Section 4 - Government and the macroeconomy

Government budget

Government’s planned revenues and expenditures.

Public sector

Economic activity involving the government mainly providing services.

Private sector

Economic activity by individuals and firms aiming to make profit.

National minimum wage

Lowest legal wage that firms can pay workers set by the government.

Fiscal policy

Use of taxes and government spending to influence macroeconomic objectives.

Monetary policy

Use of interest rates exchange rates and money supply to influence economic activity.

Supply-side policies

Long-term measures to increase the productive capacity of the economy.

Economic growth

Annual increase in the level of national output measured by percentage change in GDP.

Nominal GDP

Value of GDP measured at current prices without adjusting for inflation.

Real GDP

Value of GDP adjusted for inflation.

GDP per head

Average value of annual GDP per person.

Employment

Use of factors of production such as labour.

Full employment

Situation where everyone willing and able to work has a job.

Inflation

Sustained rise in the general level of prices over time.

Deflation

Sustained fall in the general price level over time.

Hyperinflation

Extremely high and rapidly rising inflation.

Cost-push inflation

Inflation caused by higher costs of production forcing up prices.

Demand-pull inflation

Inflation caused by higher levels of demand in the economy.

Imported inflation

Inflation caused by higher import prices increasing costs of production.

Redistribution of income

Policies to reduce inequality in the distribution of income.