The total level of demand in an economy at any given price at a moment in time.
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Aggregate supply (AS)
The total amount of output in the economy at any given price at a moment in time.
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Animal spirits
The level of confidence of business owners.
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Balance of payments
A record of all financial dealings over a period of time between economic agents of one country and another.
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Base year
A year chosen as a good comparison in series of data when building an index; it is automatically given an index figure of 100.
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Boom
The peak of the business cycle, when growth is high.
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Budget
Where the government lays out their spending and taxation plans.
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Budget deficit
When the government spends more money than it receives.
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Budget surplus
When the government receives more money than it spends.
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Circular flow
A model of the economy which shows the flow of goods and services, the factors of production and money around the economy.
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Claimant count
A measure of unemployment; the number of people receiving benefits for being unemployed.
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Consumer price index (CPI)
Official measure used to calculate the rate of inflation, using a weighted basket of goods.
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Consumption
Consumer spending on goods and services.
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Cost push inflation
Inflation caused by a decrease in AS.
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Current account
A record of the payments for the purchase and sale of goods and services, as well as income and transfers.
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Current account deficit
When more money leaves the country than enters, so the current account is negative.
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Current account surplus
When more money enters the country than leaves, so the current account is positive.
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Cyclical unemployment
Unemployment caused by a lack of AD.
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Deflation
A persistent fall in prices of goods and services.
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Deflationary policy
Fiscal or monetary policy which is aimed at reducing AD.
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Demand pull inflation
Inflation caused by an increase in AD.
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Depreciation
The reduction in the value of machinery overtime.
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Direct tax
Taxes paid straight to the government by the individual taxpayer.
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Disinflation
A reduction in the rate of inflation.
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Disposable income
The money consumers have left to spend, after taxes have been taken away and benefits added.
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Economic growth
An increase in the long term productive potential in the economy; an increase in the amount of goods and services which are produced, measured by an increase in real GDP.
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Expansionary policy
Fiscal or monetary policy which is aimed at increasing AD.
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Export-led growth
Economic growth arising from an increase in exports.
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Exports
Goods or services sold to foreigners that bring income into the country.
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Fiscal policy
The use of borrowing, government spending and taxation to manipulate the level of AD and improve macroeconomic performance.
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Frictional unemployment
Unemployment caused when people move between jobs and enter the job market.
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GDP per capita
Total GDP divided by the population.
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Government spending
Spending by the government for the provision of goods and services.
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Gross domestic product (GDP)
The value of goods and services produced in a country over a given period of time.
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Gross investment
Investment both to replace old machinery that has depreciated and to create/buy new ones.
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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.
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Gross national product (GNP)
The value of goods and services produced by citizens of a country, whether they live in the country or not.
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Imports
Goods and services bought from foreigners that takes income out of the country.
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Inactive
Those neither employed nor unemployed; those not participating in the job market.
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Income
A flow of assets
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Index number
Numbers allowing accurate comparisons over time to be made, the base year value is typically 100.
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Indirect tax
Tax where the person charged with paying the money to the government is able to pass on the coast to someone else.
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Inflation
The general rise in prices of goods and services that erodes the purchasing power of money.
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Injection
Spending power entering the circular flow of income resulting from investment, government spending and exports.
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Interventionist supply side policies
Policies designed to correct market failure, where the government intervenes in the market.
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Investment
Spending by businesses on capital goods, which leads to the creation of real goods.
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Labour force survey
A measure of unemployment which surveys people to class them as unemployed, employed, or inactive under the international labour organisation (ILO) definitions.
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Living standards
The quality of life enjoyed by people in a country.
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Long run
When all factors of production are variable.
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Long run aggregate supply (LRAS)
The total output an economy can produce when operating at full output.
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Long run trend growth rate
The average sustainable rate of economic growth over a period of time.
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Marginal propensity to consume
The proportion of an increase in income spent on consumption: change in consumption / change in income.
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Marginal propensity to import
The proportion of an increase in income spent on imports.
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Marginal propensity to save
The proportion of an increase in income that is saved.
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Marginal propensity to tax
The proportion of an increase in income that is taken away in tax.
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Marginal propensity to withdraw
The proportion of an increase in income that is withdrawn from the circular flow.
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Market-based supply-side policies
Policies which are designed to remove anything which prevents the free market system working efficiently.
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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.
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Monetary policy committee (MPC)
9 economists who meet monthly to set the Bank rate as well as other monetary instruments.
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Monetary supply
Stock of money in the economy.
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Multiplier
An increase in an injection will lead to an even greater increase of national income: 1 / (1-MPC) \== 1 / MPW
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National expenditure
The value of spending by households on goods and services.
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National income
The value of income paid by firms to households in return for land, labour, capital, and enterprise.
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National output
The value of the flow of goods and services from firms to households.
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Negative output gap
When GDP is lower than the predicted; the economy is producing below full output.
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Net exports
exports minus imports: X-M.
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Net investment
Investment adjusted for depreciation; gross investment minus depreciation.
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Nominal GDP
GDP which doesn't take inflation into account; GDP at current prices.
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Output gap
The difference between the long term trend rate of growth and actual growth
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Positive output gap
When GDP is higher than predicted; the economy is producing above full output.
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Potential growth
A change in the productive potential of the economy.
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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
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Quantitative easing
When the central banks buy assets in exchange for money in an attempt to increase the money supply.
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Real GDP
GDP which takes inflation into account.
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Real wage unemployment
Unemployment caused when wages are set above the equilibrium wage rate.
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Recession
The trough of the business cycle, when growth is low, government defines it as where real GDP falls in at least two successive quarters (6 months).
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Retail price index (RPI)
An old measure of inflation.
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Savings
The decision by consumers to postpone consumption.
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Seasonal unemployment
Unemployment caused when an industry only operates during certain times of the year.
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Short run
When at least one factor of production is fixed.
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Short run aggregate supply (SRAS)
Aggregate supply when at least one factor of production is fixed.
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Short run phillips curve
shows the relationship between unemployment and inflation: higher levels of unemployment lead to lowers levels of inflation.
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Structural unemployment
Unemployment caused by the long term decline of an industry.
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Supply-side policies
Government policies aimed at increasing the productive potential of the economy and shifting LRAS to the right.
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Total GDP
The GDP of the whole country.
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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.
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Underemployment
Those who are working in a job that requires a lower skill level than the skill level they have.
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Unemployed
Those who are without work, able to start work in the next 2 weeks, and have actively sought work for the last 4 weeks.
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Value of GDP
Nominal values of GDP; GDP at current prices.
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Volume of GDP
Real values of GDP; the size of the basket of goods.
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Wealth
A stock of assets.
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Withdrawal
Spending power leaving the circular flow of income resulting from savings, taxation, and imports.
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Absolute advantage
When a country can produce a good cheaper in absolute terms than another country.
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Absolute poverty
When people are unable to afford sufficient necessities to maintain life.
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Aid
When a country voluntarily transfers resources to another or gives loans on a concessionary basis.
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Appreciation
An increase in the value of the currency using floating exchange rates.
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Asymmetric information
When one party has more knowledge than another; this causes market failure in the financial sector.
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Automatic stabilisers
Mechanisms which reduce the impact of changes in the economy on national income.
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Balance of payments
A record of all financial dealings over a period of time between economic agents of one country and another.
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