Handy Definitions for Unit 2: Managing the Economy

Here they are:

(1) Aggregate demand (AD): Total spending onto goods and services in an economy. The components of AD are consumption (C), investment (I), government spending (G) and net exports (X-M)

(2) Aggregate supply (AS): Total goods and services produced within an economy

(3) Balance of payments: An account that summarizes the financial transactions between one country and the rests of the world

(4) Current account: A record of country’s trade of exports, imports, investment income and current transfers with rest of the world

(5) Budget surplus: Situation where tax revenue exceeds public expenditure

(6) Fiscal surplus: A deflationary fiscal policy, where government spending is less than tax receipts

(7) Budget deficit: Situation where public expenditure exceeds tax revenue

(8) Fiscal deficit: An inflationary fiscal policy, where government spending is greater than tax revenue

(9) Claimant count: A measure of unemployment based on the number of people who register themselves as unemployed and claim for Jobseeker’s Allowance

(10) ILO measure of unemployment: Defines unemployment as people who are jobless, have been looking for job since the past four weeks and able to take up the job two weeks from the date of interview

(11) Demand management policies: Policies to influence the movement of AD such as fiscal and monetary policy

(12) Economic growth: Rise in real GDP/ rise in potential GDP

(13) GDP: The value of all goods and services produced within an economy

(14) Real GDP: Value of all goods and services produced within an economy adjusted for inflation

(15) Real GDP growth: An increase in the value of all goods and services produced within an economy adjusted for inflation

(16) Hot money: Defined as short term, speculative flows of money between countries

(17) HDI (Human Development Index): A measurement of economic development comprised of three components which are health, education and GDP per capita

(18) Inflation: Sustained increase in price level

(19) Injection: An inflow of money into the circular flow of income. Components of injections are investment, government spending and exports

(20) Withdrawal/ leakages: An outflow of money from the circular flow of income. Components of leakages are savings, tax and imports

(21) Investment: Change in capital stock such as the purchase of plants and machineries

(22) Monetary policy: Is the manipulation of interest rates to influence the movement of AD and overall level of economic activity

(23) Multiplier: An initial increase in injection which will lead to a larger secondary increase in AD

(24) Productivity: Output per worker/ unit of input

(25) Supply side policies: Policies to influence the movement of AS by increasing the productive capacity of an economy

(26) Employment rate: Percentage of people who are willing and able to work who are in employment

(27) Unemployment rate: Percentage of people who are willing and able to work but not in employment