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Economic growth
an increase in real GDP over time
Actual output
the current level of real GDP in the economy
Potential output
the level of real GDP that an economy can reach at the natural rate of unemployment
Short term growth
caused by changes to any of the components of aggregate demand
Long term growth
occurs when there is an improvement in the quantity and/or quality of a country’s factors of production
Employment
the use of factors of production in the production process, usually applied on labour resources
Unemployment
occurs when people who are willing and able to work and actively seeking for work are without work at the current wage rate
Frictional unemployment
occurs when people are temporarily unemployed as they move between jobs
Seasonal unemployment
caused by changes in the demand for labour during particular times of the year
Structural unemployment
caused by changes in the sector or the structure of the economy
Cyclical unemployment
occurs during the downturn of the business cycle, when the economy is in a recessionary gap
Natural rate of unemployment
the unemployment rate when the economy is producing at the full employment level of output
Labour market
interaction between people and employers who are willing and able to work and hire at various wages
Hidden unemployment
occurs when people are technically unemployed but excluded from the official measure of unemployment
Voluntary unemployment
those of working age who choose not to actively seek employment
Underemployment
when the labour resources in an economy are being underutilised
Inflation
the sustained increase in the general price level of an economy over time
Demand pull inflation
inflation caused by excess demand in the economy
Cost push inflation
inflation caused by increases in the costs of production in an economy
Deflation
the sustained decrease in the general price level of an economy over time
Disinflation
when there is a fall in the rate of inflation, meaning that price levels are still rising but at a slower rate
Consumer Price Index
a weighted index of the average prices of goods and services consumed by the typical household
Menu costs
costs to firms for updating price lists and delivering the information to customers
Shoe leather costs
the cost of time and effort consumers spend in attempt to counteract the effects of inflation