Economics Key Terms

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  • Aggregate demand: total demand in the economy made up of consumption, investment, government spending, exports and imports.  C+I+G+(X-M)
  • Aggregate supply: total value of goods and services supplied in the economy
  • Economic growth: the capacity of the economy to produce more goods and services over time
  • GDP: the total value of goods and services produced in an economy
  • Negative output gap: where economy is producing less than its trend output
  • Positive output gap: when actual GDP exceeds trend GDP increasing inflationary pressure
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  • Trade-off: when macroeconomic objectives conflict
  • Imports: goods or services purchased from abroad
  • Exports: goods or services sold abroad
  • Employment: where labour is actively engaged in a productive activity usually in exchange for payments
  • Unemployment: those without a job who are seeking work at current wage rates
  • Exporting: the sale of goods or services to a foreign country – generates income for the home country.
  • Importing: the purchase of goods and services from abroad – lead to expenditure for the home country
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  • Economic indicators: economic stats that provide information about the expansions and contractions of business cycle.
  • Nominal GDP: GDP not adjusted for inflation
  • Real GDP: figures for GDP adjusted for inflation
  • GDP per capita: GDP divided by population – measure standard of living
  • Index numbers: a weighting average compared to a given base of 100
  • Weighting: where a commodity is given a weighting proportional to its importance in the general pattern of consumer spending.
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  • Economic models: these are used to show the essential characteristics of complicated economic conditions in order to analyse them and predict the result of changes of variables
  • Recession: when an economy is growing at less than its long-term trend rate of growth (for 2 consecutive quarters)
  • Balance of payments: exports minus imports
  • Flow: measured over a specific period of time
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  • Stock: a quantity measured at a particular time
  • Injections: money that originates outside the circular flow and so will increase national income/output/expenditure.
  • Withdraws: any money not passed on in the circular flow and has the effect of reducing national income/output/expenditure.
  • Investment (I): spending by firms on buildings, machinery and improving the skills of labour force.
  • Saving (S): a withdrawal from the circular flow
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