Economics Definitions

Macroeconomics

The study of the interrelationships between variables and the aggregate

Economic growth

An increase in the total value of goods and services produced in an economy

Micro economics

The branch of economics that studies the behaviour of individuals and firms in the market

GNI

Income earnt from all UK citizens in the country and abroad

GDP

Income earnt from citizens in a specific country

Recession

Two consecutive courses of negative growth (ie 6 months of negative growth)

Inflation

A sustained rise in the general price level

Ceteris Paribus

All other things being equal/staying as they are

Positive statement

Statements which are objective that can be tested, amended or rejected using available evidence

Normative statement

A subjective statement which uses a person’s value judgement (opinion)

Value judgement

An opinion

Command economy

An economy where the government has a lot of control over the allocation of resources. Often characterised by having a very small private sector

Fiscal drag

When your wage rises due to inflation but you go up a tax band and so your actual purchasing power stays the same/is lower

Output graph

Difference between the actual level of GDP and its estimated potential

LRAS

The LRAS is a straight line because no matter how much price increases, the potential cannot be overcome

Economic boom

A period when the rate of growth of real GDP (Gdp growth minus inflation rate) is fast and higher than the long term trend

Business cycle

Short run fluctuations of national output (Real GDP) around its long term trend

Economic slowdown

A weakening of the rate of growth; real GDP is still rising but increasing at a slower rate

Recovery

When the real GDP starts to increase after a recession

Depression

A prolonged downturn in the economy where a nations GDP falls at least 10%

Opportunity cost

The next best alternative forgone when an economic decision is made

Pareto efficiency

We can make someone better off by making someone else worse off as there are only a limited amount of resources

Hysteresis

The long term consequences of an economic issue that persists despite the factors that caused the problem to have been removed

Can lead to loss of national output

Creative destruction

The idea that recessions “correct” the market by getting rid of the inefficient business

Define interest rates

The cost of borrowing/reward for saving

Structural unemployment

Long term unemployment

Define the multiplier effect

The change in GDP is greater than the original capital which was invested to bring it about

Define demand

The quantity of a good or service that consumers choose to buy at any possible price in a given time period

Define effective demand

A consumers desire to buy something, backed up by a willingness and ability to pay for it. They must have sufficient purchasing power

What is the law of demand

The law states that there is an inverse relationship between quantity demanded and the price of a good or service, ceteris paribus

Define supply 

The quantity of a good or service that producers are willing to and able to offer at a given price in a given time period

Define GNP

Gross national product is the estimate for the money value of the goods and services produced by the 4 factors of production

Define inflation

Inflation is defined as a sustained price in the general price level

Define disinflation

When the prices of products and services is still increasing but a slower rate

Define delfation

When the price of goods and services decreases