Essential Economic Definitions: Macro, Micro, Inflation, and Trade
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Key Economic Terminology and Definitions
Core Concepts in Macro and Microeconomics
- Macroeconomics
- The study of the economy as a whole.
- Microeconomics
- The study of individual parts of the economy.
- Macroeconomics Objectives
- The aims of a government relating to key economic performance indicators such as economic growth, inflation, and unemployment.
- National Income
- The value of income, output, or expenditure over a period of time.
- GDP (Gross Domestic Product)
- An internationally recognized measure of national income.
Understanding Economic Cycles and Output
- Economic Growth
- The increase in national income over time.
- Downturn
- A period in the economic cycle where GDP grows, but more slowly.
- Recession
- A less severe form of depression.
- Depression or Slump
- The bottom of the economic cycle where GDP starts to fall with significant increases in unemployment.
Aggregate Demand, Price Levels, and Inflation
- Aggregate Demand
- Total demand in the economy, including consumption, investment, government expenditure, and exports minus imports.
- Inflation
- A general and persistent rise in prices.
- Deflation
- A period where the level of aggregate demand is falling.
- Purchasing Power of Money
- The amount of goods and services that can be bought with a fixed sum of money.
- Monetarists
- Economists that believe there is a strong link between growth in the money supply and inflation.
Types of Inflation
- Cost-Push Inflation: Inflation caused by rising business costs.
- Demand-Pull Inflation: Inflation caused by too much demand in the economy relative to supply.
- Money Supply Inflation: Inflation caused by rapid growth in the money supply.
Measures of Inflation and Price Levels
- CPI (Consumer Price Index)
- A measure of the general price level (excluding housing costs); used in the UK and across the Eurozone.
- RPI (Retail Price Index)
- A measure of the general price level which includes house prices and council tax.
- Index Linking
- Where certain government payments are linked to increases in the RPI.
Employment, Unemployment, and Labor Markets
- Unemployment
- When those actively seeking work are not able to find a job.
- Voluntary Unemployment
- Unemployment resulting from people choosing not to work.
Key Types of Unemployment Defined
- Cyclical Unemployment: Unemployment caused by falling demand as a result of a downturn in the economic cycle.
- Frictional Unemployment: When workers are unemployed for a short period of time as they move from one job to another.
- Seasonal Unemployment: Unemployment caused when seasonal workers, such as those in the holiday industry, are laid off because the season has ended.
- Structural Unemployment: Unemployment caused by changes in the structure of the economy, such as the decline in an industry.
International Trade and Balance of Payments
- Balance of Payments
- A record of all transactions relating to international trade.
- Current Account
- Part of the balance of payments where all exports and imports are recorded.
- Balance of Trade
- The difference between visible exports and visible imports.
- Exports
- Goods and services sold overseas.
- Imports
- Goods and services bought from overseas.
- Visible Trade
- Trade in physical goods.
- Invisible Trade
- Trade in services.