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Aggregate demand

Total demand in the economy made up of consumption, investment, government
expenditure and net exports. C + I + G + (X ­ M)

Aggregate Supply

The total value of goods and services supplied in the economy.

Economic growth

The capacity of the economy to produce more goods…

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The purchase of goods and services from abroad- leads to expenditure for the home

Economic indicators

Economic statistics that provide information about the expansions and contractions of
business cycles.

Nominal GDP/ nominal national income/ nominal output

GDP /income /output figures not adjusted for inflation.

Real GDP/ real national…

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A quantity measured at a particular point in time.


Money that originates outside the circular flow and so will increase national income /output


Any money not passed on in the circular flow and has the effect of reducing national income
/output /expenditure.

Investment (I)

Spending by firms…

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Businesses expect future sales and profits to be less due to factors like falling aggregate

Accelerator effect

The relation between the change in new investment and the rate of change of national


Sale of government- owned assets to the private sector.


The view of John Maynard…

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The government using macroeconomic tools to stimulate and then contract the economy.

Total factor productivity

The overall productivity of inputs used by a firm in producing a particular level of output.


A situation where prices persistently fall.

Credit crunch

Where borrowing becomes more expensive or unavailable.

Participation rates


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Workers who are not prepared to take a job at current wage levels.

Discouraged workers

Workers who leave the labour market because despite numerous attempts they are unable
to find a job.


Exports or imports that are tangible, that you can see and touch as they cross international

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The money rate of interest minus the rate of inflation.

Transmission mechanism of monetary policy

How changes in the base interest rate influence the components of aggregate demand.


A measure of the price level that excludes payments to service mortgage interest from the
Retail Price Index measure. Used as…

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Government spending to improve the productive capacity of the nation, including
infrastructure, schools and hospitals.

Transfer payments

Government payments to individuals for which no service is given in return, e.g. state

Balanced budget

Where government receipts equal government spending in a financial year.

Budget deficit

Where government spending exceeds…

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Where individuals receive more in benefit payments that they would be paid if they were in a

Supply- side policies

A range of measures designed to increase aggregate supply and hence the potential output
of the economy, though many improvements may come from the private sector.

Labour market



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