Theme 2 Definitions

actual growth

economic growth measured by changes in real GDP

aggregate demand

total level of demand in an economy at any given price level at any given moment in time

aggregate supply

total amount of output in an economy at any given price at any given moment in time

animal spirits

level of confidence of business owners

balance of payments

record of all financial dealings over a period of time between economic agents of one country and all other countries

base year

a year chosen as a good comparison in a series of data when building an index; it is automatically given an index figure of 100

boom

peak of the business cycle, when growth is high

budget

where the government lays out their spending and taxation plans

budget deficit

when the government spends more money than it receives

budget surplus

when the government receives more money than it spends

circular flow

model of the economy which shows the flow of goods and services, the factors of production and money around the economy

claimant count

measure of unemployment; the number of people receiving benefits for being unemployed

ccnsumer price index

official measure used to calculate the rate of inflation, using a weighted basket of goods

consumption

consumer spending on goods and services

cost push inflation

inflation caused by a decrease in AS

current account

record of the payments for the purchase and sale of goods and services as well as income and transfers

current account deficit

when more money leaves the country than enters, so the current account is negative

current account surplus

when more money enters the country than leaves, so the current account is positive

cyclical unemployment

unemployment caused by a lack of AD; demand for workers is reduced

deflation

a persistent fall in prices of goods and services

deflationary/contractionary policy

fiscal or monetary policy which is aimed at reducing AD

demand pull inflation

inflation caused by an increase in AD

depreciation

the reduction in the value of machinery overtime

direct tax

taxes paid straight to the government by the individual taxpayer

disinflation

a reduction in the rate of inflation

disposable income

the money consumers have left to spend, after taxes have been taken away and benefits added

eonomic growth

an increase in the amount of goods and services which are produced, measured by an increase in real GDP

employed

someone who does more than 1 hour of paid work a week or is temporarily away from work, on a government supported training scheme or does a minimum of 15 hours unpaid work for their family business

expansionary policy

fiscal or monetary policy which is aimed at increasing AD

exports

goods and services sold to foreigners that bring income into the country

export-led growth

economic growth arising from an increase in exports

fiscal policy

the use of borrowing, government spending and taxation to manipulate the level of AD and improve macroeconomic performance

frctional unemployment

unemployment caused when people move between jobs and enter the job market

gross domestic product

the value of goods and services produced in a country over a given period of time

GDP per capita

total GDP divided by the population

gross investment

investment both to replace old machinery that has depreciated and to create/buy new ones

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

gross national product (GNP)

the value of goods and services produced by citizens of a country, whether they live in the country or not

government spending

spending by the government on the provision of goods and services

imports

goods and services bought from foreigners that takes income out of the country

inactive

those neither employed nor unemployed; those not participating in the job market

income

a flow of assets

index number

numbers allowing accurate comparisons to be made over time; the base year value is typically 100

indirect tax

tax where the person charged with paying the money to the government is able to pass the cost onto someone else

inflation

general rise in prices of goods and services that erodes the purchasing power of money

injection

spending power entering the circular flow of income resulting from investment, government spending and exports

interventionist supply side policies

policies designed to correct market failure, where the government intervenes in the market

investment

spending by businesses on capital goods, which leads to the creation of real goods

labour force survey

a measure of unemployment which surveys people to class them as unemployed, employed or inactive under the ILO definitions

living standards

quality of life enjoyed by people in a country

long run

when all factors of production are variable

long run aggregate supply

total output an economy can produce when operating at full output

long run trend rate of growth

average sustainable rate of economic growth over a period of time

marginal propensity to consume

proportion of an increase in income spent on consumption

marginal propensity to import

proportion of an increase in income spent on imports

marginal propensity to save

proportion of an increase in income that is saved

marginal propensity to tax

proportion of an increase in income that is taken away in tax

marginal propensity to withdraw

proportion of an increase in income that is withdrawn from the circular flow

market-based supply-side policies

policies which are designed to remove anything which prevents the free market system working efficiently

monetary policy

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

monetary policy committee

9 economists who meet monthly to set the Bank rate as well as other monetary instruments

monetary supply

stock of money in the economy

multiplier

increase in an injection will lead to an even greater increase in national income

national expenditure

value of spending by households on goods and services

national income

value of money paid by firms to households in return for land, labour, capital and enterprise

national output

value of the flow of goods and services from firms to households

negative output gap

GDP is lower than predicted; the economy is producing below full output

net exports

exports minus imports

net investment

investment adjusted for depreciation; gross investment minus depreciation

nominal GDP

GDP which does not take inflation into account; GDP at current prices

output gap

difference between the long term trend rate of growth and actual growth

positive output gap

GDP is higher than predicted; the economy is producing above full output

potential growth

a change in the productive potential of the economy

purchasing power parity

exchange rate of one currency toanother that compares the cost of livingin different countries through comparinga typical basket of goods

quantitative easing

the central bank buys assets in exchange for money in an attempt to increase the money supply

real GDP

GDP which strips out the effect of inflation

real wage unemployment

unemployment caused when wages are set above the equilibrium wage rate

recession

trough of the business cycle, when growth is low

retail price index (RPI)

an old measure of inflation which has lost its national statistic status

savings

decision by consumers to postpone consumption

seasonal unemployment

unemployment caused when an industry only operates during certain times of the year

short run

when at least one factor of production is fixed

short run aggregate supply (SRAS)

aggregate supply when at least one factor of production is fixed

short run Phillips curve

shows the relationship between unemployment and inflation: higher levels of unemployment lead to lower levels of inflation

structural unemployment

unemployment caused by the long term decline of an industry

supply-side policies

government policies aimed at increasing the productive potential of the economy and shifting LRAS to the right

total GDP

GDP of the whole country

trade (business) cycle

tendency of economic growth to rise and fall above and below the trend rate of economic growth, causing booms and busts

underemployment

those who are working part time, on zero hour contracts or on government training schemes but would prefer to be full time or those employed in areas below their skill level

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

value of GDP

nominal values of GDP; GDP at current prices

volume of GDP

real values of GDP; the size of the basket of goods

wealth

a stock of assets

withdrawal

spending power leaving the circular flow of income resulting from savings, taxation and imports