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Macroeconomics Glossary
The definitive resource for all your keywords in Paper 2. Mastering these key definitions is your first step towards exam success.
Module 3 - Economic Objectives and the Role of Government: Topics 3.1-3.4
3.1 Economic GrowthÂ
Economic Growth
 Sustained growth in the GDP or value of output of an economy over time
Gross Domestic Product (GDP)
The value of goods and services produced by an economy over a period of time
GDP per Capita
The total national income of an economy divided by the population Â
Short-term Economic Growth
The actual annual percentage change in GDP or value of output
Long-run Economic Growth
An increase in the productive capacity of an economy, caused by an increase in the quality or quantity of the factors of production
3.2 Low Employment
Employment
The use of labour to produce goods and services in an economy
Full Employment
When an economy is using all of its workers to produce an output with no cyclical unemployment, which is very hard to achieve
Unemployment
When people who are willing and able to work at current wage rates, actively seeking work and of working age are unable to find a job
Rate of Unemployment
The percentage of the active labour force that is unemployed, calculated using (unemployed/active labour force) x 100
Level of Unemployment
The number of people in an economy that are unemployment
Claimant Count
A method of measuring employment, which counts the number of people who claim unemployment benefits
Frictional Unemployment
Unemployment caused by 'time lags' when workers switch jobs which shows worker confidence in the economy and allows workers to be matched to the correct jobs
Cyclical Unemployment
Demand-deficient unemployment caused by a lack of demand in the economy due to the normal upswings and downswings of the economy
Seasonal Unemployment
When workers are unemployed at different parts of the year due to fall in demands in certain seasons
Structural Unemployment
Unemployment caused by a long term shift in the structure of an economy such as a permanent decline of an industry
3.3 Fair Distribution of Income
Income
A flow of money over time, referring to the rewards from the factors of production
Wealth
A stock of assets owned by someone at a particular point in time
Distribution of wealth/income
How wealth/income is shared out between individuals and households in an economy
3.4 Price Stability
Price Stability
When the general price level is stable or growing at an acceptably slow rate (2%±1% is the Bank of England's target)
General Price Level
A measure of the overall average price level of goods and services in an economy at a particular point in time
Inflation
The sustained rise in the general price level of an economy over time causing a decrease in the purchasing power of money
Rate of Inflation
The percentage rise in the general price level over time
Cost of Living
The price level of goods and services bought by the average family
Module 3 - Economic Objectives and the Role of Government: Topics 3.5-3.8
3.5 Fiscal Policy
Budget
A budget shows an individual or economic group's expenditure and revenue, and is either in deficit, surplus or balanced.
Direct Taxation
A tax placed on income or wealth such as income tax or corporation tax
Indirect Taxation
A tax placed on spending or goods and services such as VAT or excise duty
Fiscal Policy
The use of government spending and taxation to influence economic activity
Expansionary Fiscal Policy
When the government lowers taxation or increases spending to achieve economic growth and low unemployment
Contractionary Fiscal Policy
When the government increases taxation or decreases spending to maintain price stability or a healthier balance of payments
3.6 Monetary Policy
Monetary Policy
The control of a money's supply and interest rates by a central bank in order to achieve economic objectives, mainly price stability
Expansionary Monetary Policy
The use of quantitative easing or lowered interest rates by a central bankÂ
Contractionary Monetary Policy
The use of quantitative tightening or increased interest rates by a central bank
3.7 Supply Side Policy
Supply-side Policy
A government policy aimed at increasing the productive capacity of an economy and shift LRAS to the right, by increasing the quality or quantity of the factors of production
3.8 Limitations of Markets
Boom
A period of high economic activity and high levels of employment with lots of economic growthÂ
Recession
A period of time where the country's GDP falls for two or more consecutive quarters (i.e. 6 months or more)
Externality
A benefit or cost of economic activity on a third party
Positive Externality (external benefit)
A benefit of an economic activity on a third party
Negative Externality (external cost)
A cost of an economic activity on a third party
State Provision
When the government produces a good with a positive externality, because it is underproduced and underconsumed
Legislation
A government law that controls the way that people behave
Regulation
A government directive or order that controls the way that people behaveÂ
Subsidy
A payment from a government to a producer in order to reduce their cost of production and incentivise them to increase production
Information Provision
When the government provides information to encourage people to change the way that they behave and can encourage/discourage consumption
Module 4 - International Trade and the Global Economy
4.1 International Trade
International Trade
The exchange of goods and services between different countries, comprising of imports and exports
Free Trade
The free movement of goods and services between countries without any restrictions such as quotas or tariffs
Imports
Goods and services bought from abroad
Exports
Goods and services sold abroad
Absolute Advantage
When a country specialises in producing a good/service that they can produce the most efficiently and with the least resources
Comparative Advantage
When a country specialises in producing a good/service that they can produce with the least opportunity cost
Tariffs
A protectionist policy that involves placing taxes on imported goods/services
Quotas
A protectionist policy that involves placing a strict, fixed limit on how much of a goods/service can enter a country
4.2 Balance of Payments
Balance of Payments
A document that consists of all the financial transactions between one country and the rest of the world, including the current account, financial account, capital account, and net error and emissions.
Current Account
The current account records the trade in goods and services, income flows and transfers between one country and the rest of the world and is part of the balance of payments
Balanced Current Account
When the sum of exports of goods and services and inflows of transfers and income flows are the same as the sum of imports of goods and services and outflows of income flows and transfers
Current Account Deficit
When the sum of exports of goods and services and inflows of income flows and transfers are less than the sum of imports of goods and services and outflows of income flow and transfers
Current Account Surplus
When the sum of exports of goods and services and inflows of income and transfers are greater than the sum of imports of goods and services and outflows of income flow and transfers
4.3 Exchange Rates
Currency
The system of money used in a country or group of countries such as the euro or pound
Exchange Rates
The value of one currency in comparison to another
4.4 Globalisation
Globalisation
The expansion of world trade in goods and services together with capital flow, which increases international competitiveness
Development
The process of improving people's quality of life and wellbeing over time
Developed Country
A country with a higher GDP per capita, and developed industry and service sectors
Developing/less developed Country
A country with a low GDP per capita, lower levels of industrialisation and weaker indications of well being