Macroeconomics Definitions

All the key terms for the OCR F582 National Economy exam defined.

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  • Created by: Marcus
  • Created on: 28-04-13 13:00
Circular flow of income
The movement of spending and income throughout the economy between households and firms
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Macroeconomic Policy Objective
A government macroeconomic goal e.g. low unemployment, sustainable economic growth, low and stable inflation, balance of payments equilibrium, economic stability and an even distribution of income
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Leakages
Withdrawals of possible spending from the circular flow of income e.g. imports, taxation and saving
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Injections
Additions of extra spending into the circular flow of income e.g. exports, government spending and investment
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Unemployment
People who are willing and able to work in the next two weeks but are currently out of work and actively seeking work.
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Unemployment Rate
% of the labour force who are willing and able to work in the next two weeks but are currently out of work and actively seeking work
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Labour Force
The number of people in an economy who are employed and the number who are unemployed i.e. those who are economically active
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Claimant Count
A measure of unemployment that is the number of people receiving job seeker's allowance e.g.willing and able to work and actively seeking work every two weeks
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Labour Force Survey
A measure of unemployment based on a survey sample using the ILO unemployment definition i.e. those who are willing and able to work and actively seeking work every four weeks
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Inflation
A sustained increase in the general price level in an economy over a period of time
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Inflation Rate
A sustained % increase in the general price level in an economy over a period of time
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Consumer Price Index
A measure of changes in the price of a representative basket of consumer goods and services. It is the UK's main measure of inflation and has a 2% target.
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Cost-push Inflation
Increases in the general price level in an economy over a period of time caused by increases in costs of production e.g. rising oil prices
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Demand-pull Inflation
Increases in the general price level in an economy over a period of time caused by increases in aggregate demand when the economy is close to full capacity
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Gross Domestic Product
The total output of goods and services produced in a country over a given time period, irrespective of ownership
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Real Gross Domestic Product
The total output produced in an economy over a given period of time measured in constant prices and so adjusted for inflation
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Economic Growth
In the short-term, an increase in real GDP, and in the long-term, an increase in the productive capacity of the economy
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Economic Growth Rate
% increase in real GDP in an economy over a given time period
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Sustainable Economic Growth
An increase in real GDP that can continue over time and does not endanger future generations' ability to expand the productive capcity of the economy
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Recession
Two consecutive quarters of negative economic growth
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Balance of Payments
A record of all money flows coming in and going out of a country
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Imports
Spending on goods and services from abroad. A leakage from the circular flow of income
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Exports
Domestic goods and services bought by consumers abroad. An injection into the circular flow of income
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Balance of Trade
Exports minus imports of goods and services. A negative trade balance is a deficit, a positive trade balance is a surplus
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Trade Deficit
The value of imported goods and services exceeds the value of exported goods and services
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Trade Surplus
The value of exported goods and services exceeds the value of imported goods and services
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Trade Balance
The value of imported goods and services equals the value of exported goods and services
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Current Account Surplus
More money is entering the country than leaving it, as a result of its exports, income and current transfers from abroad being greater in value than imports, income and current transfers going abroad
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Current Account Deficit
When more money is leaving the country than entering it, as a result of its exports, income and current transfers from abroad being less in value than imports, income and current transfers going abroad
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Exchange Rate
The price of one currency in terms of another e.g. $1.5 = £1
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Aggregate Demand
The total demand for a country's goods and services at a givern price level and over a given time period
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Consumption
Spending by households on consumer goods and services e.g. cars
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Investment
Spending by firms on capital goods e.g. machinery to expand capacity
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Government Spending
Spending by the central bank and local government on goods and services e.g. education
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Net Exports
Spending on exports minus spending on imports in an economy over a given time period
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Aggregate Supply
Total output supplied by all domestic firms at each given price level over a given time period
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Macro Equilibrium
Where aggregate demand equals aggregate supply
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Fiscal Policy
The use of taxation and government spending to control aggregate demand
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Monetary Policy
The use of interest rates, money supply and exchange rate to control aggregate demand
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Rate of Interest
The cost of borrowing and the reward for lending
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Interest Rate
The charge for borrowing money and the amount paid for lending money
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Budget Deficit
When government spending is greater than tax revenue collected over a year
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Balanced Budget
When government spending equals tax revenue collected over a year
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Disposable Income
Income after taxes on income have been deducted and state benefits have been added
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Corporation Tax
A direct tax on firms' profits
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Income Tax
A progressive direct tax on people's incomes
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Value Added Tax
An indirect tax on the consumption of goods and services, currently 20%
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Saving
Real disposable income minus spending
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Free Trade
The exchange of goods and services between countries without any restrictions and protectionist policies e.g. tariffs
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International/External Trade
