Economic Growth – an increase in either actual or potential GDP/output GDP – Gross Domestic Product – measures all expenditure in the economy. Real (constant prices) – this removes the effects of inflation Nominal (current prices) – this includes the effects of inflation Unemployment – people who are willing and able to work but who do not have a job. Frictional unemployment – people who are in-between jobs
Structural unemployment – a permanent decrease in the demand for a certain type of labour, this could be due to changes in consumer tastes, declining industry or new technologies. Cyclical unemployment/ demand-deficient unemployment/ Keynesian unemployment – this is due to cyclical downturns in the economy. Seasonal unemployment – jobs which are seasonal in nature e.g. ski instructors, this leads to increases in unemployment during the “off” season. Classical unemployment – unemployment due to trade unions and minimum wages. Inflation – a sustained increase in the average price level in the economy. Demand-pull inflation – inflation due to excess demand in the economy. Cost-push inflation – inflation due to increases in costs of production Aggregate demand – this measures all of the demand in the economy and can be calculated as consumption (C) + inflation (I) + government spending (G) + (Exports (X) – Imports (M)) Aggregate supply – measures all supply in the economy – remember there are two different theories for long run aggregate supply Demand-side policies – these are policies which manipulate aggregate demand. Fiscal policy – this is concerned with government spending and taxation Monetary policy – this is concerned with interest rates
Supply-side polices – these are polices which attempt to increase aggregate supply Withdrawals – this is money which leaves the circular flow – for example taxation, savings and exports Injections – this is money which enters the circular flow – for example, government spending, investment and imports...
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