Macroeconomics Keyterms

  • Created by: Cara Li
  • Created on: 17-03-15 22:11
Aggregate demand
The total demand for a country's goods and services at a given price level and in a given time period.
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Price level
The average of each of the prices of all the products produced in an economy.
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Consumer expenditure
Spending by households on consumer products.
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Spending on capital goods.
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Government spending
Spending by the central government or local government on goods and services.
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Products sold abroad.
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Products bought from abroad.
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Net exports
The value of exports minus the value of imports.
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Transfer payments
Money transferred from one person or group to another not in return for any good or service.
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Job seeker's allowance
A benefit paid by the government to those unemployed and trying to find a p
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Trade surplus
The value of exports exceeding the value of imports.
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Trade deficit
The value of imports exceeding the value of exports.
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Consumer confidence
How optimistic consumers are about future economic prospects.
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Rate of interest
The charge for borrowing money and the amount paid for lending money.
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Average propensity to consume (APC)
The proportion of disposable income spent. It is consumer expenditure divided by disposable income.
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Net savers
People who save more than they borrow.
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A stock of assets, e.g. property, shares and money held in a savings account.
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Distribution of income
How income is shared not between households in a country.
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A sustained rise in the price level.
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Real disposable income minus spending.
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Average propensity to save (APS)
The proportion of disposable income saved. It is saving divided by disposable income.
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Target savers
People who save with a target figure in mind.
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Spending more than disposable income.
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Savings ratio
Savings as a proportion of disposable income.
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Capacity utilisation
The extent to which firms are using their capital goods.
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Corporation tax
A tax on firm's profits.
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Retained profits
Profit kept by firms to finance investment.
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Unit cost
Average cost per unit of output.
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Real GDP
The country's output measured in constant prices and so adjusted for inflation.
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Gross domestic product (GDP)
The total output of goods and services produced in a country.
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Exchange rate
The price of the currency in terms of another currency.
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A tax on imports.
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Government bond
A financial asset issued by the central or local government as a means of borrowing money.
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Aggregate supply
The total amount that producers in an economy are willing and able to supply at a given price level in a given time period.
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Output, or production, of a good or service per worker per unit of a factor of production in a given time period.
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Transfer of assets from the public to the private sector.
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Macroeconomics equilibrium
A situation where aggregate demand equals aggregate supply and real GDP is not changing.
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Circular flow of income
The movement of spending and income throughout the economy.
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Factor services
The services provided by the factors of production.
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Withdrawals of possible spending from the circular flow of income.
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Additions of extra spending into the circular flow of income.
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Multiplier effect
The process by which any change in a component of aggregate demand results in a greater final change in real GDP.
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The growth in aggregate demand outstripping the growth in aggregate supply, resulting in inflation.
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Output gap
The difference between an economy's actual and potential real GDP.
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Trend growth
The expected increase in potential output over time.
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Economic growth
In the short run, an increase in real GDP, and in the long run, an increase in productive capacity, that is in the maximum output that the economy can 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 either 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
When more money is leaving the country than entering it, as result of sales of its exports, income and current transfers from abroad being less than imports and income and current transfers going abroad.
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An inflation rate above 50 per cent.
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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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Labour Force Survey
A measure of unemployment based on a survey using the ILO definition of unemployment.
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International Labour Organisation (ILO)
A member organisation of the United Nations that collects statistics on labour market conditions and seeks to improve working conditions.
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Claimant count
A measure of unemployment that includes those receiving unemployment-related benefits.
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Consumer price index (CPI)
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 in 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 one year.
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Menu costs
The cost 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 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 (IMD)
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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Fiscal policy
The taxation and spending decisions of a government.
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Monetary policy
Central bank and/or government decisions on the rate of interest, the money supply and the exchange rate.
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Supply-side policy
Policies designed to increase aggregate supply by improving the efficiency of labour and product markets.
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Of policy measures designed to increase aggregate demand.
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Of policy measures designed to reduce aggregate demand.
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Discretionary fiscal policy
Deliberate changes in government spending and taxation designed to influence aggregate demand.
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Automatic stabilisers
Forms of government spending and taxation that change automatically of offset fluctuations in economic activity.
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Economic cycle
The tendency for economic activity to fluctuate outside its trend growth rate, moving from a high level of economic activity (boom) to negative economic growth (recession).
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Progressive tax
A tax takes a higher percentage from the income of the rich.
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Regressive tax
A tax that takes a greater percentage from the income of the poor.
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A fall in real GDP over a period of six months or more.
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Human capital
Education, training and experience that a worker. or group of workers, possesses.
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A tax on imports.
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A limit on imports.
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Occupational immobility of labour
Difficulty in moving from one type of job to another.
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The protection of domestic industries from foreign competition.
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Voluntary export restraint (VER)
A limit placed on imports from a country with the agreement of that country's government.
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Other cards in this set

Card 2


The average of each of the prices of all the products produced in an economy.


Price level

Card 3


Spending by households on consumer products.


Preview of the back of card 3

Card 4


Spending on capital goods.


Preview of the back of card 4

Card 5


Spending by the central government or local government on goods and services.


Preview of the back of card 5
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