1. Unit 2 Key Terms

2.  Steffi Graf – former World Number 1 tennis player and winner (on multiple occasions) of the French Open, the American Open, the Australian Open, Wimbledon and the Olympics.

3.  GDP:

4.  Real GDP/ GDP at constant prices:

5.  Real GDP per capita:

6.  Real GDP growth:

7.  Be able to explain one significant difference between GDP measurements and the GNI/GNP ones.

8.  Economic growth:

9.  Human Development Index (HDI):

10.  Sustainable growth:

11.  Output gap:

12.  Negative output gap:

13.  Positive output gap:

14.  Recession:

15.  Depression:

16.  Hidden/ black/ informal economy:

17.  Injections:

18.  Withdrawals/ leakages:

19.  GDP per capita at Purchasing Power Parity.

20.  Purchasing power parity.

21.  Big Mac Index.

22.  Transfer payments:

23.  Cyclical/ demand-deficient unemployment:

24.  Frictional unemployment:

25.  Seasonal unemployment:

26.  Structural unemployment:

27.  Unemployment rate:

28.  Consumer Price Index:

29.  Inflation:

30.  Disinflation:

31.  Deflation:

32.  Hyperinflation:

33.  Stagflation:

34.  Demand-pull inflation:

35.  Cost-push inflation:

36.  Imported inflation:

37.  Balance of payments:

38.  Current account deficit:

39.  Balance of trade:

40.  Base rate of interest:

41.  Savings ratio:

42.  Marginal propensity to consume:

43.  Marginal propensity to save:

44.  Wealth effect:

45.  Disposable income:

46.  Investment:

47.  Consumption:

49.  Aggregate supply:

50.  Multiplier effect:

51.  Spare capacity:

52.  Demand side policies:

53.  Fiscal policy:

54.  Monetary Policy:

55.  Budget deficit or Fiscal deficit:

56.  Budget surplus or fiscal surplus:

57.  National debt:

58.  Expansionary/ loose fiscal policy:

59.  Austerity:

60.  Contractionary/ tightening fiscal policy:

61.  Quantitative easing:

62.  Liquidity trap:

63.  Supply side policies:

64.  Poverty trap:

65.  Unemployment trap:

66.  Exchange rate:

67.  Appreciation:

68.  Depreciation:

69.  Laffer Curve.

70.  Phillips Curve.

71.  Misery Index

72.  Unemployment as a lagging indicator.

73.  Circular flow of income.

74.  Remittances

76.  GDP: market value of all final goods and services produced within a country in a given period.  Or  An internationally recognised measurement of national income.

77.  Real GDP/ GDP at constant prices: market value of all final goods and services produced within a country adjusted for inflation.  Or  An internationally recognised measurement of national income adjusted for inflation.

78.  Real GDP per capita: market value of all final goods and services produced within a country adjusted for inflation per person.  Or  An internationally recognised measurement of national income adjusted for inflation.

79.  Real GDP growth: an increase in the market value of all final goods and services produced within a country adjusted for inflation measured from one year to another.  Or  An internationally recognised measurement of the growth of national income adjusted for inflation.

80.  Economic growth: an increase in real GDP/ potential GDP.

81.  GNI/GNP measurements differ slightly in that they include net factor income from abroad. So Nestlé profits in Russia are included in Swiss GNP/GNI.

82.  Human Development Index (HDI): a measurement of development/ well being that is made up of real GNI per capita (PPP), life expectancy at birth and education.  The education is based on years of schooling and literacy rates.

83.  Sustainable growth: the maximum increase in potential capacity within an economy that will not lead to a fall in the potential capacity for future generations.

84.  Output gap: difference between trend rate of GDP growth and actual rate of GDP growth.

85.  Negative output gap: this occurs when actual GDP is below potential GDP.

86.  Positive output gap: this occurs when actual GDP is above potential GDP.

87.  Recession: negative economic growth lasting two or more consecutive quarters.

88.  Depression:  A deeper, longer recession.  No accepted definition.

89.  Hidden/ black/ informal economy: the untaxed economy.

90.  Injections: inflow of money into the circular flow of income that does not come from households such as investment, government spending and exports

91.  Withdrawals/ leakages: outflow of money from the circular flow of income since households may save, pay tax and buy imports.  Or – money that does not become somebody else’s income in the domestic economy.  SIT

92.  GDP per capita at Purchasing Power Parity. National Income generated per person adjusted for the cost of living.

93.  Purchasing power parity.  an exchange rate of one currency for another which compares how much a typical basket of goods in one country compared to that of another country.

94.  Big Mac Index.  An informal measurement of purchasing power parity using the McDonalds Big Mac as the sole indicator of cost of living.

95.  Transfer payments: income for which there is no corresponding output such as the Job Seekers’ Allowance or child welfare.

96.  Cyclical/ demand-deficient unemployment: unemployment that is due to a recession/lack of aggregate demand for goods and services

97.  Frictional unemployment: transitional unemployment when people are moving in between jobs.

98.  Seasonal unemployment: an unemployment that is caused by seasonal variation of the jobs offered

99.  Structural unemployment: unemployment due to mismatch of skills of the unemployed and the requirement of new jobs.  Or: unemployment caused by structural changes in the economy such as the decline of one dominant industry.

