AS REVISION: Chapter Four

Aggregate demand is the total demand for a country’s goods and services at a given price level and in a given time period.

AD = C + I + G + (X-M)

Price level is the average of each of the prices of all the products produced in an economy.

Consumer expenditure is the spending by households on consumer products.

Investment is spending on capital goods.

Government spending is spending by central government and local government on goods and services.

Exports are products sold abroad.

Imports are products bought from abroad.

Net exports is the value of exports minus the value of imports.

Transfer payments is money transferred from one person or group to another not in return for any good or service.

Job seeker’s allowance is a benefit paid by the government to those unemployed and trying to find a job.

Trade surplus is the value of exports exceeding the value of imports.

Trade deficit is the value of imports exceeding the value of exports.

Consumer confidence is how optimistic consumers are about future economic prospects.

Rate of interest is the charge for borrowing money and the amount paid for lending money.

Average propensity to consume (APC) is the proportion of disposable income spent. It is consumer expenditure divided by disposable income.

Net savers are people who save more than they borrow.

Wealth is a stock of assets, e.g. property, shares and money held in a savings account.

Distribution of income is how income is shared out between households in a country.

Inflation is a sustained rise in the price level.

Saving is real disposable income minus spending.

Average propensity to save (APS) is the proportion of disposable income saved. It is saving divided by disposable income.

Target savers are people who save with a target figure in mind.

Dissave is spending more than disposable income.

Savings ratio is savings as a proportion of disposable income.

Capacity utilization is the extent to which firms are using their capital goods.

Corporation tax is a tax on firms’ profit.

Retained profits are profits kept by firms to finance investment.

Unit cost is the average cost per unit of output.

Real GDP is the country’s output measured in constant prices and so adjusted for inflation.

Gross Domestic Product (GDP) is the total output of goods and services produced in a country.

Exchange rate is the price of one currency in terms of another currency.

Tarrif is a tax on imports.

Government bond is a financial asset issued by the central or local government as a means of borrowing money.

Aggregate supply is the total amount that producers in an economy are willing and able to supply at a given price level in a given time period.

Productivity is output, or production, of a good or service per worker per unit of a factor of production in a giver time period.

Privatisation is the transfer of assets from the public to the private sector.

Macroeconomic equilibrium is a situation where aggregate demand equals aggregate supply and real GDP is not changing.

Circular flow of income is the movement of spending and income throughout the economy.

Factor services are the services provided by the factors of production.

Leakages are withdrawals of possible spending from the circular flow of income.

Injections are additions of extra spending into the circular flow of income.

Multiplier effect is the process by which any change in a component of aggregate demand results in a greater final change in real GDP.

Overheating is the growth in aggregate demand outstripping the growth in aggregate supply, resulting in inflation.

Output gap is the difference between an economy’s actual and potential real GDP.

Trend growth is the expected increase in potential output over time.