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Unit 2: Managing the Economy-Definitions
Inflation: - Inflation is a rise in the general price level in the economy. It is measured by the
Consumer Price Index. It's a measure of an increase in the cost of living.
Demand-pull Inflation: - This is where demand in an economy increases but there are too
few goods. So, this is where aggregate demand increases.
Cost-push Inflation: - This is where supply in the economy decreases because firms' costs
rise. So their prices must rise and average prices rise. So aggregate supply decreases.
Unemployment: - This is where someone is able and willing to work but does not have a job.
The Claimant Count: - This is the total number of people claiming unemployment benefits.
Cyclical Unemployment: - Cyclical unemployment results from insufficient demand within
Structural Unemployment: - Structural unemployment occurs when industries fail and leave
labour with skills that the market no longer requires.
Regional Unemployment: - Regional unemployment occurs when there are no jobs available
in an area.
Seasonal Unemployment: - Seasonal unemployment occurs when industries only employ
workers at certain times of the year.
Frictional Unemployment: - Frictional unemployment occurs when unemployed are
Economic Growth: - Economic growth is a percentage increase in real GDP.
GDP: - Gross Domestic Product is the total monetary value of all the goods and services
produced in a given time period. It is measured by the total output of an economy.
Real: - Real means adjusted for inflation.
Balance of Payments: - The balance of payments is a record of economic transfers between
the UK and the rest of the world.
The Current account: - This consists of trade (exports and imports) in goods, trade in
services, transfer payments and investment income from abroad.
The macroeconomic Policy objectives: - These are stable inflation, steady growth, full
employment and a current account surplus.
The Human Development Index: - This is made up of real GDP per capita at purchasing
power parity rates, life expectancy and educational attainment.
Aggregate Demand: - is the total demand of an economy.
Investment (I): - Investment is spending by firms on capital goods.
Consumption (C): - This is spending by households on consumer goods and services.
Government Spending (G): -This is spending by the government.
Net Exports: - this is export revenue import expenditure.
Aggregate Supply: - This is the total supply in an economy.
The Circular Flow of Income: - The circular flow of income shows the relationship between
households and firms through consumption and income.
The Multiplier effect: - This occurs when a rise in aggregate demand has a more than
proportional effect on real GDP.
The Marginal Propensity to Consume: - The marginal propensity to consume is the amount
of additional income a household allocates to consumption. It determines the size of the
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Export led growth: -This is where the main cause of an increase in aggregate demand is by
an increase in exports.
Wealth effects: - Wealth effects occur when asset prices rise and create a feeling of being
richer. This leads to an increase in consumption.
Fiscal Policy: - Fiscal policy is the government changing the levels of its spending and
The Budget: - The Budget is the government's plan for spending and taxation.…read more