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Macro Economics > Definitions > Flashcards

Definitions Flashcards

0
Q

Price level

A

The average of each of the prices of all products produced in an economy.

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1
Q

Aggregate Demand

A

The total demand for a country’s goods and services at a given price level and a given time period.

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2
Q

Real GDP (Y)

A

The country’s output measured in constant prices and so adjusted for indication.

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3
Q

Consumer expenditure (C)

A

Spending by households on consumer products

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4
Q

Investment (I)

A

Spending on capital goods

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5
Q

Government spending

A

Spending on central government and local government on goods and services.

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6
Q

Net exports (X-M)

A

The value of exports minus the value of imports

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7
Q

Aggregate Supply

A

The total amount that produces in an economy are willing and able to supply at a given price level in a given time period

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8
Q

Macroeconomic Equilibrium

A

A situation where Aggregate Demand = Aggregate Supply and Real GDP is not changing
Anything that causes AD or AS conditions to change will move the economy to a new macro equilibrium

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9
Q

Multiplier Effect

A

The process by which any change in a component of aggregate demand results in a greater final change in real GDP

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10
Q

Output Gap

A

The difference between an economy’s actual and potential Real GDP

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11
Q

Economic Growth

A

In the short run, an increase in Real GDP and in long run, an increase in productive capacity, that is, the maximum output that the economy can produce o

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12
Q

Circular flow of income

A

The movement of spending and income throughout the economy

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13
Q

Leakages

A

Withdrawals of possible spending from circular flow of income

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14
Q

Injections

A

Additions and extra spending into the circular flow of income

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15
Q

Multiplier Effect

A

The process by which any change in a component of aggregate demand results in greater and final change in real GDP

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16
Q

Output Gap

A

The difference between an economy’s actual and potential real GDP

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17
Q

Cyclical unemployment

A

Unemployment arising from a lack of aggregate demand

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18
Q

Structural unemployment

A

Unemployment caused by the decline in certain industries and occupations due to changes in demand and supply

Steel- scunthorpe
Fishing- Grimsby, immingham
Coal mining
Ship building- Scotland

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19
Q

Frictional unemployment

A

Short term unemployment occurring when workers are in-between jobs

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20
Q

Consumer prices index

A

A measure of changes in the price of a representative basket of consumer goods and services

Use base year
Calculated using a weighted basket of goods
Reflects what people spend their money on
Internationally comparable

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21
Q

Retail price index

A

Measure of inflation that is used for adjusting pensions and other benefits to take account of changes in inflation and frequently used in wage negotiations

Higher than CPI
Includes mortgage payments and rent 
Truer figure 
Used for benefit/wage/pension increases 
Not internationally comparable
22
Q

Demand-pull inflation

A

Increases in the price level caused by increases in aggregate demand

23
Q

Cost-push inflation

A

Increases in the price level caused by increases in the costs of production

24
Q

Menu costs

A

The costs of changing prices due to inflation

25
Q

Shoe-leather costs

A

Costs in terms of extra time and effort involved in reducing money holds

26
Q

Inflationary noise

A

The distortion of price signals caused by inflation

27
Q

Fiscal drag

A

People’s income being dragged into higher tax brackets that are not adjusted in line with inflation

28
Q

Current Account Surplus

A

When more money is entering the country than leaving it

29
Q

Current Account Deficit

A

When more money is leaving the country than entering it

30
Q

Balance of payments components

A

The current account
The capital account
Net errors and omissions

31
Q

Components of current account

A

Trade in goods- they are visible and tangible. Since 1992 there has been a deficit caused by lack of raw materials in oil. This means more is spent on imports than exports- cars, food, chemicals.
Trade in services- they are invisible and intangible. Since 1996 there has been a surplus. This is caused by financial banking advice in London and tourism- high levels of technology.
Investment income- consumers.- mainly dividend payments on stocks and shares- investment makes money. This is usually a surplus.
Transfers- money sent out of the UK by foreigners working in the UK sending wages to abroad. This can be international aid. It also works the other way around. The transfer of money is covered by the Government and individuals.

32
Q

Exchange rate

A

The price of one currency in term of another currency or currencies.

33
Q

Fiscal Policy

A

The taxation and spending decisions of a Government.

Demand side policy

Duty tax
Income tax
Corporation tax
VAT tax

AD- C+I+G+(X-M)

34
Q

Monetary policy

A

A central bank and/or government decisions on the rate of interest, the money supply and the exchange rate

35
Q

Monetary policy committee

A

A committee of the Bank of England with responsibility for setting the interest rate in order to meet the government inflation rate target

36
Q

Supply side policy

A

Policies designed to increase aggregate supply by improving the AS efficiency of labour and product markets

These policies are all about improving of increasing productive capacity

37
Q

Protectionism

A

The protection of domestic industries from foreign competition

38
Q

Tariff

A

Tax on imports

39
Q

Quota

A

A limit on imports

40
Q

Short run aggregate supply

A

Shows total planned output when prices in the economy can change but the prices and productivity of all factor inputs e.g. Wage rates and state of technology are assumed to be held constant

41
Q

Long run aggregate supply

A

Shows total planned output when both prices and average wage rates can change
It is a measure of a country’s potential output and the concept is linked strongly to that of the production possibility frontier

42
Q

Economic growth

A

In the short run, an increase in real GDP and in the long run an increase in productive capacity, that is the maximum output that the economy can produce

43
Q

Inflation

A

A sustained rise in the price level, the percentage increase in the price level over a period time

44
Q

Income distribution

A

The division of incoming between different recipients

45
Q

Economic stability

A

The avoidance of votality in the economic growth rates, inflation, explore the and exchange rates in order to reduce uncertainty and promote business and consumer confidence and investment

46
Q

Nominal GDP

A

Output measured In current prices and so not adjusted in line with inflation

47
Q

Real GDP

A

The country’s output measured in constant prices and so adjusted for inflation

48
Q

Trend growth

A

The expected increase in potential output over time

It is also a measure of how fast the economy can grow without generating inflation

49
Q

Sustainable economic growth

A

Economic growth that can continue over time and does not endanger future generations ability to expand productive capacity

50
Q

Full employment

A

A situation where those wiling and able to work can find a job at the going wage rate

51
Q

Aggregate supply

A

The total amount that producers are able and willing to supply at a given price level in a given time period b

52
Q

Unemployment

A

A situation where people are out of work but willing and able to work

Macro Economics (10 decks)

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