economics vocabulary - macroeconomics

Actual growth

occurs when previous unemployed factors of production are put into use

Circular Flow of Income

a simplified model of the economy which shows the economic flow of the economy

Gross National Product (GNP)

the total money value of all final goods and services produced by an economy within a year, including net property from abroad

Nominal GDP

the total money value of all final goods produced within an economy in a year, not adjusted for inflation

Real GDP

the total money value of all final goods produced within an economy in a year, adjusted for inflation

Per Capita GDP

the total money value of all final goods and services produced within an economy in a year per head

How to calculate per capita GDP

= Real GDP / population

Economic growth

the growth of real output in an economy over time, usually measured in real GDP per capita

Economic Development

involving the improvement of the standard of living, reduction of poverty, and improved health and education

Human Development Index

a composite index that brings together measurements of health, education, and living standards in order to attempt to measure relative development

Aggregate Demand

the total spending in an economy by consumers at different prices

Consumption

total spending by domestic households on goods and services

Investment

the total spending of firms on capital equipment

Government spending

the government’s expenditures on goods and services

Net exports

total income earned from sales of exports to foreigners minus imports from other countries

Inflationary Gap

the situation where total spending (AD) is less than the full employment level of output, thus causing inflation

Deflationary Gap

the situation where total spending (AD) is more than the full employment level of output, thus causing unemployment

Business Cycle

model showing the fluctuations in the level of economic activity in an economy over time

Demand side policy

government policy designed to influence the aggregate demand in the economy, thus affecting average price level and real national output

Fiscal Policy

a demand side policy using changes in government spending and/or direct taxation to achieve economic objectives relating to inflation and unemployment

Monetary Policy

a demand side policy using changes in money supply or interest rates to achieve economic objectives relating to inflation and unemployment

Aggregate Supply

the quantity of goods and services that a country’s producers are willing and able to produce at a range of price levels over a period of time

Short run aggregate supply (SRAS)

aggregate supply that varies with the level of demand for goods and services that is shifted by changes in costs of factors of production

Long run aggregate supply (LRAS)

aggregate supply that is dependent upon the resources in the economy and can only be increased by improvements in the quality/quantity of factors of production

Supply side policy

government policies designed to shift LRAS to the right, thus increasing potential output in the economy

Unemployment

people of working age actively looking for a job

Labour force

percentage of people able to work

Underemployment

people working part-time who want to work full time or qualifications are not being used at full potential

Full employment

exists when the number of jobs available in an economy is equal to or greater than the number of people actively seeking work

Unemployment rate

the number of unemployed workers expressed as a percentage of the labour force

Structural Unemployment

equilibrium unemployment that exists when in the long-term the pattern of demand and production methods change and there is a permanent fall in the demand for a particular type of labour. There is a mismatch between skills and the jobs available.

Frictional unemployment

equilibrium unemployment, that exists when people have left a job and are in the process of searching for another job

Seasonal unemployment

equilibrium unemployment that exists when people are out of work because their usual job is out of season, e.g. a ski instructor in the summer

Cyclical Unemployment

disequilibrium, when demand for all types of labour decreases and demand for nation’s goods and services decreases

Natural rate of unemployment

combined experiences of frictional, seasonal and structural unemployment by an economy