Key Terms F582 - Chapter 5

Economic Growth
in the short run, an increase in real GDP, and in the long run, and increase in productive capacity, that is, in the maximum output that the economy can still produce
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a situation where people are out of work but are willing and able to work
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Labour Force
the people who are employed and unemployed, that is, those who are economically active
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Economically Inactive
people of working age who are neither employed nor unemployed
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a sustained fall in the general price level
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Balance of payments
a record of money flows coming in and going out of a country
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responsive to a change in market conditions
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Inflation rate
the percentage increase in the price level over a period of time
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Sustainable economic growth
economic growth that can continue over time and does not endanger future generations' ability to expand productive capacity
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Trend growth
the expected increase in potential output over time. It is a measure of how fast the economy can grow without generating inflation
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Full employment
a situation where those wanting and able to work can find employment at the going wage rate
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Current account deficit
where more money is leaving the country than entering it, as a result of sales of its exports, income and current transfers from abroad being less than imports and income current transfers going abroad
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Nominal GDP
output measured in current prices and so not adjusted for inflation
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Labour productivity
output per worker hour
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Informal economy
economic activity that is not recorded or registered with the authorities in order to avoid paying tax or complying with regulations, or because the activity is illegal
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Economy of scale
the advantage of producing on large scale, in the form of lower long-run average cost
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Unemployment rate
the percentage of the labour force who are out of work
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Claimant count
a measure of unemployment that includes those receiving unemployment-related benefits
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Consumer prices index
a measure of changes in the price of a representative basket of consumer goods and services. Differs from the retail prices index (RPI) in methodology and coverage
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Retail prices index
(RPI) measure of inflation that is used for adjusting pensions and other benefits to take account of changes in inflation and frequently used in wage negotiations. Differs from the consumer prices index (CPI) in methodology and coverage
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Cyclical unemployment
unemployment arising from a lack of aggregate demand
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Structural unemployment
unemployment caused by the decline of certain industries and occupations due to changes in demand and supply
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Frictional unemployment
short term unemployment occurring when workers are in-between jobs
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Demand-pull inflation
increases in the price level caused by increases in aggregate demand
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Cost-push inflation
increases in the price level caused by increases in the costs of production
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unemployment causing unemployment
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Long-term unemployment
unemployment lasting for more than a year
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Menu costs
the costs of changing prices due to inflation
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Shoeleather costs
costs in terms of the extra time and effort involved in reducing money holdings
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Inflationary noise
the distortion of price signals caused by inflation
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Real interest rate
the nominal interest rate minus the inflation rate
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Fiscal drag
people's income being dragged into higher tax bands as a result of tax brackets not being adjusted in line with inflation
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International Monetary Fund
(IMF) an international organisation that helps co-ordinate the international monetary system
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World Trade Organisation
(WTO) an international organisation that promotes free international trade and rules on international trade disputes
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Exchange rate
the price of one currency in terms of another currency or currencies
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Monetary Policy Committee
(MPC) a committee of the Bank of England with responsibility for setting the interest rate in order to meet the government's inflation target
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Card 2




a situation where people are out of work but are willing and able to work

Card 3


Labour Force


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Card 4


Economically Inactive


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Card 5




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