F583 - The global economy - Flashcards in A Level and IB Economics

Real GDP growth

a measure of the total output, expenditure or income of an economy after adjusting for changes in the price level. Growth of real GDP is % change in output during a particular time period, often measured over a year

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Inflation

sustained increase in the general price level, measure in the UK by changes in the cost of a basket of goods and services bought by a typical household (CPI), weighted according to expenditure on each item in the basket

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Unemployment

someone is out of work but actively seeking employment. Measured as the total number of people unemployed/% of the workforce

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Balance of payments

records money flows into and out of a country over a period of time

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Current account

includes money flows due to trade, transfers of inters, profit and dividends and transfers of money by governments and international organisations

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Standard of living

a measure of the material well-being of a nation and its people

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Short-run economic growth

the actual annual percentage increase in an economy's output, sometimes referred to as actual economic growth

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Long-run economic growth

the rate at which the economy's potential output could grow as a result of changes in the economy's capacity to produce goods and services, sometimes referred to as potential economic growth

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Output gap

difference between actual and potential output of an economy. A situation where actual output is below potential output = negative output. Positive output gap = short-term, actual output exceeds economy's potential output

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Spare capacity

exists when firms in the economy are capable of producing more output than they are actually producing

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Trend rate of growth

the average rate of economic growth measured over a period of time, normally over the course of the economic cycle

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Short-run aggregate supply

shows the level of production for the economy at a given price level, assuming labour costs and other factor input costs are unchanged

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Economic cycle

fluctuations in the level of economic activity as measured by GDP. Typically there are four stages in the cycle; recession, recovery, boom and slowdown

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Human capital

the knowledge and skills of the labour force

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Marginal propensity to save (MPS)

proportion of additional income that is saved

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Marginal propensity to tax (MPT)

proportion of additional income that is taxed

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Marginal propensity to import (MPM)

proportion of additional national income that is spent on imports

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Accelerator

the theory of investment that states that the level of investment depends on the rate of change of national income

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Stocks

the amount of finished goods that firsm hold in order to be able to satisfy increases in demand

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Long0run aggregate supply (LRAS) curve

the relationship between total supply and the price level in the long run. The LRAS curve represents the maximum possible output for the whole economy - its potential output

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Classical economists

economists who believe that markets will 'clear', that prices and quantities adjust to change in the forces of supply of demand so that the economy produces its potential output in the long run

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Keynesian economists

economists who believe the market failures will result in price and quantity rigidities such that the economy's equilibrium output in the long run may be less than its potential output

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Labour force

all those people of working age who are in employment or actively seeking work

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Labour force participation rate

a measure of the proportion of the population able to work who are in employment or who are actively seeking work

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Capital output ratio

the amount of capital needed to generate each unit of output

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Long-term capital flows

flows of money used for investment in assets (direct investment by a company in setting up production facilities or portfolio investment through buying shares in companies)

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Short-term capital flows

flows of money that occur to take advantage of diffPublic sector net cash requirement (PSNCR)

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Public sector net cash requirement (PSNCR)

the difference between the spending of general government (central and local government) and their revenue. if expenditure > revenue = budget defect. Expenditure < revenue = budget surplus. Budget deficit requires government to borrow money to make

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Automatic stabilisers

the changes in government expenditure and taxation receipts that take place automatically in response to the economic cycle. E.g. expenditure on unemployment benefits rises during the recession phase of the business cycle

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Economic stability

the avoidance of volatility in economic growth rates, inflation, employment/unemployment and exchange rate, in order to reduce uncertainty and promote business and consumer confidence and investment

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Crowding out

when government borrowing reduces the funds available for private sector investment of raises the cost of investment by raising market interest rate

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Cyclical deficit

a budget deficit that arises because of the operation of automatic stabilisers

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Golden rule

a commitment by the UK government that, over the economic cycle, it will borrow only to invest and not for current expenditure

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Credibility

(principal of fiscal policy): credible fiscal policy framework = where the government's commitment to economic stability is trusted by the public, business and financial markets

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Flexibility

(principle of fiscal policy): a flexible fiscal policy framework has flexibility to deal with macroeconomic shocks, such as sudden and unexpected changes in AS and/orAS

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Legitimacy

(principle of fiscal policy): legitimate fiscal policy framework has widespread support and about which there is general agreement among the public, business and politicians

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Monetary transmission mechanism

the way in which monetary policy affects the inflation rate through the impact it has on other macroeconomic variables

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Price stability

when general policy level does not change or, if it does change, the reate of change is low enough not to significantly affect the decisions of firms and households

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Purchasing power of money

what a unit of currency will buy in terms of goods and services

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Signalling function

changes in D and S of goods and services are signalled to producers and consumers through changes in absolute and relative price levels

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Operational Independence

when a central bank is given responsibility for the conduct of monetary policy independent of political interference. The target for inflation though is normally set by governments

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Symmetric inflation target

when deviations above and below the target are given equal weight in the inflation target

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Asymmetric inflation target

when deviations below the inflation target are seen to be less important than deviations above the target

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International competitiveness

the ability of an economy's firms to compete in international markets and thereby sustain increases in national output and income

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Unit labour costs

the cost of labour per unit of output (including the social costs of employing labour as well as the wage costs

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Relative unit labour costs

the cost of labour per unit of output of one country relative to its major trading partners

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F583 - The global economy

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