Economics Key Terms - Unit 2

Important key terms for unit 2 AQA economics

  • Created by: z
  • Created on: 06-04-10 16:39

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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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this is very good

thank you for making it

GOD bless you. amen

John Richards


Excellent very useful set of definitions. Thanks very much.

Miriam Amankwa


thank you for making these :D



You points are encouraging



You points are encouraging



Thank you! Although, a recession is defined as 2 consecutive quarters of negative economic growth. The rest are perfect though so thank you so much!



Thank you very ver much for these set of key terms. dunno what i would do without em, you rock :D

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