All the Macroeconomics Definitions
Terms in this set (133)
the study of the whole economy at the aggregate level
means holding all other factors in the economy constant when examining one part of the economy
also known as 'neo-classical', this branch of economics is the belief that government intervention in the economy should be minimal and that market forces should determine the economy
based on the economist John Maynard Keynes who believed that people save too much and spend too little, and this means unemployment persists
no generally agreed definition, but it is essentially a long and deep recession
a period of negative economic growth lasting for at least two consecutive quarters (six months)
the belief that as inflation is assumed to be caused by excessive growth of the money supply, monetary policy should be used to control its growth
a tool or set of tools used to try and achieve a policy objective
a target or goal that policy makers aim to hit
When two policy objectives cannot be achieved at the same time
What results of the Policy conflict e.g. economic growth is achieved but at the expense of greater income equality
When the total of people seeking jobs is at only 3% or a level of unemployment that leads to an upwards pressure on inflation
A steady but low rate of inflation suggesting business and consumer optimism
BOP (balance of payments)
The trading of exporting of goods or services minus the trading of importing goods or services
Provides information about what is happening in the economy
an increase in the economy's potential level of real output, and an outward movement of the economy's production possibility frontier.
Long-run economic growth
a sustained increase in the economy's potential level of real output, over a long period of time.
Real National Output*
the total of all the goods and services produced in an economy over a particular time period adjusted for inflation
National Income or National Output
the flow of new output produced by the economy in a particular period e.g. a year.
National Capital Stock
It includes physical assets owned by the population, capital good, raw materials and social capital (Hospitals and Roads). It excludes Consumer Goods.
the stock of knowledge and skill embodied in the population of a economy.
It includes physical assets owned by the population, capital good, raw materials, social capital (Hospitals and Roads) and Consumer Goods.
the networks and connections people that contribute to social cohesion
the loss of value over time.
In national accounts, capital consumption is the amount by which gross investment exceeds net investment.
Negative Economic Growth
a decrease in the economy's potential level of real output, and an inward movement of the economy's production possibility frontier.
the sum of replacement investment and net investment
where companies buy new machinery and equipment that simply replaces something they had already that was worn out or inefficient.
an activity of spending which increases the availability of fixed capital goods or means of production
Gross National Product
Value of all goods and services produced by a country in one year, including that produced in other countries.
Gross Domestic Product
Value of all goods and services produced by a country in one year, within the countries domestic economy.
Net income from abroad
the difference between inward and outward profit flows.
the increase in the amount of people in a nation's population with sustained growth.
the exhaustion of raw materials within a region.
the pollution of air, water, and land.
Sustainable Economic Growth
the use of renewable resources, and technologies that minimise pollution and other forms of resource degradation
A recurring pattern of expansion and contraction in the economy. The average cycle is three to four years. The fluctuation of real output above and below the trend line of economic growth.
regular fluctuations in the economic cycle that occur with the same magnitude every year.
long term fluctuations in the economic cycle.
A cycle in the economic cycle that can last up to 60 years.
An economy characterised by the absence of business cycles or inflations.
Trend Growth Rate
The straight line on an business cycle, which is also called long-run growth rate, and is the rate at which output can grow on a sustained basis.
usually measured in % change real GDP over a year, varies in the different phases of economic cycle.
Newly Industrialised Countries, whose level of economic development ranks it between the developing and first-world classifications. These countries have moved from an agriculture-based economy and into a more industrialized, urban economy. E.g. BRIC
The maximum possible GDP of an economy given its current stock of resources.
Production Possibility Frontier (PPF)
Shows different combinations of goods that can be produced using available resources.
the difference between actual output and the trend growth level of output.
Spending by all households in the economy on consumer goods and services produced within the economy.
Part of total consumption which is not affected by the level of income
Income induced consumption
Part of total consumption that varies with income
Absolute Income consumption theory
Total planned spending by firms of output produced within the economy
Non contractual Saving
Income which is not spent
The reward for lending savings to someone else
Total planned spending by firms on real output produced within the economy.
Income which is not spent.
The interest rate is the reward for lending savings to somebody else e.g. a bank, and the cost of borrowing.
The stock of assets, or things that have value, which people won.
Improvements in methods of production resulting from invention, innovation and research and development. It often leads to the production of new types of goods and better quality goods.
A change in the level of investment in new capital goods induced by a change in national income or output. The size of the accelerator depends on the economy's capital-output ratio.
Equilibrium National Income
The level of income at which withdrawals from the circular flow of income equal injections into the flow. In a two-sector model of the economy, national income is in equilibrium when S=I.
An economy with no international trade.
An economy with exports and imports.
The level of real national output at which AD=AS or at which planned injections into the circular flow of income equal planned withdrawals from the flow
The total planned spending on Real Output produced within an economy
The level of real national output that producers are prepared to supply at different average price levels
is the method of measuring unemployment according to those people who are claiming unemployment/related benefits
Labour Force Survey
Is a quarterly sample survey of households in the UK. Its purpose is to provide information on the UK's labour market. The survey seeks information on respondents personal circumstances and their labour market status during a period of 1-4 weeks.
Beveridge's definition : 3% or less of the labour force are unemployed
Free market definition
the level of employment occurring at the market clearing real wage rate at which the number of workers employers wish to hire equals the number of workers wanting to work
Voluntary unemployment occurring when a worker switches between jobs
Is caused by structural change in the economy for example when an industry decline (coal industry)
Cyclical unemployment (Known as Keynesian and demand deficient unemployment)
Unemployment caused by a lack of AD (aggregate demand) in an economy.
