study of the relationship economic variables at an aggregate level

  • INFLATION: price stability allows markets to operate effectively
  • UNEMPLOYMENT: whether FofP are being fully utilised
  • ECONOMIC GROWTH: expand productive capacity = more resources available
  • TRADE: how the economy interacts with the rest of the world

NOMINAL VALUES: the value of a variable based on current prices (V x P). will overstate changes in economic variables

REAL VALUES: the value of variables taking into account changing prices through time (v x base P)

INDEX NUMBERS: a device for comparing the value of a variable in 1 period with a base observation. (new price/base) x100

POTENTIAL ECO GROWTH: an expanison of the productive capacity of the economy over a period of time. Increase the well being of society by increasing the level of resources. Economic growth leads to an expansion of the productive capacity as its resources expand

GDP: a measure of the total value of g/s produced in an economy in a given period

ACTUAL ECO GROWTH: the rate of growth of GDP per period

BUSINESS CYCLE: a phenmenon whereby GDP fluctuates around its under lying trend

INFLATION: the rate of change the price level over time

price instabilty = investment deterred

CPI: based on the price of a bundle of g/s (180k quotes on 680 goods). Data on spending is used to complie weights. Excludes housing costs. provides a measure of the level of  prices but only represents the average household.

RPI: a measure of the average level of prices in the UK. replaced by RPIX (excludes mortgage payments)

CPI replaced RPI as it was a better indictator of policy effectiveness & can be used to compare countries

WORLD INFLATION: stable in the 1950/60s except 1952. Increase in oil prices in 1973 +abandonment of fixed exchange rate which freed monetary policy. 1980s and 90s saw inflation reigned in and expanding economies except for developing countries who couldn't recover from the 1970s.

UNEMPLOYMENT: unemployment and employment can change without changing either side.

CLAIMANT COUNT: the number of people seeking JSA each month. it is an accurate account of who is claiming benefits but some are not eligable and others are unavailable to work

ILO: a meeasure of the % of the workforce who are out of job, looking for job (4weeks) & can start in 2 weeks. This is a sample and is less accurate due to sample variation

Low UE encourages people who can't claim to seek work but high UE doesn't due to competition

BALANCE OF PAYMENTS: a set of accounts showing the transactions conducted between residents and the rest of the world

  • Current Account: transaction of g/s + income payments 
  • Capital Account: transactions in fixed assets
  • Financial Account: transactions of financial assets (ex. foreign exchange)


  • the balance of trade in g/s (X-M) negative = M>X
  • employment income from abroad
  • transaction & grants with international organisations

Overal the BofP = 0 & net errors + omissions ensures every thing balances


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