Theme 2: the UK economy, performance, and policies

Actual growth

Economic growth measured by changes in GDP

Aggregate demand

Total level of demand in an economy at any given price at a moment in time

Aggregate supply

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

Animal spirts

the level of confidence of business owners

Balance of payments

A record of all financial dealings over a period of time between economic agents of one country and another

Base payments

A year chosen as a good comparison in a series of data when building an index, it is automatically given an index figure of 100

Boom

peak of the business cycle, when growth is high

Budget

where the government lays out their spending and taxation plans

Budget deficit

where the government spends more money than it receives

budget surplus

Where the government receives more money than it spends

Circular flow

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

Claimant count

A measure of unemployment, the amount of people receiving benefits for being unemployed

Consumer price index CPI

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

Consumption

consumer spending on goods and services

Cost push inflation

inflation caused by a decrease in AS

Current account

A record of the payments for the purchase and sale of goods and services as well as income and transfers

Current account deficit

When more money leaves the country than enters, so current account negative

Current account surplus

When more money enters the country than leaves, so the current account is positive

Cyclical unemployment

Unemployment caused by a lack of AD

Deflation

a persistent fall in the price of goods or services

Deflationary policy

fiscal/ monetary policy aimed at reducing AD

Demand pull inflation

Inflation caused by an increase in AD

Depreciation

reduction in the value of machinery overtime

Direct tax

tax payed straight to the government by the individual tax payer

Disinflation

a reduction in the rate of inflation

Disposable income

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

Economic growth

a increase in the long term productive potential in the economy; an income in the amount of goods and services that are produced measured by an increase in GDP

Employed

someone who does more than an hour of paid work a week, or is temporarily away from work, on a government training scheme, or does a minimum of 15hours unpaid work for their family business

Expansionary policy

Fiscal/ monetary policy aimed at increasing AD

Exports

goods or services sold to foreigners that bring income into the country

Export-lead growth

Economic growth derived from an increase in selling exports

Fiscal policy

The use of borrowing government spending and taxation to manipulate the level of AD and improve macroeconomic performance

Frictional unemployment

Unemployment caused by when people move between jobs and enter the job market

Gross Domestic Product

The value of goods and services produced within a country over a given period of time

GDP per capita

total GDP divided by the population

Gross investment

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

Gross National Income GNI

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

Gross National Product 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 for the provisions of goods and services

Imports

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

Inactive

those neither employed or unemployed, those not participating in the job market

Income

a flow of assets

Index number

a number allowing accurate comparisons over time to be made, base year value is typically 100

Indirect tax

Tax where the person charged with paying the money to the government is able to pass on the cost to someone else

Inflation

the general rise in price of goods and services that erodes the purchasing power of money

Injection

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

Interventionist supply side policies

Policies designed to correct market failure, where the government intervenes in the market

Investment

spending by a business on capital goods which leads to the creation of real goods

Labour force survey

A measure of unemployment which surveys people to class them as unemployed, employed or inactive under the ILO (Int. Labour Org) definition

Living standards

The quality of live enjoyed by a people in a country

Long run

when all factors of production are variable

Long Run Aggregate Supply LRAS

Total output an economy can produce when operating at full output

Long run trend growth rate

The average sustainable rate of economic growth over a period of time

Marginal propensity to consume

The proportion of an increase in income spent on consumption

Change in consumption

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Change in income

Marginal propensity to import

The proportion of an increase in income spent in imports

Marginal propensity to save

the proportion of an increase in income that is saved

Marginal propensity 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

Market based supply-side policies

Policies which are designed to remove anything with prevents the free market system working effectively

Monetary policy

The attempts of the central bank/ regulatory authority to control the level of AD by altering base interest rates or the amount of money in the economy

Monetary Policy Committee MPC

9 economists who meet monthly to set the bank rate as well as other monetary instruments

Monetary supply

Stock of money in the economy

Multiplier

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

1 1

—- ——

(1- MPC) MPW

National expenditure

The value of spending by households on goods and services

National income

The value of income paid by firms to households in return for land, labour, capital and enterprise

National output

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

Negative output gap

When gdp is lower than predicted; economy producing below full output

Net exports

exports minus imports

Net investment

investments adjusted for depreciation; gross investment minus depreciation

Nominal gdp

GDP which does not 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; economy producing above full output

Potential growth

Change in the productive potential of the economy

Purchasing power parity

Exchange rate of one currency to another that compares the cost of living in different countries through comparing a typical basket of goods

Quantitive easing

When central bank busy assets in exchange for money in an attempt to increase the money supply

Real GDP

GDP which strips out the effect of inflation

Real wage unemployment

Unemployment caused when wages are set above the equilibrium wage rate

Recession

Trough of the business cycle, when growth is low, government defines as when real GDP falls in at least 2 successive quarters

Retail price index RPI

Old measure of inflation which has lost its national statistic status

Savings

the decision by consumer to postpone consumption

Seasonal unemployment

Unemployment caused by when an industry only operates during a certain time in the year

Short run

when at least one factor of production is fixed

Short run aggregate supply SRAS

AS when at least one factor of production is fixed

Short run Phillips curve

Shows the relationship between unemployment and inflation; higher rates of unemployment lead to lower rates of inflation

Structural unemployment

Unemployment caused by long term decline of an industry

Supply side policies

Government policies aimed at increasing the productive potential of the economy and shifting the LRAS curve to the right

Total GDP

the GDP of the whole country

Trade (business) cycle

The tendency of economic growth to rise and fall above and below the trend rate of economic growth, causing booms and busts

Underemployment

Those who are working part time, or on zero hour contracts or on government training schemes but would prefer to be full time or those employed in areas under their skill levels

Unemployed

those who are without work, able to start in the next 2 weeks, and have actively sought work for the last 4 weeks

Value of GDP

Nominal value of GDP; GDP at current prices

Volume of GDP

Real values of GDP, the size of the basket of goods

Wealth

a stock of assets

Withdrawal

Spending power leaving the circular flow of income, resulting from savings, taxations and imports.