The exchange of goods and services between countries
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Protectionism
The protection of domestic industries from foreign competition, aiming to reduce imports or raise exports to reduce a current account deficit e.g. tariffs
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Protectionist Policies
Government policies that aim to protect domestic industries from foreign competition, aiming to reduce imports or raise exports to reduce a current account deficit e.g. tariffs
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Tariff
A tax on imports expressed as a %. An example of a protectionist policy
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Quota
A physical limit on the quantity of goods imported to lower imports and improve a current account deficit
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Consumer Confidence
How optimistic consumers are about future econmic prospects, affecting their level of spending
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Economically Inactive
People of working age who are neither employed nor unemployed e.g. university students
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Labour Productivity
Output of a good or service per worker over a given time period e.g. output per worker per hour
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Structural Unemployment
People out of work over the long-term due to the decline of certain industries and occupations, e.g. de-industrialisation, due to changes in supply and demand
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Technological Unemployment
People out of work due to labour being replaced by more efficient capital e.g. automated car assembly lines replacing manual assembly
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International Unemployment
People out of work due to firms replacing domestic workers with workers from overseas, usually because their labour is cheaper
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Regional Unemployment
People out of work due to a decline of a certain industry in a particular area
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Search Unemployment
People out of work due to them not taking the first job offered and searching for an even better job instead
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Casual Unemployment
People out of work in-between irregular period of employment e.g. actors, session musicians
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Seasonal Unemployment
People out of work because their labour is only demanded at a particular time of year e.g. ice cream seller
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Classical Unemployment
People out of work due to wage costs rising and firms not being able to afford them e.g. trade unions bidding up wages or a rise in the minimum wage
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Cyclical Unemployment
People out of work due to low aggregate demand and a lack of derived demand for labour during a recession
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Hysteresis
Unemployment generating further unemployment as those unemployed lose their skills and become less employable, making it more difficult for them to become employed
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Hyperinflation
Sustained percentage increase in the general price level of an economy of more than 50% per year
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Deflation
A fall in the general price level in an economy over a period of time
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Fiscal Drag
People's incomes being dragged into higher tax bands as a result of tax brackets not being adjusted in-line with inflation, causing real disposable incomes to fall
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Menu Costs
The costs in terms of time and labour of changing prices due to inflation e.g. restaurants reprinting menus
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Shoe-leather Costs
Costs in terms of extra time and effort involved in searching for the bank offering the highest interest rate to save, or searching for the cheapest deal on a product
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Inflationary Noise
The distortion of price signals caused by inflation. Market prices do not signal the reletive scarcity of products efficiently, creating uncertainty for consumers and shoe-leather costs
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Wage-price Spiral
Workers ask for pay rises to maintain their real purchasing power, leading to higher costs for firms, who may pass these costs on as higher product prices, creating even more inflation and an upwards spiral effect
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Informal Economy
Economic activity that is not recorded with the authorities, in order to avoid paying tax or because the activity is illegal
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Trend Growth
The expected increase in potential output over time. A measure of how fast an economy can grow without generating inflation
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Economic/Business Cycle
The tendency for economic activity to fluctuate outside its trend growth rate. Movement from high growth (boom) to negative growth (recession).
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Boom
A period in the business cycle characterised by high economic growth and demand-pull inflation
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Economic Recovery
When an economy's real GDP begins to rise after a period of negative economic growth
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Human Capital
Education, training and experience that a worker or group of workers posesses
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Direct Taxation
Taxes levied on income or profits that cannot be avoided e.g. income tax or corporation tax
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Indirect Taxation
Taxes levied on the consumption of goods and services e.g. VAT
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Progressive Tax
A tax that takes a high percentage of income from the rich e.g. income tax
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Regressive Tax
A tax that takes a greater percentage of income from the poor e.g. raising VAT
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Automatic Stabilisers
Forms of government spending and taxation that change automatically to offset fluctuations in economic activity i.e. keep the economic cycle nearer the trend growth rate throughout
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Target Savers
People who save with a target figure in mind e.g. for a car or pension
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Embargo
A ban on an imported good to lower imports and improve a current account deficit
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Subsidy
A direct payment from the government to producers to lower costs and encourage production
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Other cards in this set

Card 2

Front

A government macroeconomic goal e.g. low unemployment, sustainable economic growth, low and stable inflation, balance of payments equilibrium, economic stability and an even distribution of income

Back

Macroeconomic Policy Objective

Card 3

Front

Withdrawals of possible spending from the circular flow of income e.g. imports, taxation and saving

Back

Preview of the back of card 3

Card 4

Front

Additions of extra spending into the circular flow of income e.g. exports, government spending and investment

Back

Preview of the back of card 4

Card 5

Front

People who are willing and able to work in the next two weeks but are currently out of work and actively seeking work.

Back

Preview of the back of card 5
View more cards

Comments

davidsalter

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This is a set of 88 flash cards defining many of the key terms required up to A2 standard. Useful for testing yourself and colleagues. Should demonstrate further learning needs.

Nimrahkhan

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Good resource, some cards aren't needed in 2015 spec, and some (taxation and subsidies) are needed for unit 1 not unit 2 but still very helpful for last minute revision

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