Economics Paper 2 Definitions

• GDP

  The total value of final goods and services produced in a country in a year
• GDP per capita

  Total GDP of country divided by its population
• Economic growth

  The change in a country's level of real GDP over time (annual or quarterly)
• Rate of growth of GDP

  change in GDP/original GDP X 100
• Short run economic growth

  Refers to growth in actual real GDP, usually arising from increases in AD
• Long run economic growth

  Means that there is an increase in the productive capacity of the economy, usually due to an increase in the quantity and quality of FoP
• Working age population

  Those aged between 16-64
• Economically active/labour force /work force

  Those of working age who are willing and able to work
• Economically inactive

  People of working age who aren't able and/or not willing to work
• Unemployed

  Part of the labour force without paid work, available for work, and actively seeking employment at the going wage rate
• Level of unemployment

  Refers to the number of people in the working population or labour force who are unemployed
• Unemployment rate

  Refers to the percentage of the working population or labour force who are unemployed
• Rate of unemployment

  Unemployed/Workforce X 100
• Cyclical Unemployment

  Is unemployment caused by a lack of aggregate spending in the economy. It is also known as demand-deficient unemployment
• Structural unemployment

  Is unemployment caused by a change in the structure of the economy which leads to a decline in certain industries
• Frictional unemployment

  Is short-term type of unemployment which occurs when workers are 'between jobs'
• Seasonal unemployment

  Is caused by the seasonal variation of demand in certain industries or sectors of the economy
• Occupational mobility of labour

  The ability or willingness of workers to move to a job in a different industry, which is likely to require a different set of skills
• Geographical mobility of labour

  The ability or willingness of workers to move to a job in a different region. (Likely influenced by factors such as transport system)
• Income

  All payments received by an individual or a household over time, and is a flow variable
• Wealth

  The market value of the total stock of assets owned by an individual or household at that specific point in time
• Income distribution

  Measures how the total income of the economy is shared out among its people
• Gross income

  Income from all sources before any taxes are paid or transfer payments are added
• Net income

  Income after direct taxes and benefits are taken into account
• Absolute poverty

  Characterised by a sever deprivation of human needs, including food, safe drinking water, sanitation facilities and shelter
• Relative poverty

  In the UK, is a measure of the percentage of the population living on less than 60% of median income
• Inflation

  A sustained increase in the average price level of an economy over a given period of time. It means that the purchasing power of money falls over time
• Disinflation

  Is an fall in the rate of inflation; the price level is increasing, but at a slower rate
• Deflation

  A sustained decrease in the average price level over a given period of time (it is negative inflation)
• Hyperinflation

  Means a very high rate of inflation; prices rise so fast that there is a severe loss of confidence in the value of money
• Price stability

  Means the general price level stays fairly constant over time, implying there is a low rate of inflation in the economy
• Rate of inflation

  The percentage change in the average price level over a period of time
• Inflation rate

  change in price index/price index in the previous year X 100
• Nominal value

  It is something's value in money terms
• Real value

  It shows the amount of good and services that can be bought with a nominal amount. Found by adjusting the nominal value of something for inflation
• Demand-pull inflation

  It occurs when aggregate demand in the economy rises, but the aggregate supply of goods and services doesn't increase to match the increase in demand
• Cost-push inflation

  Is caused by an increase in the cost of production. With firms facing rising cost of production, they raise the price of their products in order to maintain their profits, leading to a rise in the general price level
• Fiscal policy

  Is the use of taxation and government spending to influence the level of economic activity. It can be used to achieve one or more of the government's macroeconomic objectives
• Budget balance

  Measures the difference between government expenditure and tax revenue over a period of time (usually a year)
• Government (public) debt

  Government debt represents the total amount of money owed by the government at a given point in time