Important Concepts & Definitions For Unit 3-Edexcel

Definitions & concepts for Unit 3: Managing the Economy

(1) LFS measure of unemployment. Measures unemployment based on the ILO (International Labor Organisation) definition & that is someone without a job, has been looking for jobs since past 4 weeks & able to take up a job 2 weeks from the date of interview

(2) Claimant count measure of unemployment. Measures unemployment based on number of people who registered themselves as unemployed & claim for Jobseekers Allowance

(3) Inflation. Sustain increase in general price level

(4) Inflation target. Where Monetary Policy Committee (MPC) needs to ensure that the inflation level must fall within the given target of CPI 2% +/- 1%

(5) Stagflation. Situation where economy is facing an upward pressure of price level & real GDP is stagnant or fall

(6) Real GDP. Total value of goods & services produced within an economy adjusted for inflation

(7) Annual real GDP. Total value of goods & services produced within an economy adjusted for inflation from one year to another

(8) Annual real GDP growth. Percentage of increase in total value of goods & services produced within an economy adjusted for inflation from one year to another

(9) Balance of Payments. Records the financial transactions between one country & the rest of the world

(10) Withdrawal. An outflow of money from the circular flow of income. Components are like savings (S), taxation (T) & import (M)

(11) Injections. Inflow of money into the circular flow of income. Components are like investments (I), government expenditure (G) & exports (X)

(12) Fiscal policy. The manipulation of government spending & level of taxation to influence the movement of AD & thus overall level of economic activity

(13) Monetary policy. The manipulation of interest rates & money supply to influence the movement of AD & thus overall level of economic activity

(14) Supply side policy. Policies to influence the movement of AS curve, by increasing the productive capacity of the economy

(15) Budget deficit. Where government expenditure exceeds its revenue

(16) Budget surplus. Where government expenditure is less than its revenue

(17) Crowding out effect. Situation where an increase in government spending will crowd out private investments & consumptions by the way of higher interest rates

(18) Multiplier. An initial increase in spending which will eventually lead to a multiple increase in AD or national income

(19) Aggregate demand. Total planned expenditure into the economy. AD = C + I + G + (X-M)

(20) Aggregate supply. Total supply of goods & services produced within an economy at a given overall price level in a specific time period

(21) Productivity. Output per worker

(22) Investment. Increase in the amount of capital stock such as machineries & buildings

(23) Mortgage equity withdrawal. Phenomenon where consumers borrow larger sum of money secured against the rising value of their property