Key terms

GDP

Total output of goods and services produced in an economy over a period of time

Real GDP

Total value of goods and services produced in an economy accounting for inflation

Circular flow of income

Movement of money between consumers, households, and firms with injections and withdrawals

Multiplier effect

Initial injection causing a larger increase in national income

National income

Net income produced domestically and abroad

Economic growth

Increased production of goods and services leading to a higher standard of living

MPC

Marginal propensity to consume - additional spending for every extra dollar of income

MPS

Marginal propensity to save - additional saving for every extra dollar of income

Inflation

General rise in prices

CPI

Consumer Price Index - measures average price change of goods and services

Sustainability

Growing the economy without depleting natural resources

Unemployment

Actively seeking work but not employed

Deficit

Government borrowing over time

Debt

Accumulation of deficits

Balance of payments

Measures international economic transactions

Phillips curve

Relationship between inflation and unemployment

Components of demand

Consumption, investment, government spending, international trade

Consumption

Expenditure on goods and services influenced by disposable income, wealth, inflation, and interest rates

Investment

Injection into the circular flow influenced by machinery cost, technology, and government policy

Exports

Sending goods to other countries, influencing exchange rates

Imports

Bringing goods from other countries, a withdrawal from the circular flow

Fiscal policy

Government spending and taxation changes to influence aggregate demand

Monetary policy

Control of money supply and interest rates by the central bank

Supply side policy

Policies to improve the production side of the economy

Claimant count

Number of people claiming unemployment benefits