economics- theme 2 definitions

aggregate demand

the total amount real expenditure on a country’s goods and services produced within an economy in each time period

aggregate supply

the total amount of output in an economy at any given price at any given moment in time

animal spirits

the level of confidence of business owners

budget

where the government lays out their spending and taxation plans

budget deficit

when the government spends more money than it recieves

budget surplus

when the government recieves more money than it spends

circular flow

a model of the economy which shows the flow of goods and services, the factors of production and money around the economy

claimant count

• a measure of unemployment

• the number of people receiving benefits for being unemployed

consumer price index

official measure used to calculate the rate of inflation, using a weighted basket of goods

consumption

the total expenditure on goods and services by households in an economy over a specific period.

cost push inflation

inflation cause by a decrease in AS

resulting in higher production costs that lead to increased prices.

cyclical unemployment

unemployment caused by a lack of AD

deflation

• a reduction in the general price level of goods and services

• often linked to a decrease in demand.

demand pull inflation

inflation caused by an increase in AD

depreciation

the reduction in the value of machinery overtime

direct tax

taxes paid straight to the government by the individual tax payer

disinflation

the reduction of the rate of inflation, resulting in a decrease in the inflation rate over time.

displosable income

the money consumers have left to spend after taxes have been taken away and benefits added

economic growth

an increase in long term productive potential of the economy: an increase in the amount of goods and services which are produced, measured by an increase in real GDP

exports

goods and services sold to foreign countries, contributing to a nation's economy.

frictional unemployment

unemployment caused when people move between jobs and enter the job market

gdp

the value of goods and services produced in a country over a given period of time

gdp pe capita

total gdp divided by population

gross investment

investmet both to replace old machinery that has depreciated and to create and buy new ones

GNI

the value of goods and services produced by a country over a period of time plus net overseas interest payments and dividends

GNP

the value of goods and services produced by citizens of a country, whether they live in the country or not

government spending

spending by the government on the provision of goods and services

imports

goods and services bought from foreigners that takes income out of the country

inactive

those neither employed nor unemployed; those not participating in the job market

income

a flow of assets

index number

• numbers allowing accurate comparisons to be made over time

• the base year value is typically 100

indirect tax

tax where the person charged with paying the money to the government is able to pass the cost onto someone else

inflation

the general rise in prices of goods and services that erode the purhcasing power of money

injection

spending power entering the circular flow of income resulting from investment, government spending and exports

investment

spending by businesses on capital goods, which leads to the creation of real goods

labour force survey

a meausre of unemployment which surveys people to class them as unemployed, employed or inactive under the ilo definitions

living standards

the quality of life enjoyed by people in a country

long run

when all factors of production are variable

LRAS

The total output an economy can produce when operating at full output

marginal propensity to consume

the proportion of an increase in income spent on consumptions rather than saved.

marginal propensity to save

the proportion of an increase in income that is saved

marginal propenity to tax

the proportion of an increase in income that is taken away in tax

marginal propensity to withdraw

the proportion of an increase in income that is withdrawn from the circular flow

multiplier

an increase in an injection will lead to an even greater increase in national income

national expenditure

the value of spending by households on goods and services

national income

the value of money paid by firms to households in return for land, labour, capital and entiprise

national output

the value of the flow of goods and services from firms to households

negative output gap

when GDP is lower than predicted; the economy is producing below full output

net investment

• investment adjusted for depreciation

• gross investment minus depreciation

nominal GDP

• GDP which doesnt take inflation into account

• GDP at current prices

OUTPUT GAP

the difference between the long term trend rate of growth and actual growth

positive output gap

• when GDP is higher than predicted

• the economy is producing above full output

potential growth

A change in the productive potential of the economy

purchasing power parity

exchange rate of ne currency to another that compares the cost of living in different countries through comparing typical basket of goods

real gdp

GDP which strips out the effect of inflaton

real wage uneployment

unemplyment caused when wages are set above the equilibrium wage rate

Recession

• The trough of business cycle, when growth is low

• the government defines it as where real GDP falls in atleast 2 successive quaters

retail price index RPI

an old measure of inflation which has lost its national statistic status

savings

tjhe decision by consumers to postpone consumption

seasonal unemployment

unemployment caused when an industry only operates during certain times of the year

short run

when atleast one factor of production is fixed

SRAS

aggregate supply when at least one factor of production is fixed

structural unemployment

unemployment caused by the long term deline of an industry

underemployment

a situation where individuals are working in jobs that do not fully utilize their skills or hours are reduced below full-time.

unemployment

those who don’t have a job but are actively looking

wealth

a stock of assets

withdrawal

spending power leaving the circular flow of income resulting from savings, taxation and imports