Edexcel IGCSE Economics - Paper 2: Macroeconomics and The Global Economy

Amount by which government spending is greater than government revenue

Study of large economic systems such as those of a whole country or area of the world

Reducing unemployment, Protect the environment, Balance of payments (current account), Economic growth, Controlling inflation, Redistribution of income

Increase in the level of output by a nation

Value of income, output or expenditure over a period of time

Gross Domestic Product

Market value of all final goods and services produced in a period (usually yearly), an internationally recognised measure of national income

Using the standard definition means that meaningful comparisons can be made between the growth rates of different countries

The value of all goods and services produced in a country for sale

Inflation, Population Changes, Statistical Errors, Value of Home Produced Goods, Hidden Economy, Living Standards, External Costs

Price increases make growth rates misleading

Using real GDP

Increases in population may offset growth in GDP

GDP per capita

The information has been entered inaccurately or left out by the government

Some goods and services are not traded and therefore economic activity is not recorded

Paid work and services can go unrecorded

GDP rising does not directly constitute an increase in living standards

GDP does not take external costs like environmental costs into account

Boom, Downturn, Recession, Recovery

Peak of the economic cycle where GDP is growing at its fastest

GDP is growing fast, existing firms will be expanding, new firms will be entering the market, demand will be rising, jobs created, rise in wages, profits rise, prices rise

Economic growth can increase the productive potential of a country

If an economy overheats, demand rises too fast, causing prices and imports to rise, a situation that governments may try to correct by raising taxes and interest rates

Economic growth that it is not possible to sustain without causing environmental problems

If economic growth is too fast, the economy can overheat, which leads to inflation

Increased greenhouse gas emissions, global warming, pollution, using up finite resources quickly, unsustainable for future generations

Total demand in the economy including consumption, investment, government expenditure and exports minus imports

Period where the level of aggregate demand is falling

Rate at which prices rise, a general and continuing rise in prices

Consumer Price Index

Measure of the general price level (excluding housing costs)

Measure of the general price level which includes house prices and council tax

Retail Price Index

pull inflation

pull inflation occur?

push inflation

push inflation occur?

Price paid to lenders for borrowed money, the price of money

Economists who believe there is a strong link between growth in the money supply and inflation

Inflation is more likely to happen if interest rates are low because of the increases in borrowing

Prices rise, inflation reduces the purchasing power of money, fall in living standards for households

Amount of goods and services that can be bought with a fixed sum of money

Workers need to increase their wages to compensate for the loss in purchasing power

Firms need to raise prices in order to justify higher wage costs, which would demand higher wages and so on

If inflation is higher at home, demand for exports is likely to fall

High levels of inflation usually mean that AD is rising, so firms will be keen to increase output since prices are increasing, which reduces unemployment

Costs to firms of having to make repeated price changes

Costs to firms and consumers of searching for new suppliers when inflation is high

Very high levels of inflation, rising prices get out of control

Menu costs increase

Shoe leather costs increase

Higher uncertainty if inflation is high and varying

Decrease due to higher uncertainty

Inflation results in a decline in business investment

When those actively seeking work are unable to find a job

The Labour Force Survey (in the EU)

People without a job, want a job, have actively sought work in the last 4 weeks and are available to start work in the next 2 weeks, or out of work, have found a job and are waiting to start it in the next 2 weeks

Cyclical unemployment, Structural unemployment, Seasonal unemployment, Frictional unemployment, Voluntary unemployment

To stop employing someone because there is no work for them to do

Unemployment caused by falling demand as a result of a downturn in the economic cycle

Unemployment caused by changes in the structure of the economy such as the decline in an industry

Sectorial unemployment, Technological unemployment, Regional unemployment

Occurs when people are laid off because the industry they work in is in decline

Occurs when jobs that were previously done by people are now done by machines

Unemployment in a particular country is not likely to be the same in all regions

Unemployment caused when seasonal workers, such as those in the holiday industry, are laid off because the season has ended

When workers are unemployed for a short period of time as they move from one job to another

Unemployment resulting from people choosing not to work

Output is lower than it could be because the productive potential of a country is not being fully exploited

It is a waste of resources and results in lower levels of national income as people who are out of work do not make any contribution to production

Increased employment leads to increased poverty

Increases because unemployed people are entitled to receive financial benefits from the state

Decreases as taxes are linked to income and spending

Likely to fall because state benefits are lower than wages so people play a less significant role in the economy

Businesses are less likely to take risks and may postpone or cancel investment products

Record of all transactions relating to international trade

The part of the balance of payments where flows of savings, investment and currencies are recorded

Part of the balance of payments where all exports and imporst are recorded

Goods and services sold overseas

Goods and services bought from overseas

When value of imports exceeds the value of exports

Difference between total exports and total imports (visible and invisible)

When value of exports exceeds the value of imports

Difference between visible exports and visible imports

Trade in services

Money received from the loan of production factors abroad

Government transfers to and from overseas agencies such as the EU

Trade in physical goods

Someone who gets advantages from an action or charge

Price of one currency in terms of another

If a country's exchange rate gets stronger, it will have a negative impact on the current account

It will cause a current account surplus/improvement in the current account

It will cause a current account deficit/the current account will worsen

It will cause a current account deficit/the current account will worsen

It will cause a current account surplus/improvement in the current account

Continuing to exist or happen, especially for longer than is usual or desirable

It suggests the country is dependent on imports, so money flows outwards to overseas businesses

A country running a high current account deficit may be exposed to inflationary pressures

A country with a high current account deficit may have domestic goods of either a price too high or a quality too low