U2 Definition part I

• Definition of GDP growth: increase in the real level of national output measured by the annual
percentage change in real GDP.
• GDP defined as C + I + G + (X – M)
• Definition of real GDP growth: the percentage annual increase in the value of a country's output
of goods and services over a period of time adjusted for inflation. Real GDP growth is used to
measure percentage change in economic activity.
• Nominal GDP growth: the percentage annual increase in the value of a country's output of
goods and services over a period.
• Definition of economic growth: annual increase in real GDP. Increase in total value of output
produced within the boundaries of a country. Increase in productive potential.
• GDP per capita is GDP divided by the population of a country.
• Definition of Recession: an economy has experienced negative economic growth over at least
two consecutive quarters.
• Definition of inflation: sustained increase in the average price level
• Definition of deflation: sustained decrease in average price level
• Definition of disinflation: a fall in the rate of inflation
• Definition of CPI: a weighted measure of the average price level of goods and services in an
economy.
• Definition of unemployment: according to the ILO measure, are those without a job, who
want a job, have actively looked for work in the last four weeks and are available to start work
in the next two weeks.

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• Definition of Budget balance: refers to relationship between tax revenues and government
expenditure
• Definition of budget deficit: government expenditure greater than tax revenues
• Definition of budget surplus: tax revenues greater than government expenditure
• Definition of exchange rate is one currency expressed in terms of another
• Definition of interest rate is the price paid for borrowing money or reward for saving.
• Definition of base interest rate ： the rate that the central bank will charge to lend money to
commercial banks.
• Quantitative easing (QE): Actions of the central bank in buying government bonds from
commercial banks to increase money supply.
• Definition of demand-side policies are policies designed to increase consumer demand, so that
total production in the economy increases.
• Definition of supply-side policies aim to improve the long run productive potential of the
economy.
• Definition of monetary policy is used by the central bank to control the money flow of the
economy. This is done with interest rates.
• Definition of fiscal policy: use of taxation and government expenditure to influence the level of
economic activity
• Definition of circular flow of income: flow of goods and services between households and firms
and their corresponding payments in money terms
• An injection is an inflow into the circular flow of income. Injections include investment,
government expenditure and exports.
• A withdrawal is an outflow from the circular flow of income.Withdrawals include savings,
taxes and imports.
• Definition of net withdrawal: reduction to the circular flow of income
• Definition of HDI: a composite statistic of life expectancy, education, and income index
• Definition of wellbeing: measures factors such as happiness/health/quality of life
• Definition of subjective happiness: value people place on wellbeing.
• Definition of wealth effect: as the value of assets increases consumer spending increases
• Definition of real wage growth: increase in wages, adjusted for inflation
• Definition of real income: income adjusted for inflation
• Definition of negative output gap: when real output below potential output
• Definition of positive output gap: when real output above potential output
• Definition of depreciation: a fall in the value of a currency in a floating exchange rate
• Definition of appreciation: a rise in the value of a currency in a floating exchange rate
• Definition of macroeconomic objective: The main aims or goals of macroeconomic policy.
Examples of increased economic growth, control of inflation, a reduction in unemployment,
equilibrium of the Balance of Payments, balanced budgets, redistribution of income, protection of
the environment.
• Definition of multiplier: multiplier = 1/(1-MPC)
• MPC: marginal propensity to consume, the proportion of a change in income that spent.
• MPS: marginal propensity to save, the proportion of a change in income that is saved.
• Definition of MPM: Marginal propensity to import measures the amount of additional income
spent upon imports rather than domestically produced goods and services. Formula:MPM = Δ

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imports/ Δ income
• Definition of Spare capacity: actual GDP growth is below potential GDP growth
• Phillips curve used to illustrate trade-off between inflation and unemployment/inverse
relationship between low inflation rate and full employment
• Net migration: immigration minus emigration
• Savings ratio: the proportion of total disposable income that is saved. Total savings/Total
disposable income. High savings ratio lowers consumption and aggregate demand.
• Indirect tax: a tax levied by the government on goods and services that can be passed onto the
consumer
• Purchasing power parity(PPP) ： PPP measure the total amount of goods and services that a
single unit of a country’s currency can buy in another country. PPP eliminate price level
differences across countries
• Foreign direct investment(FDI):the transfer of funds from one country to another to purchase
physical capital. An injection into an economy coming from abroad
• Living standards: an individual’s quality of life
• Positive economic growth rate shows the percentage increase in real GDP over a given period
of time
• Negative economic growth rate shows the percentage decrease in real GDP over a given period
of time
• Availability of credit: increase in willingness for banks to lend. • If available credit rises there
are more funds available for loans. Banks will be able to lend more money to businesses,
increasing the level of investment in the economy. (Consumption)
• Gross investment: the addition to capital stock, both to replace the existing capital stock, which
has been used up (depreciation), and the creation of additional capital.
• Net investment gross: investment minus depreciation.
• Gross national income (GNI) the value of the goods and services produced by a country over a
period of time (GDP) plus net overseas interest payments and dividends (factor incomes).
• Standard of living how well off is an individual, household or economy, measured by a
complex mix of variables such as income, health, quality of job and the quality of environment.
• Subjective happiness is used when an individual rate their happiness by giving it a score, based
on their self-evaluation of happiness. Income health, education, safety may affect our happiness or
well-being.
Value/volume of national income the value of national income is its money value at the prices of
the day; the volume is national income adjusted for inflation and is expressed either as an index
number or in money terms at the prices in a selected base year.国民收入的价值是按当日价格计
算的货币价值；该数量为经通胀调整的国民收入，以指数或选定基准年价格的货币表示。
• A negative output gap occurs when the actual level of output is less than the potential level of
output.It usually means there is the unemployment of resources in an economy, so labour and
capital are not used to their full productive potential. This means there is a lot of spare capacity in
the economy. This puts downward pressure on inflation.
• A positive output gap occurs when the actual level of output is greater than the potential level
of output. It could be due to resources being used beyond the normal capacity, such as if labour
works overtime. If productivity is growing, the output gap becomes positive. It puts upwards
pressure on inflation.

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• Reflationary policies: Fiscal or monetary policies aimed at increasing AD
• Deflationary policies: Fiscal or monetary policies aimed at reducing AD
• Expansionary fiscal policy: a rise in the budget deficit or a fall in the budget surplus is likely to
increase AD
• Contractionary fiscal policy: a fall in the budget deficit or a rise in the budget surplus is likely
to decrease AD
• Productivity is output per unit of input employed. Labour productivity is output per worker.
Labour productivity is often measured as GDP per hour worked. Capital productivity is output per
unit of capital employed.
• Public finance is tax revenue minus government spending.