Act to Promote Economic Stability and Growth and Inflation Concepts

This set covers vocabulary regarding German economic legislation, the magic square and hexagon of economic objectives, inflation measures, and fiscal policy tools.

Economic policy

The action taken by the government to regulate and adjust economic activity within the economy.

Act to Promote Economic Stability and Growth (1967)

A German act stating that a successful economic policy tries to achieve a range of economic objectives to bring about peace and prosperity.

Magic square

A set of four economic objectives: price stability, full employment, sustained economic growth, and external equilibrium.

Price stability

An objective aiming for a low inflation rate; the European Union's current target is $2\%$.

Full employment

A condition where virtually all who are able and willing to work are employed; in Germany, this is usually spoke of up to an unemployment rate of around $3\%$.

Sustained economic growth

An objective important for creating jobs, reducing unemployment, and enabling people to spend money, indicated by an increase in GDP.

Gross Domestic Product (GDP)

The market value of all goods and services produced within the geographic boundaries of a country by natives and aliens.

External equilibrium

A state where a country exports about the same amount of goods as it imports to ensure it makes enough money from exports to pay for imports.

Balance of payments (BOP) accounts

An accounting record of all monetary transactions between a country and the rest of the world.

Balance of trade

An indicator that shows the value of exports and imports in a country over a certain period of time, usually a year.

Trade surplus

A favourable balance of trade where a country exports more than it imports.

Trade deficit

An unfavourable balance of trade where a country imports more than it exports.

Magic hexagon

A set of six economic objectives consisting of the magic square plus environmental protection and the fair distribution of income.

Inflation

A sustained rise in the general price level, which signifies a fall in the value of money.

Deflation

A sustained fall in the general price level.

Consumer price index (CPI)

The most common measure of inflation, measuring changes in the retail prices of a typical weighted basket of goods and services.

Producer price indices (PPI)

Measures of "factory gate prices" or "wholesale prices" of firms' output, used as indicators of future consumer inflation.

Fiscal policy

The use of government revenue (such as taxes, fees, and duties) and government spending (such as subsidies and public investment) to influence the economy.

Transfer payments (AE)

Also known as transfer incomes (BE), these are government expenditures intended to boost the economy by increasing disposable income.

Depreciation allowances

A government revenue tool used in fiscal policy to influence economic activity by adjusting write-off possibilities.