Caused by factors such as weather or end of the Christmas shopping period.
A persistent or continuing fall in the average price level
A persistent or continuing rise in the average price level
An increase in the level of real output following an increase in aggregate demand.
Demand Pull Inflation
A rising price level caused by an increase in AD, shown by a shift to the right of the AD curve
Cost Push Inflation
A rising Price level caused by an increase in costs of production, shown by a shift to the left of the SRAS curve
An inflationary indicator that measures the change in the cost of a fixed basket of products and services. The CPI is published monthly. also called cost-of-living index.
CPI + Big Ticket items. For Example, mortgage interest payments
The Current Account
is the part of the balance of payments measuring currency flows, especially payments for exports and imports.
a domestically produced good or service sold to residents of other countries.
a good or service produced in another country sold to residents of the country.
is profit and interest income flowing into a country that is generated from assets that residents of the countries own abroad.
are payments flowing between countries in forms such as foreign aid, grants and gifts
The Balance in trade and services
is part of the current account measuring payments for exports and imports of services. It is sometimes called the balance of invisible trade.
A Current Account Deficit
occurs when currency outflows in the current account exceed currency inflows. It is often shortened to imports exceeding Exports.
A Current Account Surplus
Occurs when currency inflows in the current account exceed currency outflows. It is often shortened to exports exceeding imports.
The balance in trade and goods
is the part of the account measuring payments for exports and imports of goods. It is sometimes called the balance of visible trade.
this is when the residents of one country acquire capital assets that are located in another country
An example is when Tesco decided to expand into the US supermarket industry. So it is when countries expand out globally.
Foreign Direct Investment
An example of this was when there were payments made by Japan to Toyota in Derbyshire so this is money coming into the UK as foreign direct investment.
Net Investment Income
This is the difference between these inward and outward profit flows.
This can be defined as growth to a worldwide or global scale.
Export - LED growth
This is where the economy can produce and supply the goods needed to meet the increase in export demand without generating inflation.
The lender of last resort function
The willingness of the BOE to lend cash to commercial banks to increase liquidity and restore confidence in the banking system
Policies aimed at slowing down an economy
Policies aimed at speeding up an economy
implements monetary policy on behalf of the government
aims to make a profit from commercial banking business ( eg. Barclays )
The use of interest rates, Money supply & exchange rates to manage the economy
Bank of England Interest Rate
rate of interest at which the Bank of England lends cash to commercial banks to increase their liquidity
The stock of money in the economy, that mainly takes the form of cash and bank deposits
The fees paid to borrow money, or the benefit of investing money.
The price of one countries currency relative to another countries.
Measures the ease with which assets can be turned into cash quickly and at a pre-known rate or price. Cash is the most liquid asset of all
a long term loan to a house owner that is secured by the property
tries to achieve policy objectives through the use of government spending, taxation and the governments budgetary position
a balanced budget is achieved when government spending equals government revenue (G=T)
a budget deficit occurs when government spending exceeds government revenue (G>T)
A budget surplus occurs when government spending is less than government revenue (G<T)
Deficit financing means deliberately running a budget deficit and borrowing to finance the deficit
Demand-side fiscal policy
Demand-side fiscal policy is used to increase or decrease the level of aggregate demand (and to shift the AD curve left or right)
Expansionary fiscal policy
Expansionary fiscal policy uses fiscal policy to increase aggregate demand and to shift the AD curve right
Contractionary fiscal policy
Contractionary fiscal policy uses fiscal policy to decrease aggregate demand and to shift the AD curve left
Government spending multiplier
The government spending multiplier is the relationship between a change in investment and the resulting change in national income
The investment multiplier is the relationship between a change in investment and the resulting change in national income
National income multiplier
The national income multiplier is the relationship between a change in AD and the resulting change in national income
The tax multiplier is the relationship between a change in taxation and the resulting change in national income
Crowding out is a situation in which an increase in government or public sector spending displaces private sector spending, with little or no increase in AD.
Discretionary fiscal policy
Discretionary fiscal policy involves making discrete changes to G, T and the budget deficit to manage and 'fine-tune' the level of AD
Supply-side fiscal policy
Supply-side fiscal policy is used to increase the economy's ability to produce and supply goods, through creating incentives to work, save, invest and to be entrepreneurial
The national debt is the stock of all past government borrowing that has not been paid back
A progressive tax is one where the proportion of income paid in tax rises as income increases
Supply Side economics
is a branch of free market economics, arguing that government policy should be used to improve incentives and the competitiveness and efficiency of markets
Focus on the role of tax cuts in increasing personal incentives, they aim to improve the economy's ability to produce and supply more output
The trickle-down effect
is income paid by rich people to the poorer people they employ.
involves removing previously imposed regulations in order to promote competition
involves shifting provision of goods and services from the non-market sector (financed by taxation) to the market sector (customers pay)
the sale or transfer of assets such as nationalised industries from the public sector to the private sector
Output per unit of input, e.g. labour productivity is output per worker
Refers to the economic policies adopted by US president Ronald Reagan. Incorporates supply-side economics.
Is where the state is a major producer and provider of services and is introduced to improve efficiency. Internal markets are substituted for privatisation and are financed by the tax payer but also earn money e.g. schools, NHS