Economic objectives and the role of the government

Economic Growth

Refers to the increase in the production of goods and services in an economy over time, often measured by the percentage increase in real GDP or real GDP per capita.

Gross Domestic Product (GDP)

Total monetary value of all goods and services produced within a country in a specific period, measured through production, income, and expenditure approaches.

GDP per Capita

GDP divided by the total population, indicating the average economic output per person and reflecting individual standard of living more accurately.

Unemployment

Situation where individuals capable and willing to work are actively seeking employment but unable to find a job.

Employment

This refers to the state in which individuals who are capable and willing to work are engaged in a job, either part-time or full-time, that provides them with an income.

Claimant Count

Method measuring unemployment based on the number of people claiming unemployment benefits, like Jobseeker's Allowance, but may not include all unemployed individuals.

Cyclical Unemployment

This type of unemployment is related to the economic cycle. It increases during recessions and decreases during periods of economic expansion.

Frictional Unemployment

This occurs when individuals are temporarily unemployed while transitioning from one job to another. It includes new entrants into the labor force and people who have voluntarily left their jobs.

Seasonal Unemployment

This type of unemployment happens when individuals are out of work during off-peak seasons, typically seen in industries like agriculture, tourism, and retail.

Structural Unemployment

This occurs when there is a mismatch between the skills of the workforce and the skills needed for available jobs, often due to technological changes or shifts in the economy.

Distribution of Income

This refers to how a nation’s total earnings are divided among its population. It includes how fairly or unevenly income is distributed across different individuals or groups in an economy.

Wages and Salaries

Earnings from employment.

Rent

Income from property or land ownership.

Interest

Earnings from investments and savings.

Dividends

Share of profits received by shareholders of a company.

Transfer Payments

Government payments such as pensions, unemployment benefits, and welfare.

Income

Flow of money received over a period of time, typically as payment for work, investments, or benefits.

Wealth

Stock of assets owned at a particular point in time, including property, stocks, bonds, and other forms of investments.

Price stability

refers to the condition in which prices in the economy do not change much over time.

Inflation

Rate at which the general level of prices for goods and services rises, measured as an annual percentage increase, crucial for economic stability.

Nominal Values

These are measured in current money terms, without adjusting for inflation.

Real Values

These are adjusted for inflation, reflecting the true purchasing power.

Consumer Price Index (CPI)

Indicator used to measure inflation, representing the average change over time in prices paid by urban consumers for a market basket of goods and services.

Fiscal Policy

Use of government spending and taxation to influence the economy, aiming to achieve economic objectives like growth, employment, price stability, and equitable income distribution.

Progressive Taxes

A tax system where the tax rate increases as income increases. It aims to reduce income inequality by taxing higher earners at a higher rate and using the revenue to fund social programs.

Monetary Policy

Actions by a central bank to manage money supply and interest rates to achieve economic objectives such as price stability and full employment.

Expansionary Policy

Lowering interest rates and increasing the money supply can stimulate economic activity by making borrowing cheaper and encouraging investment and consumption.

Contractionary Policy

Raising interest rates and reducing the money supply can slow down economic activity to prevent overheating and control inflation.

Supply Side Policies

Government measures to enhance the productivity and efficiency of the economy.

Market-Based Policies

Supply side policies aiming to promote free market operations and improve economic efficiency.

Interventionist Policies

Supply side policies involving government intervention to correct market failures and boost productivity.

Externalities

are costs or benefits incurred or received by third parties who are not involved in the economic transaction.