Edexcel Economics Theme 2

Actual economic growth

The rate of growth of GDP in a period

Aggregate demand

The total amount of spending on goods and services produced in an economy during a period of time

Aggregate demand curve

The relationship between the level of aggregate demand and the overall price level; it shows planned expenditure at any given possible overall price level

Automatic stabilisers

Effects by which government expenditure adjusts to offset the effects of recession and boom without the need for intervention

Average propensity to consume

The proportion of income that households devote to consumption

Balance of payments

A set of accounts showing the transactions conducted between residents of a country and the rest of the world

Business cycle

A phenomenon whereby GDP fluctuates around its underlying trend, following a regular pattern. How real GDP fluctuates over time.

Capital productivity

A measure of output per unit of capital

Circular flow of income

A model of the economy in which exchanges are represented as flows of money, goods and services, and resources between economic agents.

Claimant count of unemployment

The number of people claiming Jobseeker's Allowance each month

Consumer Price Index

A measure of the general level of prices in the UK, based on the price of a weighted basket of goods

Consumption

Total planned household spending

Consumption function

The relationship between consumption and disposable income

Cost-push inflation

Inflation initiated by an increase in the costs faced by firms, arising on the supply side

Cyclical unemployment

Unemployment that arises during the downturn of the economic cycle, such as a recession

Deflation

A fall in the average level of prices (negative inflation)

Demand-deficient unemployment

Unemployment that arises because of a deficiency aggregate demand in the economy, so that equilibrium level of output is below full employment

Demand-pull inflation

Inflation initiated by an increase in aggregate demand

Depreciation

The fall in value of physical capital equipment over time as it is subject to wear and tear

Discouraged workers

People who have been unable to find employment and, as a result, are no longer looking for work

Disinflation

A fall in the rate of inflation

Disposable income

The income that households have to devote to consumption and saving, after taxes only

Economically inactive

Those people of working age who are not looking for work, for a variety of reasons (e.g care-giving, education, retirement)

Exchange rate

The price of one currency in terms of another

Export-led growth

A strategy for achieving rapid economic growth through the promotion of export activity

Fiscal policy

Decisions made by the government on its expenditure, taxation and borrowing

Frictional unemployment

Unemployment associated with job search (i.e people who are between jobs)

Full employment

A situation where people who are economically active in the workforce and are willing and able to work (at going wage rates) are able to find employment

Gross Domestic Product

The total value of the output produced within the country during a given period of time

Labour Force Survey

All those willing and able to work, whether or not they are claiming benefits

Gross National Income

GDP plus net income from abroad

Index Number

A device for comparing the value of a variable in one period or location with a base observations

Inflation

The rate of increase in the average price level in an economy

Investment income

The reward for investments in other countries (interest, payments and dividends).

Involuntary unemployment

Where an individual would like to accept a job at the going wage rate but is unable to find employment

Output gap

The difference between actual and potential growth

Per Capita

Per person

Potential Economic Growth

An expansion in the productive capital of the economy

Purchasing Power of Parity

A measure of what can be bought with a currency which is both a currency convertor and a spatial price deflator

Real value

The value of an economic variable, taking account of changing prices through time

Retail Price Index

A measure of the average level of prices in the UK which includes housing costs

Seasonal Unemployment

Unemployment that arises in seasons of the year when demand is relatively low

Structural Unemployment

Unemployment arising because of changes in the pattern of economic activity within an economy

Underemployment

Where an individual is employed in a second choice occupation or is not working as many hours as he or she would like

Unemployed

People who are economically active but are not in employment

Voluntary unemployment

Where an individual chooses not to accept a job at the going wage rate

Workforce

People who are economically active- either in employment or unemployment

Investment

Expenditure undertaken by firms to add to capital stock

Marginal propensity to consume

The proportion of additional income that is used for consumption

Marginal propensity to import

The proportion of additional income that is used for imports on goods and services

Marginal propensity to save

The proportion of additional income that is saved

Marginal propensity to tax

The proportion of additional income that is taxed

Monetary policy

Decisions made by government regarding monetary variables such as the money supply of interest rate

Human Capital

The stock of skills and expertise that contribute to a worker's productivity; it can be increased through education and training

In employment

People who are either working for firms or other organisations, or self-employed

Income

A flow concept; the amount that is earned during a period

Keynesian school

A group of economists who believed that the macroeconomy could settle at an equilibrium that was below full employment

Labour productivity

A measure of output per worker, or output per hour worked

Macroeconomics

The study of the interrelationships between economic variables at an aggregate (macroeconomic) level

Marginal propensity to withdraw

The proportion of additional income that is withdrawn from the circular flow - the sum of the marginal propensities to save, import and tax

Monetarist school

A group of economists who believed that the macroeconomy always adjusts rapidly to the full employment level of output, and that monetary policy should be the prime instrument for stabilizing the economy

Natural rate of output

The long-run equilibrium level of output to which monetarists believe the macroeconomy will always tend

Natural rate of unemployment

The unemployment rate that will exist when the economy is in long-run equilibrium

Net investment

Gross investment minus depreciation

Productivity

A measure of the efficiency of a factor of production

Recession

Occurs when GDP falls for two or more consecutive quarters

Short-run aggregate supply

A curve showing how much output firms would be prepared to supply in the short run at any given overall price level

Sustainable development

Development that meets the needs of the present without compromising future generations to meet their own needs

Total factor productivity

The average productivity of all factors, measured as the total output divided by the total amount of inputs used

Withdrawals

Where money flows out of the circular flow in the form of savings, taxation and imports

Injections

Where money flows into the circular flow in the form of investment, government spending and exports

Wealth

The value of assets, such as property and pensions