 700 goods and services

Retail Prices Index

an older measure to calculate the rare of consumer price inflation in the UK

Indexation

the automatic adjustment of items such as pensions and welfare benefits to changes in price level

Balance of Payments

a record of all the currency flows into and out of a country in a particular time period

Current Account of the Balance of Payments

measures all the currency flows into and out of a country in a particular time period in payment for exports and imports

Exports

domestically produced goods or services sold to residents of other countries

Imports

goods or services produced in other countries and sold to residents in this country

Balance of Trade

the difference between the money value of a country's imports and its exports. Balance of trade is the largest component of a country's balance of payments on current account

Balance of Trade Deficit

the money value of a country's imports exceeds the money value of its exports

Balance of Trade Surplus

the money value of a country's exports exceeds the money value of its imports

Balanced Budget

when government spending equals government revenue

Budget Deficit

when government spending is greater than government revenue

Policy Conflict

occurs when two policy objectives cannot both be achieved at the same time: the better the performance in achieving on objective

Trade-Off Between Policy Objectives

although it may be impossible to achieve two desirable objectives at the same time

Keynesian Economics

followers of the economist John Maynard Keynes

Pro-Free Market Economists

opponents of Keynesian economists

Monetary Policy

the use by the government and its agent the Bank of England

Fiscal Policy

the use by the government of government spending and taxation to try to achieve the government's policy objectives

Performance Indicator

provides information for judging the success or failure of a particular type of government policy such as fiscal policy or monetary policy

Index Number

data figure reflecting price or quantity compared with a standard or base value. The base year index number is typically 100.

National capital stock

the stock of capital goods

Wealth

the stock of assets which have value at a point in time

National wealth

the stock of all goods that exist at a point in time that have value in the economy

National income

the flow of new output produced by the economy in a particular period

National output

the same as national income

National product

another name for national income and national output

Consumption

total planned spending by households on consumer goods and services produced within the economy

Closed economy

an economy with no international trade

Saving

income which is not spent

Withdrawal

a leakage of spending power out of the circular flow of income into savings

Investment

total planned spending by firms on capital goods produced within the economy

Injection

spending entering the circular flow of income as a result of investment

Open economy

an economy open to international trade

Reflationary policies

policies that increase aggregate demand with the intention of increasing real output and employment

Equilibrium national income

the level of real output at which aggregate demand equals aggregate supply. Alternatively

Aggregate demand

the total planned spending on real output produced within the economy

Aggregate supply

the level of real national output that producers are prepared to supply at different average price levels

Economic shock

an unexpected event hitting the economy. Economic shocks can be demand-side or supply-side (sometimes both) and unfavourable or favourable

Rate of interest

the reward for lending savings to somebody else and the cost of borrowing

Life-cycle theory of 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

Availability of credit

funds available for households and firms to borrow

Credit crunch

occurs when there is a lack of funds available in the credit market

Distribution of income

the spread of different incomes among individuals and different income groups in the economy

Accelerator

a change in the level of investment in new capital goods is induced by a change in the rate of growth of national income or aggregate demand

Multiplier

the relationship between a change in aggregate demand and the resulting usually larger change in national income

Marginal propensity to consume

the fraction of an increase in disposable income that people plan to spend on domestically produced consumer goods

Short-run aggregate supply (SRAS)

aggregate supply when the level of capacity is fixed

Long-run aggregate supply (LRAS)

aggregate supply when the economy is producing its production potential. If more factors of production become available or productivity rises

Technical progress

new and better ways of doing things

Economic performance

success or failure in achieving economic policy objectives

Economic recovery

when short-run economic growth takes place after a recession

Demand-side

relates to the impact of changes in aggregate demand on the economy. Associated with Keynesian economics

Supply-side

relates to changes in the potential output of the economy which is affected by the available factors of production

Trend growth rate

the rate at which output can grow

Seasonal fluctuation

variation of economic activity resulting from seasonal change in the economy

Economic cycle

upswing and downside in aggregate economic activity taking place over 4 to 12 years

Actual output

level of real output produced in the economy in a particular year (not trend level of output)

Output gap

the level of actual real output in the economy is greater or lower than the trend output level

Positive output gap

the level of actual real output in the economy is greater than the trend level output

Negative output gap

the level of actual real output in the economy is lower than the trend output level

Frictional unemployment

unemployment that is usually short term and occurs when a worker switches between jobs

Geographical immobility of labour

when workers are unwilling or unable to move from one area to another in search of work

Occupational immobility of labour

when workers are unwilling or unable to move from one type of job to another

Structural unemployment

long-term unemployment when some industries are declining

Deindustrialisation

the decline of manufacturing industries

Critical unemployment

also known as Keynesian unemployment and demand-deficient unemployment. It is unemployment caused by a lack of aggregate demand in the economy and occurs when the economy goes into a recession or depression

Seasonal unemployment

unemployment arising in different seasons of the year

Real wage

the purchasing power of the nominal (or money) wage; for example

Real-wage unemloyment

unemployment caused by real wages being stuck above the equilibrium real wage

Voluntary unemployment

occurs when workers choose to remain unemployed and refuse job offers at current market rates

Involuntary unemployment

when workers are willing to work at current market wage rates but there are no jobs available

Equilibrium unemployment

exists when the economy's aggregate labour market is in equilibrium. It is the same as the natural level of unemployment

Natural rate of unemployment (NRU)

the rate of unemployment when the aggregate labour market is in equilibrium

Demand-pull inflation

a rising price level caused by an increase in aggregate demand

Cost-push inflation

a rising price level caused by an increase in the costs of production

Wage-cost inflation

a rising price level caused by an increase in wages and salaries

Import-cost inflation

a rising price level caused by an increase in the cost of imported energy

Emerging-market country

a country that is progressing towards becoming more economically advanced

Monetarists

economists who argue that a prior increase in the money supply is the cause of inflation

Quantity theory of money

oldest theory of inflation

Equation of exchange

the stock of money in the economy multiplied by the velocity of circulation of money equals the price level multiplied by the quantity of real output in the economy

Current account deficit

occurs when currency outflows in the current account exceed currency inflows

Current account surplus

occurs when currency inflows in the current account exceed currency outflows

Balance of trade in goods

the part of the current account measuring payments for exports and imports of goods

Balance of trade in services

is part of the current account and is the difference between the payments for the exports of services and the payments for the imports of services