Macro

• Consumer Price Index (CPI)

  a measure of the overall change in the cost of goods and services bought by a typical consumer year by year

  
• Export-Commodity Dependant


  when more than 60% of a country's total merchandise exports are composed of primary commodities (raw materials)
• Economic Growth


  an increase in real GDP
• Real GDP


  the real value of goods and services produced in an economy within a given period of time

  
• Four Main Government Objectives

  - sustainable economic growth

  - stable inflation

  - low unemployment

  - balance of payments
• Inflation


  a persistent increase in the general price level over a period of time
• Unemployment


  someone who actively seeking a job but is currently without one
• Two Main Measures of Unemployment

  - Claimant Count : made up of people who are seeking Job Seekers' Allowance

  - International Labour Organisation (ILO) Labour Force Survey : measures those who have been seeking work for four weeks and ready to work within two weeks
• Labour Productivity


  the output per worker per hour worked
• Calculating Index Numbers


  new value / base year value x 100
• National Income (National Output)

  the total income earned by the factors of production owned by a country's citizens
• Limitations of National Income Data (2)

  - ignores distribution of income

  - ignores population size
• Nominal GDP


  GDP measured in current prices
• Purchasing Power Parity


  a monetary measurement of development that takes into account what money buys in different countries
• Shadow Economy


  an informal economy in more developed countries that is not regulated by local government
• Sustainability


  to ability to meet the needs of the present without compromising the ability of future generations to meet their own needs
• Arbitrage


  the process of buying a good at a low price in one country and selling it at a higher price in another country
• Uses of PPP (2)

  - good comparison of living standards in different countries

  - track changes in exchange rates
• Circular Flow of Income

  economic model that pictures income as flowing continuously between businesses and consumers

  
• Factors of Production


  households own the factors of production needed by firms to produce goods, so firms pay households to use them

  - labour is paid for in wages

  - land is paid for in rent

  - capital is paid for in interest
• Injections into the Circular Flow

  - investment (I)

  - government spending (G)

  - exports (X)
• Leakages from the Circular Flow

  - savings (S)

  - taxes (T)

  - imports (M)
• if injections exceed leakages...


  then the circular flow of income will expand and so national income will rise
• if leakages exceed injections...

  then the circular flow of income will shrink and so national income will fall
• Animal Spirits


  the state of confidence held by consumers and businesses within the economy
• Aggregate Demand


  the total demand for final goods and services in an economy at a given time
• Aggregate Demand Formula


  AD = Consumption (C) + Investment (I) + Government Spending (G) + Net Exports (X-M)
• Multiplier Effect


  when an increase in spending produces an increase in national income and consumption greater than the initial amount spent
• Accelerator Effect


  the tendency for investment to increase when aggregate output increases and to decrease when aggregate output decreases, accelerating the growth or decline of output
• Investment in Physical Capital

  expenditure by firms on plant and machinery
• Investment


  expenditure that increases the capital stock of a country
• Investment in Humans Capital

  expenditure by firms on the skills of its workers e.g. training programmes
• Current Spending


  spending on state-provided goods & services e.g. benefits
• Capital Spending


  long-term spending that increases the productive capacity of the economy e.g. infrastructure projects
• Saving


  income not used for consumption
• Short Run Aggregate Supply


  the total amount of goods and services that all firms are willing and able to produce within the economy

  
• Long Run Aggregate Supply


  shifts when there is a change in long run productive capabilities of the economy (economic growth)

  
• Equilibrium


  the price at which quantity demanded is equal to quantity supplied

  
• Keynesian LRAS


  At low levels of economic activity, the LRAS is elastic. Towards full employment, output is maximised and the LRAS is inelastic. At this point, the LRAS can not be increased without an increase in quantity or improvement in quality of the factors of production

  
• Limiting Factor


  the factor of production in limited supply, preventing further expansion