Macro Definitions

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GDP

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market value of all final goods and services produced within a country in a given period

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Real GDP/ GDP at constant prices

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market value of all final goods and services produced within a country adjusted for inflation

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Real GDP per capita

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market value of all final goods and services produced within a country adjusted for inflation per person

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Annual real GDP growth

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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

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Economic growth

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an increase in real GDP/ potential GDP

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Sustainable growth

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the maximum increase in potential capacity within an economy that will not lead to a fall in the potential capacity for future generations

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Sustainable development

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development which meets the needs of the present generation without compromising the needs of future generations

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Output/ GDP gap

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difference between potential GDP and actual GDP

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Potential GDP

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maximum output that can be produced within a country if all economic resources are fully employed (AS)

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Actual GDP

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the amount spent on consumption, investment, government expenditure and net exports (AD)

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Negative output gap

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happens when actual GDP is below potential GDP

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Positive output gap

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happens when actual GDP is above potential GDP

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Recession

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is when a country experiences fall in real GDP for two successive quarters

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Depression

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a sustained, long-term downturn in economic activities/ recession that lasts longer and hence has a larger decline in economic activities

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GNP

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market value of all final goods and services produced by a country’s citizens regardless of where they are

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Injections

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

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Withdrawals/ leakages

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outflow of money from the circular flow of income since households may save, pay tax and buy imports

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Purchasing power parities

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a theory that argues that in the long run, identical goods and services in different countries should cost the same due to the adjustment of exchange rate

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Transfer payments

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income for which there is no corresponding output such as unemployment benefits or pension payments

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Cyclical/ demand-deficient/ Keynesian unemployment

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unemployment that is due to negative economic growth/ recession/ lack of aggregate demand for goods and services

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Frictional unemployment

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transitional unemployment when people are moving in between jobs/ short term joblessness whilst involved in job search

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Seasonal unemployment

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an unemployment that is caused by seasonal variation of the jobs offered

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Structural unemployment

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unemployment due to mismatch of skills of the unemployed and the requirement of new jobs

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Unemployment rate

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percentage of the total labour force that is unemployed BUT actively seeking employment and willing to work

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RPI

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a measurement of inflation that includes mortgage interest payments and other housing related costs

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Inflation

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sustained increase in price level/ fall in the purchasing power of £1

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Disinflation

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a slowdown in the rate of increase in general price level/ prices of goods and services

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Deflation

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a decrease in the general price level/ increase in the purchasing power of £1

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Hyperinflation

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a large/ rapid increase in the price level

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Balance of payments

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an account that summarises the financial transactions between one country and the rests of the world

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Current account

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one of the two components under balance of payments that is largely made up of net trade in goods and services

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Current account deficit

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when the total imports of goods and services are greater than the country’s total exports of goods and services

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Balance of trade

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difference between a country’s imports and its exports

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Wealth effect

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an increase in spending when people ‘feel richer’ associated with an increase in value of assets like stocks and properties

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Disposable income

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income after tax

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Aggregate demand

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total amount of goods and services demanded at any given price level

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Aggregate supply

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total supply of goods and services produced within an economy at any given price level

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Multiplier effect

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an initial increase in spending (consumption, investment, government spending and net exports) which will eventually lead to a larger secondary increase in AD

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Full capacity

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when all economic resources like land, labour and capital are fully utilised

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Spare capacity/ excess capacity

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when economic resources like land, labour and capital are not fully utilised

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Demand side/ management policies

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policies that are meant to influence the AD such as fiscal and monetary policy

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Exchange rate

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the value of a currency express in terms of another

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Indirect tax

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a tax levied on goods and services rather than on income or profits.

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Direct tax

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a tax, such as income tax, which is levied on the income or profits of the person who pays it, rather than on goods or services.

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GNI

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the sum of value added by all producers who are residents in a nation, plus any product taxes (minus subsidies) not included in output, plus income received the sum of value added by all producers who are residents in a nation, plus any product taxes (minus subsidies) not included in output, plus income received from abroad such as employee compensation and property income.

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Supply side policy

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Any action by government that enables businesses to lower costs, thus boosting efficiency and competitiveness of firms.

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Market-based supply-side policy

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Policies implemented by government aimed at encouraging production and consumption by the free market and thus stimulating increased economic activity without increased government intervention.

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Interventionalist supply-side policy

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Policies that involve a greater role of government but lead to greater productivity or lower costs, encouraging a higher level of production, economic growth and employment.