3.5 economics

Injections

Factors that increase economic growth (Increase in investment, government spending, export receipts, consumer spending)

Withdrawals

Factors that decrease economic growth (Increase in taxes, savings, Import Payments)

Nominal GDP

Value of all goods and services produced in a year

Real GDP

Nominal GDP adjusted for inflation. This shows if actual production has increased.

Consumer Price Index (CPI)

a measure of the overall level of prices of goods and services bought by NZ households

Transfer payments

Payments made from the government to households such as benefit and pension payments

Subsidies

Payments made from the government to producers to help producers to increase production

Capital goods

Manufactured goods by producers to make goods or to provide service

Investment

Purchase of capital goods

Net exports

Exports receipts - import payments

Inflationary gap

Y (real gdp > Yf)

Recessionary gap

Yf > Y (real gdp)

Budget deficit

When government spending is greater than its revenue

Budget surplus

When the government spending is less than its revenue

Fiscal policy

Government policy regarding its revenue and its spending to influence economic policy

Operating balance

Difference between government’s income and its spending

Marginal Propensity to Consume (MPC)

proportion of income that households choose to spend

Monetary policy

Policy regarding the control of rates through the official cash rate

Multiplier effect

When a factor such as investment and government spending changes, this will impact the economy to a much greater extent than the initial change due to flow on effects.

Supply-side policies

Government policies designed to increase the country’s economic efficiency and productivity and thereby increasing supply

Current account

This shows the balance of short-term transactions with the rest of the world. It is made up of balance on goods, services income and current transfers

Terms of trade

A measure of the overall prices of exports receipts relative to the overall prices of imports

Trade weighted index

A weighted index used to show the overall movement in New Zealand’s currency against that of its major trading partners

When OCR decreases…

interest rates decrease, NZD depreciates