Theme 2 economics (MACRO MITTAL)

What is GDP?

The total value of goods and services produced within a country over a period of time.

What is economic growth?

An increase in real GDP over time.

What is real GDP?

GDP adjusted for inflation.

What is nominal GDP?

GDP measured at current prices without adjusting for inflation.

What is GDP per capita?

GDP divided by the population; a measure of average output per person.

What is GNI?

Gross National Income; GDP plus net primary income from the rest of the world.

What is PPP?

Purchasing Power Parity; an adjustment that accounts for differences in the cost of living between countries.

What are living standards?

The material and non-material wellbeing of people.

What is non-material living standard?

Aspects of wellbeing such as leisure, health and environmental quality.

What is inflation?

A sustained increase in the general price level.

What is the inflation rate?

The percentage change in the general price level over time.

What is deflation?

A sustained fall in the general price level.

What is disinflation?

A fall in the rate of inflation while prices are still rising.

What is CPI?

The Consumer Prices Index; a measure of inflation based on the price of a weighted basket of goods and services.

What is demand-pull inflation?

Inflation caused by aggregate demand increasing faster than the economy's productive capacity.

What is cost-push inflation?

Inflation caused by increases in firms' costs of production.

What is unemployment?

People without a job who are actively seeking and available for work.

What is the unemployment rate?

The percentage of the economically active population who are unemployed.

What is the employment rate?

The percentage of the working-age population who are employed.

What is economic inactivity?

People who are neither employed nor actively seeking employment.

What is underemployment?

When people are employed but want to work more hours or are working below their potential.

What is structural unemployment?

Unemployment caused by a mismatch between workers' skills and available jobs.

What is frictional unemployment?

Temporary unemployment while people move between jobs.

What is seasonal unemployment?

Unemployment caused by seasonal changes in demand for labour.

(e.g retail workers being hired temporarily for the Christmas shopping season)

What is cyclical unemployment?

Unemployment caused by downturns in the economic cycle and insufficient aggregate demand.

What is demand-deficient unemployment?

not sure i need to know this

Unemployment caused by insufficient aggregate demand.

What is the balance of payments?

A record of financial transactions between a country and the rest of the world.

What is the current account?

The part of the balance of payments recording trade in goods and services, primary income and secondary income.

What is a current account deficit?

When money flowing out through the current account exceeds money flowing in.

What is a current account surplus?

When money flowing in through the current account exceeds money flowing out.

What is the balance of trade?

The difference between the value of exports and imports.

What are net exports?

Exports minus imports (X − M).

What is aggregate demand?

The total planned expenditure on goods and services produced in an economy at a given price level.

What is the formula for aggregate demand?

AD = C + I + G + (X − M).

What is consumption?

Spending by households on goods and services.

What is investment?

Spending by firms on capital goods such as machinery, buildings and equipment.

What is government spending?

Government expenditure on goods and services.

What are exports?

Goods and services produced domestically but purchased by foreigners.

What are imports?

Goods and services produced abroad but purchased by domestic consumers, firms or government.

What causes AD to shift?

A change in one or more components of AD: consumption, investment, government spending, exports or imports.

What causes movement along the AD curve?

A change in the price level.

What causes AD to shift right?

An increase in consumption, investment, government spending or exports, or a fall in imports.

What causes AD to shift left?

A fall in consumption, investment, government spending or exports, or an increase in imports.

What is disposable income?

Household income after direct taxes plus benefits and transfers received.

What is consumer confidence?

How optimistic consumers are about their current and future financial situation.

What is business confidence?

How optimistic firms are about future economic conditions and profitability.

What is the wealth effect? - check defintion

Changes in household wealth causing changes in consumption.

What is animal spirits?

John Maynard Keynes' term for the confidence and optimism influencing firms' investment decisions.

What is aggregate supply?

The total quantity of goods and services firms are willing and able to produce at different price levels.

What is SRAS?

Short-run aggregate supply; the amount firms are willing and able to produce at different price levels in the short run.

