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Economics

Unit 2 definitions

TermDefinition
Inflation A sustained increase in the a sustained increase in the average price level of goods and services in a country
frictional unemployment unemployment caused by people moving between jobs
seasonal unemployment Unemployment caused by declines in different industries during different parts of the year
cyclical unemployment unemployment caused by the trade cycle
structural unemployment unemployment caused by a demand or supply side change
demand pull inflation where aggregate demand exceeds aggregate supply, causing an increase in prices
cost push inflation where the costs of production increase, thereby causing the firm to compensate by increasing prices
Aggregate Demand The total demand in an economy, calculated by the formula AD=C+I+G+(X-M)
Aggregate Supply The total value of goods and services supplied in an economy
Economic Growth An increase in real gdp OR an increase in the economies productive capacity
Negative output gap where aggregate demand is below the productive capacity of an economy
positive output gap where actual growth is above trend growth , so inflationary pressures are higher
Trade off An exchange between two choices as a compromise
Leakages any money that exits an economy thereby causing it to shrink, e.g. Imports
Injections Money that originates outside the circular flow of income, therefore contributes to growth
Nominal GDP GDP that is not adjusted for inflation
Real GDP GDP adjusted for the rate of inflation
GDP per capita GDP/capita is an indicator of living standards and is calculated by total GDP divided by total population
weighting where a commodity is given a weighting proportional to its importance to the average household
Recession when there is negative growth for at least two consecutive quarters
Balance of payments BoP is the total value of exports minus the total value of imports
Multiplier effect when an increase in any component of aggregate demand leads to a larger than proportional increase in GDP.
Investment spending by firms on machinerey, buildings and other capital
Budget Government expenditure minus revenue
Fiscal Policies Policies that attempt to stimulate growth by manipulating government revenue and expenditure
Disposable income income available to spend after national insurance contributions and income tax
Accelerator effect The accelerator effect states that investment will increase when the rate of change in income is high, not necessarily when the level of income is high.
Wealth effect The wealth effect states that an individuals spending is influenced by the value of his wealth
supply side shock something that will increase or decrease the costs of firms, such as a large increase in oil prices.
demand side shock something that will increase aggregate demand, such as higher interest rates
RPI/CPI RPI/CPI is an indicator of the rate of inflation
deflation a sustained decrease in the average price level of goods and services in a country
exchange rate The rate at which one currency can be exchanged for another
balance of trade value of visible exports minus value of visible imports
Interest rate The rate at which money can be borrowed, and the rate at which savers are rewarded.
Monetary Policy Policy to stimulate economic growth through the manipulation of interest rates,the exchange rate or the money supply.
Money supply The total amount of money in an economy
Unemployed Those of working age without a job who are actively seeking employment.
Created by: samfisher2013
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