The UK economy- performance and policies- Definitions

The study of the interrelationships between economic variables at aggregate (macroeconomic) level
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Economic growth
Increase in the long run productive capacity of an economy
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Gross Domestic product (GDP)
A measure of economic activity carried out in the domestic economy over a period of time
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Gross National Income (GNI)
GDP plus net income from abroad
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GDP per capita
Real GDP/population
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Not adjusted for inflation
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Takes inflation into account & adjusts value
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Purchasing Power Parities (PPP)
This estimates how much the exchange rate needs adjusting so that an exchange between currencies is equivalent according to that currencies purchasing power
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The rate of the increase in the average price level in an economy
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A fall in the average price level of prices (negative inflation)
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A fall in the rate of inflation
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Consumer Price Index (CPI)
a measure that examines the weighted average of prices of a basket of consumer goods and services
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Retail Price Index (RPI)
A measure of the average level of prices in the UK, including mortgages and taxes
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Demand-pull Inflation
Inflation caused by a surge in AD
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Cost-push Inflation
Inflation caused by an increase in cost of production
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Money Supply
Quantity of money in the economy
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In employment
People who are either working for firms or other organisations or are self employed
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People who are economically active but are not in employment
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Economically Inactive
Those people of working age who are not looking for work, for a variety of reasons
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People who are economically active either in employment or unemployment
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Claimant Count survey
The number of people claiming the Jobseeker’s allowance each month
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ILO Unemployment rate
A measure of the percentage of the workforce who are without jobs , but are available for work, willing to work and looking for work
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Where an individual is employed in a second-choice occupation or is only able to work part-time but would like to work full-time
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Frictional Unemployment
Unemployment associated with people who are between jobs
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Structural Unemployment
Unemployment arising because of changes in the industrial organisation of the economy
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Cyclical Unemployment
Unemployment that arises during the downturn of economic activity within an economy
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Demand-deficient Unemployment
Unemployment that arises because of a deficiency of aggregate demand in the economy, so that the equilibrium level of output is below full employment
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Seasonal Unemployment
Unemployment that arises in seasons of the year when demand is relatively low
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Voluntary Unemployment
Situation arising when an individual chooses not to accept a job at the going wage rate
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Balance of Payments
A set of accounts showing the transactions conducted between residents of a country & the rest of the world
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Current account
Record of transactions
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Primary Income
Earnings from factors of production (CELL)
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Secondary Income
Transfers recorded in the balance of payments
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Balance of Trade
Exports - imports
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Imports greater than exports
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Exports greater than imports
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Exchange Rate
The price of one currency in terms of another
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Aggregate Demand
The total amount of spending on goods & services in an economy at a given price level over a set time period
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Total planned household spending
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Disposable Income
Surplus remaining after the payment of necessities
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Marginal Propensity to Consume (MPC)
Proportion of additional income devoted to consumption
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Marginal Propensity to Save (MPS)
Proportion of additional disposable income devoted to saving
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Consumer Confidence
Measure of consumers’ feelings towards the future outlook of the economy
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Wealth Effects
When consumer spending is affected by value of stocks
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Expenditure undertaken by firms to add to the capital stock
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Keynes 'Animal Spirits'
Human behaviour drives consumer confidence
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Government Expenditure
All government consumption & investment
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Net Trade
Exports - imports
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Goods sold to other countries
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Goods brought from other countries
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Aggregate Supply
The total output of goods produced in the economy at a given price level over a set period of time
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Level of capital is fixed
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All factors of production are variable
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Circular Flow of Income
A model of the economy which shows the movement of goods & services between households & firms & their corresponding payments
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A flow concept - amount of money earned over time
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A stock concept - the accumulation of assets eg. property, shares
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Where money comes out of the circular flow of income as savings, taxes & imports
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Where money is pumped into the circular flow of income as exports, investment & government expenditure
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The ratio of a change in equilibrium real income to the autonomous change that brought it about; 1/MPW
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Marginal Propensity to Withdraw (MPW)
The proportion of additional income withdrawn from the circular flow (MPT+MPS+MPI)
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Marginal Propensity to Import (MPM)
The proportion of additional income spent on imports of goods & services
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Marginal Propensity to Tax (MPT)
The proportion of additional income taxed
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Economic Growth
An increase in the long run productive capacity of an economy
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Business Cycle
A phenomenon whereby GDP fluctuates around its underlying trend based on the state of the economy
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Positive Output Gap
When actual growth is greater than potential growth
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Negative Output Gap
When actual growth is less than potential growth
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Negative economic growth for two consecutive quarters
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Measure of the efficiency of a factor of production
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Fall in the value of physical capital equipment over time
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Phillips Curve
Empirical relationship suggesting there is a trade-off between inflation & unemployment
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Fiscal Policy
Decisions made by a government on its expenditure & taxation
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Used to stimulate AD & boost economy
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Used to control AD & prevent a crash
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Charges paid to governments
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Monetary Policy
Decisions made by the Central Bank regarding interest rates & money supply
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Interest Rates
Portion of loan charged to borrower
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Quantitative Easing
The introduction of new money into the money supply
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Supply-Side Policies
A range of measures intended to have a direct impact on AS (increasing productive potential)
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Interventionist Policies
Focus on the need for government intervention to achieve a goal
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Market Based Policies
Focus on power of free market, minimal government intervention
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Other cards in this set

Card 2


Increase in the long run productive capacity of an economy


Economic growth

Card 3


A measure of economic activity carried out in the domestic economy over a period of time


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Card 4


GDP plus net income from abroad


Preview of the back of card 4

Card 5


Real GDP/population


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