Macroeconomics (UNIT 2) definitions

Every definition you need to know for the AQA macroeconomics AS examination

a period when there is a particularly deep and long fall in output
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the study of the economy as a whole, including inflation, growth and unemployment
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The study of the behaviour of individuals or groups within an economy
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A period when growth in output falls or becomes negative- (trade cycle). The technical definition used by government is that recession occurs when growth in output is negative for two consecutive quarters
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Trade cycle
regular fluctuations in the level of economic activity around the trend growth of the economy
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Output gap
the difference between actual level of GDP and the productive potential of the economy
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Circular flow of income
a model of the economy which shows the flow of goods, services, and factors and their payments around the economy
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gross domestic product- measure of national income
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Spending which is not generated by households, including investment, government spending and exports
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National income
the value of the output, expenditure or income of an economy over a period of time
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Transfer payments
income for which there is no corresponding output, such as unemployment benefits or pension payments
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A stock of assets which can be used to generate a flow of production or income
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Withdrawals or leakages
spending by households which does not flow back to domestic firms. Includes savings, taxes and imports (SIT)
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Average Propensity to Consume
The proportion of total income spent. Calculated by C/Y
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Average propensity to save
the proportion of total income which is saved. Calculated by S/Y
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Total expenditure by households on goods and services over a period of time.
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Disposable income
The amount of money that households have available for spending and saving after income taxes have been accounted for
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Durable goods
goods which are consumed over a long period of time, such as a TV set or a car
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Consumption function
the relationship between the consumption of households and the factors which determine it
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Marginal propensity to consume
The proportion of a change in income which is spent. Calculated by (change in consumption/change in income)
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Marginal propensity to save
the proportion of a change in income which is saved. Calculated by (change in S/change in Y)
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Non-durable goods
goods which are consumed almost immediately, e.g. an ice cream
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Savings function
the relationship between saving of households and the factors which determine it
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Savings (personal)
The portion of household's disposable income which is not spent over a period of time
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Wealth effect
the change in consumption following a change in wealth
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Accelerator Theory
A theory that the level of planned investment is related to past changes in income
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the addition to the capital stock of the economy
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Marginal efficiency of capital
the rate of return on the last unit of capital employed
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The sum or total
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Aggregate demand
the total of all demands or expenditures in the economy at any given price
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Multiplier Effect
An increase in investment or any other autonomous expenditure will lead to an even greater increase in income
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Aggregate supply curve
the relationship between the average level of prices in the economy and the level of total output
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Full Capacity
When all economic factors of production (land, labour, capital) are fully employed
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Supply side shocks
factors such as changes in wage rates or commodity prices which cause the short run aggregate supply curve to shift
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Economic growth
growth in the productive potential of the economy. Typically measured by growth in real GDP
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Economic recovery
the movement back from where the economy is operating below its productive potential to a point where it is at its productive potential
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Cyclical unemployment
When there is insufficient demand in the economy for all workers who wish to work at current wage rates to obtain a certain job
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Frictional unemployment
When workers are unemployed between jobs for short lengths of time
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Seasonal unemployment
When workers are unemployed at certain times of the year, such as building workers or agricultural workers in the winter
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Structural unemployment
When the pattern of demand and production changes leaving workers unemployed in labour markets where demand has shrunk
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a measure of the price level used across the EU and the B of E to measure inflation against its target
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Cost-push inflation
inflation caused by increases in the costs of production in the economy
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a fall in the price level
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Demand-pull inflation
inflation which is caused by excess demand in the economy
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a sustained increase in the price level of an economy
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Price level
the average prices of goods and services in the economy
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Retail price index
a measure of the price level which has been calculated in the UK for over 60 years and is used in a variety of contexts such as by gov. index welfare benefits
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Balance of payments account
a record of all financial dealings over a period of time between economic agents of one country and all other countries
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Balance of trade
visible exports - visible imports
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Trade in goods
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Trade in services
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Current account deficit
When a country's expenditure on imports is more than the income from exports
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Current account surplus
When a country's income from exports is more than the expenditure on imports
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Current balance
The difference between total value of exports and total value of imports
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Current account
the part of balance of payments account where payments for the purchase and sale of goods and services are recorded
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A statement of the spending and income plans of an individual, firm, or government. The Budget is the yearly statement on government spending and taxation plans in the UK
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Budget deficit
a deficit which arises because gov. spending is greater than its receipts. Government therefore has to borrow money to finance the difference
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Budget surplus
a government surplus arising from government spending being less than its receipts. Government can use the difference to repay part of the National Debt.
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Demand side policies
Government use of fiscal and monetary policy to manipulate the level of aggregate demand in the economy
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Expansionary fiscal policy
Fiscal policy used to increase the level of aggregate demand
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Fiscal policy
Government manipulation of taxes and government spending in order to control aggregate demand
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Nation debt
The accumulated borrowings of the government
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When aggregate demand is increased if the economy is already at full capacity, resulting in inflation with little or no increase in output
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A supply side constraint in a particular market in an economy which prevents higher growth for the whole economy
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Laffer curve
a curve which shows that at high levels of taxation, further increases in rates will reduce total tax revenues due to disincentive effects
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Poverty or earnings trap
occurs when an individual is little better off or even worse off when gaining an increase in wages
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Supply-side policies
government policies designed to increase the quantity and quality of the factors of production, hence pushing LRAS curve to the right
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Unemployment trap
occurs when an individual is little better of/ worse off when getting a job after being unemployed because of the combined effect of increased tax and benefit withdrawal
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Bank base rate
the interest rate which a bank sets to determine its borrowing and lending rates.
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Monetary policy
Manipulation of interest rates and the money supply (and exchange rates) in order to achieve the government's macroeconomic objectives
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Rate of interest
The price of money, determined by the demand and supply of funds in a money market
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Appreciation/depreciation of a currency
A rise/fall in the value of a currency when it is 'floating' and market forces determine its value
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Export and import volumes
the number of exports and imports. calculated by dividing the value of total exports/imports by their average price
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the study of the economy as a whole, including inflation, growth and unemployment

Card 3




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Card 5


Trade cycle


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