100.  Unemployment rate: percentage of the total labour market that is unemployed BUT actively seeking employment and willing to work.

101.  Consumer Price Index a weighted price index that measures the monthly change in the prices of goods and services.  Know how this is measured.

102.  Inflation: a general and persistent rise in prices.

103.  Disinflation: a slowdown in the rate of increase in general price level of goods and services.  Or  Goods and services are getting more expensive at a slower rate.

104.  Deflation: a general and persistent fall in prices.

105.  Hyperinflation: a large and rapid increase in the price level.

106.  Stagflation: rising unemployment and rising inflation at the same time.

107.  Demand-pull inflation: an increase in price level that is due to an increase in aggregate demand  Or  when TOTAL demand for goods and services exceeds TOTAL supply  Or  When there is too much money chasing too few goods.

108.  Cost-push inflation: an increase in price level that is due to an increase in costs of factors of production such as land, labour and capital.  Or  an increase in price level that is due to an increase in costs of running a business.

109.  Imported inflation: an increase in price level that is due to an increase in prices of imports (especially imports that are inelastic in demand).

110.  Balance of payments: a record of all financial transactions between one country and the rests of the world.

111.  Current account deficit: when the total imports of goods and services are greater than the country’s total exports of goods and services.

112.  Balance of trade: difference between a country’s visible imports and its visible exports.

113.  Base rate of interest: interest rate that is set by the Monetary Policy Committee which will eventually influence all other interest rates in the economy.

114.  Savings ratio: the ratio of personal savings to disposable income  Or  the percentage of disposable income that is saved

115.  Marginal propensity to consume: an increase in consumption that is due to an increase in £1 of disposable income.

116.  Marginal propensity to save: an increase in saving that is due to an increase in £1 of disposable income.

117.  Wealth effect: an increase in spending when people ‘feel richer’ associated with an increase in value of assets like stocks and properties.  Or  A change in consumption following a change in wealth.

118.  Disposable income: income after tax

119.  Investment: an increase in the capital stock of the economy.

120.  Consumption: spending to satisfy needs and wants.

121.  Aggregate demand: total amount of goods and services demanded at any given price level.  AD = C + I + G + (X - M)

122.  Aggregate supply: total supply of goods and services produced within an economy at any given price level.

123.  Multiplier effect: an increase in investment or any other autonomous expenditure will lead to an even greater increase in national income.

124.  Spare capacity: when economic resources like land, labour and capital are not fully utilised

125.  Demand side policies: policies that are meant to influence the AD such as fiscal and monetary policy.

126.  Fiscal policy: the use of government spending and level of taxation to influence the movement of AD and overall level of economic activities.  Or  Government decisions about taxation, spending and borrowing that influence aggregate demand.

127.  Monetary Policy:  The use of interest rates and money supply to control aggregate demand in the economy.

128.  Budget deficit or Fiscal Deficit: when government spending exceeds tax revenue.

129.  Austerity: a combination of tax increases and cuts to public spending with a view to achieving a balanced government budget.

130.  Budget surplus or fiscal surplus: when government spending is less than tax revenue.

131.  National debt: sum of all previous annual budget deficits.

132.  Expansionary/ loose fiscal policy: the lowering of tax or and increase in government expenditure to stimulate the economy.

133.  Contractionary/ tightening fiscal policy: the increase of tax or and reduction in government expenditure to slow down the economy.

134.  Quantitative easing: the increase in money supply when government bonds are bought by the central bank from financial institutions allowing those banks to have more liquidity and hence greater ability to generate lending.  A policy that is usually pursued when the interest rates have already been lowered close to 0% and yet failed to deliver the desired effect.

135.  Liquidity trap: this occurs when interest rates are low and yet savings rate is high, making monetary policy ineffective.

136.  Supply side policies: policies meant to influence the movement of AS by increasing the potential/ productive capacity of an economy.

137.  Poverty trap: a situation where people on low incomes are discouraged from working extra hours or getting a better paid job since any extra income they earn will be taken away in the form of higher tax or lost benefits.

138.  Unemployment trap: a situation where unemployed people have no incentive to take up a job knowing that the net increase in their income is insignificant due to income tax and withdrawal of some benefits.

139.  Exchange rate: the value of a currency in terms of another.

140.  Appreciation: the strengthening of a currency against another.

141.  Depreciation: the weakening of a currency against another.

142.  Laffer Curve.  A curve designed by Arthur Laffer which shows that as tax rates increase the amount of tax collected by the government will eventually fall.

143.  Phillips Curve.  The Phillips Curve shows that there is a negative relationship between the macroeconomic objectives of price control and full employment.

144.  Unemployment as a lagging indicator.  The unemployment rate will not start to fall for 6 to 9 months after GDP recovery.

145.  Circular flow of income.  A model of the economy which shows the flow of goods, services and factors and their payments around the economy.

146.  Remittances  Transfer of money by a foreign worker to an individual in his/her home country.