What causes SRAS to shift right?

A fall in firms' costs of production or an increase in productivity.

What causes SRAS to shift left?

An increase in firms' costs of production.

What is a firm's cost of production?

The expenses a firm incurs when producing goods and services.

What is unit cost?

The cost of producing one unit of output.

What happens when energy costs fall?

Firms' costs of production fall, SRAS shifts right and cost-push inflationary pressure falls.

What is LRAS?

Long-run aggregate supply; the economy's maximum sustainable productive capacity.

What is productivity?

The amount of output produced per unit of input, such as output per worker.

What is human capital?

The skills, knowledge and abilities possessed by workers.

How can better education affect LRAS?

It increases human capital and productivity, increasing productive capacity and shifting LRAS right.

How can better technology affect LRAS?

It increases productivity and productive capacity, shifting LRAS right.

What is infrastructure?

Physical systems such as roads, railways, energy networks and communications.

What is the circular flow of income?

The movement of income and spending between households, firms, government and the foreign sector.

What is an injection?

Spending entering the circular flow: investment, government spending and exports.

What is a withdrawal?

Income leaving the circular flow: saving, taxation and imports.

What are the three injections?

Investment, government spending and exports.

What are the three withdrawals?

Saving, taxation and imports.

What is equilibrium national income?

The level of national income where injections equal withdrawals.

What is the multiplier?

The process by which an initial change in spending causes a larger final change in national income.

What is MPC?

Marginal propensity to consume; the proportion of additional income that is spent.

What is MPS?

Marginal propensity to save; the proportion of additional income that is saved.

What is MPT?

Marginal propensity to tax; the proportion of additional income paid in tax.

What is MPM?

Marginal propensity to import; the proportion of additional income spent on imports.

What is MPW?

Marginal propensity to withdraw; the proportion of additional income withdrawn from the circular flow.

What is the multiplier formula?

Multiplier = 1 ÷ MPW.

What is the simple multiplier formula?

Multiplier = 1 ÷ (1 − MPC).

What is actual economic growth?

An increase in real GDP.

What is potential economic growth?

An increase in the economy's productive capacity, usually shown by an increase in LRAS.

What is an output gap?

The difference between actual output and potential output.

What is a positive output gap?

When actual output is above potential output, creating inflationary pressure.

What is a negative output gap?

When actual output is below potential output, indicating spare capacity.

What is spare capacity?

Unused productive resources in an economy.

What is full employment?

A situation where most people willing and able to work can find employment, although some frictional and structural unemployment may remain.

What is a boom?

A period of rapidly increasing economic activity, usually with rising AD.

What is a recession?

A significant decline in economic activity and output.

What is an economic recovery?

A period when economic activity begins to increase following a downturn.

What is a macroeconomic objective?

A goal the government aims to achieve for the economy.

What are the main macroeconomic objectives?

Economic growth, low unemployment, low and stable inflation, balance of payments stability and environmental sustainability.

What is fiscal policy?

Government decisions about taxation and government spending.

What is contractionary fiscal policy?

Increasing taxation and/or reducing government spending to reduce aggregate demand.

What is expansionary fiscal policy?

Reducing taxation and/or increasing government spending to increase aggregate demand.

What is a fiscal deficit?

When government spending is greater than government revenue.

What is a fiscal surplus?

When government revenue is greater than government spending.

What is a direct tax?

A tax on income or wealth, such as income tax.

What is an indirect tax?

A tax on spending, such as VAT.

What is monetary policy?

Policies used to influence interest rates, the money supply and credit conditions.

What is quantitative easing?

The central bank creates money to purchase financial assets, increasing the money supply.

What is the Bank Rate?

The interest rate set by the Bank of England's Monetary Policy Committee.

What is supply-side policy?

Policies designed to increase productivity, productive capacity or economic efficiency.

What is an interventionist supply-side policy?

Government intervention designed to improve productive capacity, such as spending on education, training or infrastructure.