Unit 2 Glossary

Macroeconomics The study of issues that effect economies as a whole

Aggregate Demand The Total demand for a country’s goods and services at a given price level in a given time period. Components are C+I+G+(X-M)

Consumer expenditure- Spending by households on consumer products

Investment - Spending on Capital goods

Government Spending- Spending by the central and local government on goods and services

Exports- products sold abroad

Imports- products brought from over abroad

Savings- Real disposable income minus spending

Exchange rate- the price of one currency in terms of another currency

Nominal GDP- output measured in current prices and so not adjusted for inflation

Aggregate Supply The total amount that producers in an economy are willing and able to supply at a given price level in a given time period.

Aggregate Supply Factors that influence AS include changes in the Costs of production and changes in the quantity and quality of resources

Macroeconomic equilibrium “A situation existing where Aggregate Demand equals aggregate Supply and Real GDP is not changing” Used to measure output, price level, and employment

Circular flow of income The movement of spending and income throughout the economy.

Leakages -Withdrawals of possible spending into the circular flow of income. This includes Taxes, Savings, and imports.

Injections Additions of extra spending into the circular flow of income. Includes exports, Government spending, and Investment

Multiplier effect- the process by which and change in a component of AD results in a greater final change in real GDP

Macro economic objectives :

Economic growth- In the short run, an increase in Real GDP, and in the long run, an increase in productive capacity, that is, in the maximum output that the economy can produce

Unemployment- A situation where people are out of work but willing and able to work

Inflation- a sustained rise in the price level; the percentage increase in the price level over a period of time

The balance of payments a record of money flows coming in and going out of a country

Income redistribution- By the government to reduce poverty and to ensure everyone has access to basic necessities or to correct what is seen as an inequitable distribution of income

Economic stability- “No boom and bust” Governments want to avoid sudden fluctuations in the economy. Unstable increases and decreases In AD means increased inflation, unemployment so will not achieve economic growth

Real GDP- the country’s output measured in constant prices and so adjusted for inflation

GDP (Gross domestic product)- the total output of goods and services produced in a country

Policies:

Fiscal- the taxation and spending decisions of a government

Monetary- central bank or government decisions on the rate of interest, the money supply and the exchange rate.

Supply side- policies designed to increase aggregate supply by improving the efficiency of labour and product markets

Current account deficit- when more money is leaving the country than entering it, as a result of sales of exports, income, and current transfers from abroad being less than imports, income and current transfers going abroad.

Opportunity cost- the cost of the best alternative which is foregone when a choice is made.

Privatisation transfer of assets from the public to the private sector.

Protectionism- the protection of domestic industries from foreign competition.

Quota- a limit on imports.

Tariff- a tax on imports

World Trade Organisation (WTO)- an international organisation that promotes free international trade and rules on international trade disputes.

Direct tax- Money given to the government depending on income

Indirect tax- a tax levied on goods and services.