Aggregate demand - total demand in the economy made up of consumption, investment, government expenditure and net exports. Known by the identity: C+I+G+(X-M) = AD
Aggregate Supply - the 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.
Gross Domestic Product - the total value of goods and services produced in the economy.
Negative Output Gap - where the economy is producing less than its trend output.
Positive Output Gap - when actual GDP exceeds trend GDP increasing inflationary pressure.
Trade-off - where one macroeconomic objective has to be curtailed in favour of another objective.
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 such as wages.
Unemployment - those without a job but 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 - leads to expenditure for the home country.
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 income/real output - GDP/income/output figures adjusted for inflation.
GDP per capita - GDP divided by the population - a measure of living standards.
Index numbers - a weighted average of a group of items compared to a given base value of 100.
Weighting - where a commodity is given a weighting proportional to its importance in the general pattern of consumer spending.
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.
Balance of Payments - exports minus imports - a deficit means more is imported than exported.
Flow - measured over a specified period of time.
Stock - a quantity measured at a particular point in time.
Injections - money that originates outside the circular flow and so will increase national income/output/expenditure.
Withdrawals - 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 the labour force.
Savings (S) - a withdrawal from the circular flow.
Income induced - will increase as income increases and decrease as income decreases
Multiplier effect - where an increase or decrease in spending leads to a larger than proportionate change in the national income.
Net Government Spending - the difference between the government spending and taxation.
Fiscal Policy - the policy of the government regarding taxation and government expenditure.
Positive Expectations - businesses expect the future sales and profits to improve due to factors like increased aggregate demand.
Negative Expectations - businesses expect future sales and profits to be less due to factors like falling aggregate demand.
Accelerator effect - the relation between the change in new investment and the rate of change of national income.
Privatisation - sale of government-owned assets to the private sector.
Keynesian - the view of John Maynard Keynes, a very influential UK economist (1883-1946) who suggested how governments could cure mass unemployment.
Classical View - economists who believed that recessions and slumps would cure themselves.
Long-run Aggregate Supply - the economy's productive capacity.
Natural rate of Unemployment - the rate of unemployment that is consistent with a stable rate of inflation.
Productivity - a measure of efficiency, measuring the ratio of inputs to outputs; the most common measure is labour productivity, which is the output per worker.
Monetary Policy Committee - a committee of economists and central bankers who meet monthly and decide whether or not to change the rate of interest.
Supply-side Shock - something that will increase or reduce the costs, hence supply-side of all firms in the economy, e.g. a large increase in the price of oil.
Policy Objective - government's major macroeconomic objectives.
Policy Instrument - technique used to achieve policy objectives
Boom/bust policy - 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.
Deflation - a situation where prices persistently fall.
Credit Crunch - where borrowing becomes more expensive or unavailable.
Participation rates - proportion of the country's population that makes up the country's labour force.
Demand pull Inflation - where aggregate demand exceeds aggregate supply leading to an increase in the level of prices.
Cost push Inflation - where increased costs of production result in firms increasing their prices leading to an increase in the general price level.
Tight labour market - where firms have to increase wages to attract the labour that they require.
Cyclical Unemployment - demand deficient unemployment that occurs as a result of the economic cycle.
Demand deficient Unemployment - insufficient aggregate demand in the economy to employ the available labour.
Frictional/search Unemployment - people between jobs.