Key Terms Used in Economics Unit 2

Key Terms Used in Economics Unit 2

1. Inflation

   • An increase in the cost of living

2. Deflation

   • A decrease in the cost of living

3. Gross Domestic Product at constant prices

   • The volume of output of goods & services produced in the economy after discounting the effect of inflation

4. Supply side policy

   • A policy that aims for a rightward shift of the aggregate supply curve

5. Productivity

   • The output per worker / per hour worked

6. Fiscal deficit

   • Government spending is more than revenue

7. Injection

   • An addition to the level of I+G+X demand in the circular flow

8. Multiplier

   • The number of time a rise in income exceeds the rise in injections that caused it

9. Circular Flow of Income

   • The flow of goods and services between households & firms and their corresponding payments in money terms

10. Current Account Deficit

    • The value of imports is greater than the value of exports

11. Spare Capacity

    • A situation where there are unemployed resources in the economy

12. Output Gap

    • A measure of the difference between actual and potential GDP

13. Economic Growth

    • An increase in Real GDP

14. Human Development Index

    • A composite measure of economic development which includes life expectancy, years of school enrolment, literacy & GDP at PPP's presented as an index or rank which indicates the health and education rather than just income

15. Inflation Target

    • A permitted range for the increase in the price levels - measured by changes in the CPI 2% (+ or - 1%)

16. Demand Side Policy

    • This refers to monetary and fiscal policies

17. Fiscal Policy

    • A policy that changes either TAXES or GOVERNEMENT SPENDING in order to affect AD

18. Monetary Policy

    • A policy that changes either interest rates or the quantity of money in order to affect AD

19. Depreciation of the pound

    • A pound that has fallen in value against another major currency

20. Rate of unemployment

    • The percentage of the workforce that is not currently employed

21. Rate of interest

    • The cost of borrowing

22. Investment

    • The buying of capital goods

23. Macroeconomic objectives

    • The main aims of the government to improve economic welfare

24. Real income

    • The value after the effects of inflation have been removed

25. Recession

    • Two consecutive quarters of negative growth